The near-launch of Netflix’s ad product has investors divided over its future

The launch of Netflix’s ad subscription tier is approaching — expected to arrive in November. Investors are closely watching for any data they can to judge Netflix’s most important product launch in years.

Netflix’s big break

Netflix (NASDAQ:NFLX) has fallen 63% this year — making it one of the worst-performing stocks on the Nasdaq-100. But $NFLX has risen nearly 35% from its 52-week lows — burning many who bet against the stock.

Now, the future of Netflix rests on the success of its upcoming ad product — which has analysts divided over its potential.

Here’s how the ad product is expected to look:

• $7-9 per month — half the price of its non-ad product.
• Four minutes of ads per hour — but Netflix originals and kid shows won’t have ads initially.

Netflix is also charging advertisers $60-65 to reach 1,000 people (CPM) — nearly double what other streamers are asking.

The bear: Benchmark analyst Matthew Harrigan — who has a $157 price target (30% downside) — thinks prices are too high and should be lower than other platforms (Barron’s). Netflix is also launching an ad product in a weak advertising market.

Penny pinching mood in Hollywood

The years of big-budget content spending may be over. An economic slowdown has made studios more cost-conscious, with investors demanding a path to profitability.

It’s pure chaos in the entertainment industry. Projects are being canceled, budgets are being cut and studios are prioritizing safer projects.

Netflix, like many others, had to find ways to cut costs:

• Made several rounds of layoffs this year.
• Cut spending on various areas, including server hosting costs and even paying comedians.

Investors: Pure speculation…

That’s what any data is at this time.

• Netflix hasn’t provided any forecasts, and it’s uncertain how many people will downgrade to the cheaper tier.
• AdAge estimated 500K new subs for Netflix’s ad-supported tier by the end of 2022 — which currently has 220M paying subs.

Several analysts have upgraded $NFLX this month — seeing the ad product as a catalyst. Still, over 50% of analysts have a “hold” rating on $NFLX — Wall Street lingo for “don’t sell or buy.”

*Cheers for Netflix* — because imagine having to say MATANA stocks…