By Sam Boughedda
Evercore ISI analysts reiterated an Outperform rating and $340 per share price target on Netflix (NASDAQ:NFLX) in a note to clients Thursday.
The analysts title the note "Better with Ads," explaining that one of the key takeaways from Netflix's ad-supported tier is that the company has managed to create a smooth viewing experience that is less disruptive than expected. As a result, the firm believes the offering "should be able to gain traction with consumers."
"We signed up for a Basic With Ads tier and watched a few dozen ads so you don't have to. Our first take: This was a smoother experience than we anticipated, both in terms of the sign-up process and the Ads insert experience. And this is particularly impressive given the 6-month ramp-up of a new business line from announcement to launch, which we think reflects Netflix's strong execution muscle in the face of a major business pivot," wrote the analysts.
The firm's second key takeaway is that at the margin, they are more confident that "Basic With Ads (BWA)" can be neutral to accretive – on a global basis – to Basic Plan ARPU – and that it can help drive incremental acceleration in revenue and EPS growth at Netflix in late 2023 and into 2024 that is not sufficiently captured in Street estimates.
"We think Netflix needs to achieve only $14 in Global CPM to reach this ARPU parity (a lower hurdle than the $17 CPM from our prior analysis, based on our initial BWA experience), and the company can potentially generate a $21 average CPM across its 12 SAVOD markets," they added.
Netflix shares are down over $3 Thursday.