What happened
Shares of streaming titan Netflix (NFLX 4.17%) climbed 5.3% in September, according to data provided by S&P Global Market Intelligence. Rallying investors seem increasingly convinced in the profitability of the company's coming ad-supported tier, as last month saw multiple analysts upgrade its stock and Netflix brought on new talent to help guide its venture into advertising.
So what
At the start of September, news broke that Netflix had poached two top executives from social media behemoth Snap (SNAP 2.24%). Snap's former chief business officer Jeremi Gorman became Netflix's president of worldwide advertising, while its vice president of sales for North America, Peter Naylor, started as the streaming giant's vice president of ad sales.
The Wall Street Journal noted that both executives are "well regarded among advertisers and ad buyers." As a result, the promising hires proved a positive start to the month as analysts grew increasingly confident about Netflix's long-term prospects.
On Sept. 7, Macquarie analyst Tim Nollen raised his recommendation for Netflix's stock from sell to neutral as he noted the company could earn $3.6 billion in revenue from its ad tier, which comes out to about $1.1 billion after considering lower subscription prices. Then on Sept. 15., Evercore ISI analyst Mark Mahaney continued the bullish trend by upgrading the stock to buy with a $300 near-term price target.
Mahaney's recommendation came one day after a document Netflix shared with its ad buyers showed it planned to reach 40 million viewers globally with its ad-supported tier by the third quarter of 2023. The Evercore analyst expects Netflix's advertising earnings to bring in about $2 billion in incremental revenue by 2024, with another $500 million to $1 million of incremental growth generated from crackdowns on password sharing.
Now what
Despite bullish investors boosting Netflix's share price in September, the stock remains almost 60% down year to date. Netflix was hit hard in 2022 as increased competition led the streaming service to lose over a million subscribers in its first two quarters of the year. However, Netflix has been quick to respond to the changing industry.
Since January, the company has announced a coming ad-supported tier, crackdowns on password sharing, and heavily invested in its new service, Netflix Games. As inflation has continued to rise, the demand for cost-effective ad-supported services has grown. Now might be the perfect time for the streaming company to break into the industry, and top advertising execs to lead the way can only help.
Additionally, Netflix's price-to-earnings ratio is at 21.04, 63.4% less than a year ago. The figures suggest its financials are in much better standing than its stock price would have you think. With a potential advertising boost in the future, Netflix is a stock to watch.
