Netflix is dealing with a big unsubscribe problem, but one analyst has a different view

Netflix disrupted TV with a streaming service that offered zero ads and practically invented binging with full-season releases.

But desperate times call for desperate measures — even if that means going against your core beliefs and backtracking those decisions.

Netflix has a big unsubscribe problem…

By the end of April, 23% of new Netflix subscribers started and quit the service in the same month — the highest of other major streamers, per research firm Antenna.

But if someone stays subscribed to Netflix past a few months, there’s a greater chance of them staying subscribed.

• Netflix has the lowest long-term unsubscribe rate among competitors.
• So Netflix needs to hook users by keeping them subscribed for the first few months.

Their solution: Space out show releases. You may have noticed Netflix splitting seasons into multiple parts (i.e., Money Heist, Ozarks, Stranger Things) — while other platforms often release episodes weekly.

What do analysts think about ads on Netflix?

For investors, Netflix’s plans to launch an ad-supported tier have been a popular topic.

Positive: Incentivize those sharing accounts to use their own — and give more people access to Netflix who would have never paid.

Negative: Cannibalize paying customers — who downgrade to their lower revenue-generating ad product.

Analysts gave a couple of warnings (NYT) to investors:

• Wells Fargo analysts predicted that a third of subscribers would convert to the ad-supported tier by 2025.
• Bank of America thinks the ad tier would lead to paying customers downgrading and subscribing to more streaming services — benefiting competitors.

In the face of slowing growth, recession concerns and increasing competition, Netflix has fallen 70% in 2022.

The reversal caught many off-guard, including well-known investor Bill Ackman. He bought Netflix’s dip in January — but sold after an earnings report took $NFLX down 35% in a single day.

Investors: This analyst thinks differently…

Beth Kindig at tech-focused I/O Fund thinks the market has misread Netflix:

• There’s a clear path to increase sales and earnings.
• The ad tier would monetize 50% more subscribers (100 million) currently sharing passwords.
• Netflix’s valuation hasn’t been this cheap in over a decade.

What about all those rumors of Netflix acquiring Roku? Don’t count on it. Kindig thinks this would heavily increase Netflix’s debt load and dilute existing shareholders, and it’s a move Netflix can’t afford.

Her firm’s take: Don’t start a position until closer to the launch of its ad tier.