Netflix (NASDAQ:NFLX) is launching its low-priced, basic ad-supported subscription plan in 12 countries, including the U.S., on November 3. While the low-priced plan is expected to drive its subscription base, it will not have any material contribution to its financials in Q4. On the contrary, Rosenblatt Securities analyst Barton Crockett, who recommends a Hold on NFLX stock, sees Disney+, owned by Walt Disney (NYSE:DIS), as a better ad play.
Investors should note that unit economics-wise, NFLX’s subscription price and anticipated monetization will have a neutral to a positive impact on Netflix’s revenues in the initial phase. However, Netflix’s management is confident that the low-priced plan will bring more members to its platform, and in the long term, it will generate incremental revenue and profit.
Crockett said, “The pricing of the ad plan is geared to make it a wash to slightly better for Netflix than a 1-for-1 swap with the ad-free Basic plan. So the main lift is boosting sub-growth.”
Further, Crockett sees Disney+, not NFLX, as a bigger ad play in 2023. He added that though NFLX could offer a wide range of ad-supported plans, Disney+ is a bigger ad play in 2023. He sees Disney+ as better-placed to grab “more eyeballs in streaming ad plans than Netflix.”
Bottom Line: Is Netflix a Buy or Hold?
It remains a wait-and-watch story as to how the low-priced, ad-supported plan will drive NFLX’s financials and stock price. Further, with increased competition, saturation in developed markets like the U.S., and economic weakness, streaming service providers could struggle to drive profitable growth.
Further, higher content and marketing costs and adverse currency movements pose challenges and could weigh on the margins of streaming service providers like NFLX.
On TipRanks, Netflix stock has a Moderate Buy consensus rating based on 13 buy, 14 Hold, and four sell recommendations. Further, analysts’ average price target of $284.20 implies 4.1% upside potential.
TipRanks’ data shows that hedge funds sold 42K NFLX stock last quarter. Moreover, NFLX stock has a Smart Score of seven on 10, implying a Neutral outlook.
