Market News

Multiple Suitors are Lining Up for Netflix’s Ad-Partner Pie

Story Highlights

Multiple names are contending to become partners with Netflix for ad-supported content. The potential winner stands to gain big as does Netflix.

Streaming giant Netflix (NFLX) is planning to place ads in its content to support its top line, and competition for a potential partner is heating up.

Alphabet’s Google (GOOGL) and Comcast’s (CMCSA) NBCUniversal are the top contenders to partner with Netflix on its ad-supported tier. According to multiple reports, Netflix is still in the early stages of working on this move and has been evaluating various tie-ups. Additionally, Magnite (MGNI) also remains a potential partner for Netflix.

Each of these potential partners brings robust capabilities to the table. According to The Wall Street Journal, a potential revenue-sharing relationship with NBCUniversal could be exclusive, and its sales unit could help in ad sales in the U.S. and Europe. Furthermore, Comcast’s FreeWheel could provide the tech to serve ads. Significantly, NBCUniversal is already an exclusive ad seller for Apple in the U.S. and now in the U.K. as well.

Google, too, has its own ad tech and already has a relationship with Netflix, which uses its tools for buying ads. Google may also look for an exclusive partnership. Google is already working with Disney (DIS) to deliver ad-supported content. Similarly, Roku (ROKU) has also been in discussions with Netflix for a partnership.

As competition in the streaming pace heats up and more people step out of their homes post pandemic, Netflix is feeling the heat to keep up its growth. In April, the company reported a drop in subscriber numbers for the first time in over ten years. A partnership over ad sales could help the company bring ad-supported content to market at a faster pace.

Additionally, Magnite and The Trade Desk (TTD) are also potential names, as an ad-tech entity could help channel advertiser demand for automated ad placement for Netflix. Finally, a suitor that wins the deal with Netflix will get to serve Netflix’s more than 220 million paid subscriber base.

Analyst’s Take

Netflix stock rose 4.67% yesterday but is still down 70% so far in 2022. Although the loss of subscribers is weighing heavily on the stock, the Street is seeing a 57.55% potential upside with a consensus Hold rating and an average price target of $281.84.

Hedge Funds

While Netflix has been on a decline, our database indicates hedge funds have been lapping up the stock. Hedge funds have increased holdings in Netflix by 2.2 million shares over the last quarter, which indicates a very positive hedge fund confidence signal in the stock.

Closing Note

Ad-supported content is expected to help Netflix regain its growth trajectory. Furthermore, a partnership for ad placement will be a big boost to any of the discussed names that get a bite of the Netflix pie.


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