Last Update (August 31)
Streaming giant Netflix (NFLX) has hired Snap (SNAP) executives to lead its advertising business, according to a Wall Street Journal report. Netflix hopes to increase its subscriber base with lower rates as inflation squeezes customers’ pockets.
The new advertising tier plan will be charged at nearly half its current rate of $15.49 per month, which is ad-free. Netflix plans to feature commercials of about four minutes per hour before and during the programs, but not after. This plan is expected to be released in the last three months of the year to at least a dozen geographies across the U.S. However, the full rollout of the new plan will take place next year.
Netflix Leans on Advertising Industry Veterans
Snap’s Chief Business Officer Jeremi Gorman has landed the role of President of Worldwide Advertising at Netflix, according to the Journal’s report. Snap is the parent of photo-sharing app Snapchat. Gorman came to Snap in 2018 after more than six years at Amazon, where he oversaw global sales for the ad business.
Peter Naylor, Snap’s Vice President of Sales for the Americas, is joining Netflix as Vice President of Ad Sales. Naylor came to Snap in 2020 after previously leading ad sales at Hulu and Comcast’s (CMCSA) NBCUniversal unit. The Snap executives will start at the streaming powerhouse in September.
Netflix Embraces Advertising After Avoiding Commercials in Videos for Years
Netflix has carefully curated the plan with limited commercial break time as compared to peers. This will ensure that customers are not overwhelmed with advertisements, while at the same time paying lesser for streaming their favorite shows and movies. Netflix has partnered with Microsoft (MSFT) as a technology partner for its ad-support business. As per media consultancy firm Ampere Analytics, the new ad-support business could add $8.5 billion annually to Netflix’s revenue (including subscription fees and sales) by 2027.
Unfortunately, Netflix saw its subscriber base decline by a whopping 970,000 in the second quarter of Fiscal 2022, adding to the 200,000 lost in Q1. The persistent inflationary pressures dug a hole in consumers’ pockets who preferred to either opt out of the premium streaming services or abstained from renewals.
For all these years, Netflix has won subscriber loyalty for its ad-free streaming offerings and subscribers did not mind paying a little premium for the services. However, customers have become budget-conscious lately and this has forced Netflix to drive down its subscription plans.
Is Netflix a Buy or Hold?
On TipRanks, NFLX stock has a Hold consensus rating. This is based on seven Buys, 19 Holds, and seven Sells. The average Netflix price forecast of $229.61 implies 4.1% upside potential to current levels. Meanwhile, the stock has lost a whopping 63.1% so far this year.
Like every other premium offering, Netflix is facing subscriber losses. However, as several experts suggest, inflation has peaked and is on a downward trend now. Hopefully, with the headwinds behind and the new lower subscription plan, Netflix may be able to win back its lost subscribers.