Netflix Inc (NASDAQ: NFLX) is trading down significantly on Thursday after a report said it’s recently launched ad-supported tier wasn’t off to a great start.
Netflix is returning money to advertisers
The streaming giant rolled out its cheaper subscription in early November to minimise churn and accelerate revenue growth (source). But a Digiday report this morning suggests the Nasdaq-listed firm is giving advertisers their money back because it failed to meet viewership guarantees.
Nonetheless, the company itself is comfortable with the progress thus far. According to a Netflix spokesperson:
While it’s still very early day for our ad-supported tier, we’re pleased with the successful launch and the member engagement on the Basic with Ads plan, as well as the eagerness of advertisers to partner at the outset.
Shares of Netflix Inc have close to doubled since early May.
Analyst reacts to the Digiday report
The Digiday report also wasn’t alarming to Tim Nollen – Senior Equity Research Analyst at the Macquarie Bank. If anything, he says it was quite expected actually.
The service will succeed by drawing users from higher ad-free tiers to this lower-price tier rather than adding new subs. But it could take a couple of years to build large-enough user base to become a meaningful destination for advertisers.
So, the pullback today might have created an opportunity to buy Netflix shares, especially considering that Wells Fargo upgraded this stock to “buy” just last week and said it had upside to $400 – up another 40% from here.
For the year, NFLX is still down roughly 50%.
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