Analyst: Netflix, Prime Video Well-Positioned to See Revenue Gains From Advertising Later This Year

With Netflix about a year into offering ad-supported paid streaming, and rival Prime Video joining the fray in January, new data from Wedbush Securities suggests the two streamers could see positive revenue from advertising by 2025.

The Wall Street firm recently hosted a forum featuring advertising executive Sean Adams with GumGum, a platform for advertisers that provides intel, ad creatives, measurement, and optimization for online ad campaigns.

Adams expects that the growth of ad-supported video-on-demand (AVOD) distribution, increased programmatic ad buying, and advancements in ad measurement effectiveness to drive continued growth in the sector.

The executive contends that Netflix’s $6.99 monthly ad-supported SVOD option is gaining traction among consumers as it expands its capabilities by developing partnerships beyond Microsoft (i.e. Amazon’s CTV platform) that enhance its ability to analyze consumer data and offer more refined measurement and return on investment to marketers.

“The Netflix ad tier has to drive at least $9.66 in monthly-per-user ad revenue to be financially accretive,” Wedbush wrote, adding that it expects the streamer to generate $8 in average revenue per user by the fourth quarter.

“Netflix appears to be developing partnerships across a variety of CTV platforms, including Google/Android, Roku, Samsung, Vizio, and LG, among others,” read the report.

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E-Marketer recently published its latest U.S. connected TV ad spending growth estimates, which project 19% year-over-year revenue growth from 2023, and double-digit annual growth until 2028.

Adams said he believes Prime Video is starting its ad-supported streaming platform with “significantly more” ad-supported subscribers and inside data than Netflix, based the Amazon’s global Prime ecommerce platform.

“We think the Prime Video opportunity could result in $6.5 billion in
incremental advertising revenue for Amazon globally, while eMarketer estimates Prime Video ads could generate $3.88 billion by 2025 in the U.S. alone,” Wedbush wrote.

“As CTV offers more intelligent ad placements and analysis than traditional television, CTV ad spending is catching up and should surpass traditional TV by the end of the decade,” Adams said. “We think the proliferation of free ad-supported TV (FAST), along with sports increasingly shifting to over-the-top (OTT) options will accelerate the shift of ad dollars.”

Indeed, both Netflix and Prime Video are approaching live sports, with the latter heavily invested in the NFL’s “Thursday Night Football,” among other sports. Netflix in July will live-stream an exhibition boxing match between former heavyweight champ Mike Tyson and cruiserweight Jake Paul.

Netflix reports first quarter (ended March 31) fiscal results April 18.

Analyst: Netflix Will Add 8.5 Million Q1 Global Subs, Including Upwards of 2 Million in North America

Netflix is projected to add 8.5 million global subscribers in the first quarter (ending March 31), including upwards of 2 million net new subs in North America, according to new data from Wedbush Securities media analyst Michael Pachter.

Netflix, which added more than 13 million subs in the fourth quarter, ended 2023 with more than 260 million subs worldwide, including more than 80 million subs in North America.

Michael Pachter

Citing a proprietary survey of more than 1,120 respondents, of which 60% were Netflix subscribers, Pachter contends that while sub growth cooled in Q1, the streamer’s lower-priced ad-supported option is bringing in new subs, while also attracting returning subscribers.

“Netflix continues to benefit from former account-sharers, at least 13% of whom opted to pay more for the extra-member feature post-crackdown, resulting in higher ARPU (average revenue per user),” Pachter wrote in a March 27 note.

The analyst believes that another 10% of former Netflix subs illegally sharing their account password kicked off the freeloaders, many of whom, Pachter says, have signed up or will sign up for their own accounts in the coming quarters.

“We think this quarter’s survey results once again show remarkable subscriber retention, and continued desire for the premium tier, and consistent retention for the ad-tier,” Pachter wrote.

The analyst contends that 23% of subscribers who did not renew service in the past month are “definitely” planning to re-start their subscriptions, while 31% are “likely” to re-start their subscriptions over the next three months. On the flipside, 25% of former subs are “not likely” to re-start their service, with another 20% “definitely not” re-starting service over the next three months.

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“In other words, those who recently churned out of the service are more likely to return in the next quarter than those who churned out more than
one quarter ago,” Pachter wrote.

Netflix reports first quarter fiscal results on April 18.

Analyst: Netflix Remains the Gold Standard Among SVOD Platforms Heading Into 2024

Four of the studio-backed subscription streaming video services — Disney+, Paramount+, Max and Peacock — may reach profitability in the next 18 months, according to an Ampere study, but that’s a distinction market pioneer Netflix has held for more than a decade. The streamer’s last quarterly loss occurred in Q1 2012.

Heading into 2024, Netflix is firing on all cylinders balancing market saturation, putting the brakes on content spending, and mining incremental subscriber acquisitions (and lowered churn) through shared account options.

It’s enough to make former Netflix bear — Wedbush Securities media analyst Michael Pachter — sing continued bearish praise for the SVOD pioneer.

“We think Netflix has reached the right formula with its global content to balance costs and generate increasing profitability, while the password sharing crackdown, and eventually its ad-supported tier, should further
boost cash generation,” Pachter wrote in a Dec. 21 note.

The analyst expects Netflix to add 25.2 million global subscribers in 2023, including 1.5 million in North America (8.75 million globally) in the fourth quarter, ended  Dec. 31. Pachter expects subscription growth to decline to 19.3 net additions annually through 2025.

Citing a proprietary consumer survey, Pachter found that only 2% of premium tier subscribers plan to cancel service in the next three months, while 5% of current subs identified as premium plan to switch to the lower-cost ad-supported tier in the next three months.

Overall, just 3% of current Netflix subscribers plan to cancel in the next three months, compared with 2% in Q3, 5% in Q2, and 3% in Q1.

“We think this is aligned with typical seasonality,” Pachter wrote.

Notably, the analyst found that 29% of respondents who had canceled service were “definitely” planning to re-start their subscriptions. Of those who had subscribed to Netflix in the past, but not within the last three months, 8% were planning to re-start in the next 90 days.

“In other words, those who recently churned out of the service are more likely to return in the next quarter than those who churned out more than one quarter ago,” Pachter wrote.

FTC Loses Final Attempt to Stop Microsoft’s Activision Acquisition; U.K. Remains Last Obstacle

On July 14, the U.S. Court of Appeals for the Ninth Circuit denied the Federal Trace Commission’s appeal of a district court decision refusing to issue an injunction in Microsoft’s pending $69 billion acquisition of Activision Blizzard and its “Call of Duty” franchise that dominates the video game market.

The FTC had asked the appeals court for a temporary pause on the July 18 termination date where Microsoft or Activision could walk away from the deal (and Microsoft pays Activision a $3 billion dollar separation fee). Last week, the U.S. District Court in San Francisco denied the FTC’s motion for a preliminary injunction during the federal government’s review process continued, with the trial set to begin on Aug. 2.

In addition, the S.F. court modified its temporary restraining order unless the FTC was able to obtain a stay from the Ninth Circuit Court of Appeals. The FTC did not get that stay, and the restraining order has now expired. The U.K.’s regulatory “Competition and Markets Authority” ruling remains the lone obstacle to consummation of the deal.

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In response to the appeals court decision, U.K. regulators said they would be open to reviewing a restructured deal, extending its final decision from July 18 to Aug. 29, in order to receive “a detailed and complex submission from Microsoft claiming that there are material changes in circumstance.”

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, remains confident Microsoft can operate its Game Pass subscription business in the United Kingdom separately and will receive the CMA’s approval.

Even Sony Interactive Entertainment, a major objector to the deal, has reportedly accepted the reality of Activision Blizzard being owned by one its largest competitors. On July 16, Phil Spencer, CEO of Microsoft Gaming, tweeted that Microsoft and PlayStation had signed a binding agreement to keep Call of Duty on the PlayStation platform.

“The most likely change, if any, could be the extension of the termination date through Aug. 29,” Pachter wrote in a July 17 note. “It is also possible that the $95 per share deal price could be increased to $99 or more to account for the termination fee if the deal is terminated due to an injunction by July 18.”

Analyst: Netflix to Top Fiscal Q2 Results Guidance, Including Adding 2 Million Global Subs

Analyst Michael Pachter, with Wedbush Securities in Los Angeles, remains bullish on Netflix heading into its July 19 second-quarter fiscal results report.

Citing a commissioned third-party survey, Pachter says there is improved consumer awareness and uptake of Netflix’s lower-priced advertising subscription tier, in addition to a positive overall reception to the SVOD behemoth’s password-sharing crackdown.

Michael Pachter

Pachter said he believes Netflix will add 2 million global subs, ahead of industry guidance of 1.75 million new subs. The analyst is projecting 200,000 new subs in North America, along with $8.242 billion in quarterly revenue vs. Wall Street consensus of $8.276 billion.

“We think there could be meaningful upside to our estimates and guidance with what appears to be solid uptake of Netflix’s proposed family plans after its recent password-sharing crackdown,” Pachter wrote in a July 14 note. “We think Netflix’s Q2 earnings results will meet or exceed Street expectations, and we expect shares to rise.”

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Specifically, the analyst believes Netflix could see an additional $8 in average revenue per user (ARPU) through the addition of both the ad-supported tier and shared-password crackdown.

“We think Netflix is well-positioned in this murky environment as streamers are shifting strategy, and should be valued as an immensely profitable, slow-growth company,” Pachter wrote. “Even while the ad-supported tier is not yet directly accretive, the ad-tier should continue to reduce churn and draw new subscribers to the service.”

Longtime Netflix Bear Analyst Turns Bullish on Streamer’s Q4 Fiscal Results

Wedbush Securities media analyst Michael Pachter is changing his tune on the future of Netflix. The Los Angeles-based analyst, previously bearish on the streamer’s prospects, now believes its recently-launched lower-cost ad-supported subscription plan should limit churn (non-renewing subs) going forward, while its content strategy appears to be “smoothing out with greater discernment” and a higher mix of original titles.

Michael Pachter

“We think Netflix is poised for significant free cash flow growth in the coming years,” Pachter wrote in a Jan. 17 note.

Indeed, while Wall Street consensus expects Netflix to miss its Q4 subscriber growth guidance of 4.5 million with 4.1 million new additions, Pachter expects the company to exceed guidance by as much as 300,000 subs at 4.8 million, including 1.5 million new North American subs.

“While our [North American] estimate may prove too high, we are confident that Netflix has seen monthly churn of more than 1 million gross subscribers in the region,” Pachter wrote.

The analyst is basing much of his optimism on a commissioned survey of 1,001 respondents, which found that 27% of respondents had switched to the ad-supported option. Notably, 9% of respondents stated that they tried the ad tier but switched back to the ad-free premium tier.

Pachter admits upfront to multiple “guesses” in the analysis regarding the starting point for the subscriber impact of Netflix’s ad-supported tier, which he believes will become more refined following the Jan. 19 fiscal call.

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“For now, we will simply state that it is easy for Netflix to achieve ‘positive or break-even’ results should current subscribers trade ‘down’ to the new tier,” the analyst wrote.

Pachter has made a career bucking conventional wisdom when it comes to Netflix. Instead of piling on the SVOD pioneer’s bandwagon, Pachter has pumped the brakes, questioning the service’s free cash flow and hidden costs, among other concerns.

That caution resulted in Pachter being named the stock picker of 2022 (out of 10,000 stock calls analyzed) for “outstanding ability to be able to valuate in a timely manner with both long and short calls” on Netflix’s stock price, according to AnaChart, a New York-based equity research support platform. Pachter hailed the call-out as “pretty flattering” in light of Wall Street’s cut-throat mindset.

Netflix Leaving Hundreds of Millions of Dollars on the Table With ‘Knives Out’ Sequel Release Strategy

NEWS ANALYSIS — Netflix made waves this year when it announced it would release a handful of original movies with limited exclusive theatrical windows. It was a major move (or concession) for the world’s largest subscription service that has steadfastly turned a cold shoulder to theatrical exhibitors in favor of a “streaming first” mindset.

Netflix’s first major exclusive theatrical release was the Nov. 23 debut of Glass Onion: A Knives Out Mystery, the expensive follow-up to the 2019 box office hit Knives Out, also featuring Daniel Craig as the awkwardly accented detective Benoit Blanc, and elevating Ana de Armas into a global star.

After spending a reported $450 million securing the rights to the sequel and a third movie, it seemed logical Netflix would release the movie in theaters exclusively to recoup some of that spending. But Netflix continues to ignore conventional norms.

Glass Onion was released in less than 700 screens across AMC Theatres, Regal and Cinemark over the Thanksgiving weekend resulting in an estimated $13 million box office. Netflix has not officially released any theatrical financials. While the tally was almost big enough to supplant Disney’s disappointing animated debut of Strange World ($18.8 million), the movie could have likely won the holiday box office outright given a wider release of 4,000 screens.

“Most likely, they did around 25% of what they could have done, so maybe a $60 million opening weekend,” Michael Pachter, media analyst with Wedbush Securities in Los Angeles, wrote in an email.

When asked on the fiscal call about the company’s revised approach to movie distribution, Netflix co-CEO and chief content officer Ted Sarandos quickly reiterated his opinion on theatrical windows. Namely, that Netflix makes movies for its subscribers and prefers they watch them on Netflix.

“I’ll tell you, we’re in the business of entertaining our members with movies on Netflix,” Sarandos said. “So that’s where we focus all of our energy and most of our spend.”

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That leaves Pachter scratching his head.

“Realistically, they probably focused on more urban theater locations where the film would have broader appeal, and likely, some fans drove a ways to get to the theaters,” Pachter wrote. “That extrapolates to $200 million to  $250 million over a normal run in the U.S., double that for global, so $400 million to $500 million total.”

That’s a lot of onions.

Analyst: Netflix Q2 Sub Loss Might Not Be as Big as Everyone Thinks

Netflix has projected it expects to report a net loss of 2 million global subscribers for the fiscal period ended June 30. The sub loss comes on top of a 200,000 net loss in Q1, which resulted in the streamer’s stock price plummeting 70%.

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, doesn’t think the projected Q2 sub loss will be so high.

Why?

The streaming behemoth has riding high on the success of “Stranger Things,” and specifically the staggered release of season four — which has topped viewing charts industrywide.

“While it is possible that the company will once again issue downbeat guidance for Q3, we think that the staggered release dates limited churn at quarter end and once again, Netflix is likely positioned to grow,” Pachter write in a note.

Netflix co-CEO and chief content officer Ted Sarandos turned the industry on its ear in 2013 when the streamer began releasing all episodes of an original season on its debut. Access to all episodes quickly led to the social phenomenon known as binge viewing.

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But as the SVOD market has become saturated and services raise prices, the appeal of binge viewing has also increased subscriber churn, or members not renewing their monthly subscriptions.

So Netflix, like other platforms, has begun to stagger the release of episodes on original programming, most notably award-winning “Stranger Things” and “Ozark.”

Specifically, Pachter believes Netflix saw a global net streaming loss of 1.5 million subscribers (total subs to 220.14 million), as Netflix drove incremental viewership with Stranger Things 4 and likely limited churn by splitting up the content dumps between Q2 and Q3. Given the strong viewership over the course of Q2, the analyst contends subscriber numbers will beat low expectations set by management.

“We think that the sooner the company shows its commitment to reducing churn by releasing its new content over several weeks, investors will see an uptick in net new subscribers and investor confidence in the Netflix business model will be restored,” Pachter wrote.

Netflix reports Q2 fiscal results July 19 after the market close.

Analyst: Netflix Stopping Entire Season Episode Drops Could Curb Subscriber Churn

Netflix recent move to cut new seasons of “Ozark” and “Stranger Things” into half-season premieres, should help the subscription streaming video behemoth reduce churn and sustain its subscriber base, according to Wedbush Securities media analyst Michael Pachter.

In a May 16 note, Los Angeles-based Pachter said halting the pioneering practice of dropping all episodes of an original series on the show’s premiere — a longtime Netflix hallmark — would incentivize subscribers to stick around the service.

Michael Pachter

“We think that the sooner the company shows its commitment to reducing churn by releasing new content over several weeks, investors will see an uptick in subscribers and their confidence in the Netflix business model will be restored,” Pachter wrote.

The analyst contends much of Netflix subscriber growth woes revolve around the saturation of the North American market, which includes the streamer’s first foreign expansion. Specifically, Pachter lauds Netflix’s decision to clamp down on password sharing, which he believes affects 30 million North American subscribers and 100 million globally.

Pachter doesn’t believe Netflix will add more than a few million new customers by charging subscribers who share passwords an additional $2 monthly fee. He thinks the streamer’s plan to adopt an ad-supported subscription option has great potential to drive significant revenue.

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“That said, it could also cannibalize existing customers,” Pachter wrote. “On balance, we think ad-supported subscriptions is a good idea, particularly as a disincentive to churn.”

The analyst added that by raising prices in mature markets, Netflix could drive up its average-revenue-per-user and its level of profitability, allowing the streamer to reinvest profits to continue growing in Latin America and Asia-Pacific markets.

“We are taking [Netflix’s] recent share price weakness as an opportunity to raise our investment recommendation to ‘outperform’ from ‘neutral,'” he wrote. Pachter’s share price target remains at $280. Netflix shares are currently trading around $188 per share.

“We do not believe that Netflix’s share price will approach 2021 levels for many years but think that our price target is achievable within the next 12 months,” Pachter wrote.

Analyst: Chicken Soup Saved Redbox

Redbox Entertainment shares may have fallen 35% in value May 11 since the legacy DVD kiosk vendor announced it would be acquired by Chicken Soup for the Soul Entertainment, operator of the Crackle Plus ad-supported streaming video service, for $375 million in stock.

But Redbox’s digital businesses faced an uncertain future without the fiscal lifeline thrown by Chicken Soup, according to Los Angeles-based Wedbush Securities media analyst Michael Pachter, who says the transaction values Redbox shares around 65 cents per share.

Michael Pachter

Redbox shares, which closed May 10 at $5.60 per share, are now trading at $3.58 in heavy trading.

Pachter believes that despite Crackle Plus being better established within the AVOD market, Redbox’s brand name carries more recognition among consumers. The analyst believes Chicken Soup will be able to meld the streaming service within Redbox TV, in addition to bringing greater resources to digital distribution in a market swamped with big-spending AVOD competitors such as Fox Corp.’s Tubi and Paramount Global’s Pluto TV.

“Redbox’s post-IPO performance did not inspire confidence for its long-term potential, and the company faced bankruptcy without a significant cash infusion,” Pachter wrote in a note. “Had [Chicken Soup] not stepped in… it is unclear how long Redbox would be able to fund its own digital expansion, which is key to its viability as a public company.”

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