Analysts warn that Netflix stock will “suffer” if ad difficulties continue

The new ad-supported Netflix (NFLX) show seems to be going through some growing pains.

According to a new study by subscription analytics firm Antenna, cited by The Wall Street Journal, the ad-supported streaming giant’s $6.99 offer was the least popular tier of its service during the month of November.

The ad tier, which officially debuted in US markets on November 3, accounted for just 9% of Netflix sign-ups for the month. About 57% of ad-supported subscribers have returned to the service or signed up for the first time. Antenna data revealed that 43% traded down to the cheapest plan.

“If this doesn’t work, I think the stock is going to suffer because part of the story of Netflix’s stock recovery is getting this ad layer to work,” Tim Nollen, an analyst with Macquarie Group, told Yahoo Finance Live Monday.

For comparison, HBO Max from Warner Bros. Discovery (WBD) stronger results after its $9.99 ad-supported tier debuted in June 2021. At the time, the plan accounted for 15% of new sign-ups in the US within its first month, while 14% of new users were cut from the top tier. Expensive and ad-free.

In a statement, a Netflix spokesperson told Yahoo Finance, “There are a number of inaccuracies in these reports. It’s still very early days for the sponsored ad layer, and we’re excited about its launch and engagement, as well as advertisers’ eagerness to partner with Netflix.”

Shares of Netflix weren’t much changed on Tuesday afternoon.

Antenna’s study comes after Netflix stock lost nearly 9% last Thursday, its biggest intraday drop since April, after a new report from Digiday said the streaming giant fell short in the viewing guarantees it offered ad-tier advertisers.

According to Digiday, which cited five agency executives, Netflix is ​​now allowing ad buyers to get a refund after missing viewing goals. The company reportedly only served about 80% of the expected audience.

“Netflix is ​​a bit on the hook here in getting the service off the ground,” admitted Macquarie’s Nolen. “They’re weakening themselves by trying to convert their subscriber base in the US to an ad-supported plan. It’s $3 less per month. That’s $3 less per subscriber there. And they have to make up for that with ad sales.”

Nolen argued that it would take some time for the company’s advertising layer to fully mature, and predicted that the company would not see additional revenue from the new offering until at least 2024 or 2025.

“It’s not a total game-changer for Netflix, but it should boost revenue,” he added.

Shares of Netflix, which have fallen about 50% since the start of the year, are up nearly 65% ​​over the past six months as other industry watchers see content improvements slip in 2023.

Wednesday (Brought to you by Netflix)

Alexandra is the chief media and entertainment correspondent for Yahoo Finance. Follow her on Twitter aliecanal8193 and email it to alexandra.canal@yahoofinance.com

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