Netflix has built a strong business, becoming the MVP for streaming content. However, analysts from Barclays believe that its revenue growth is likely to slow down in the future. In a recent report, these analysts downgraded Netflix’s stock rating from “Equal Weight” to “Underweight.”
They argue that new efforts, like paid subscription sharing and attempts to increase profit margins, might be pushing growth too fast which ultimately creates unrealistic long-term expectations for the company.
The analysts explained that Netflix’s current stock value doesn’t match its expected growth path. To balance out slower price and subscriber growth in its biggest markets, Netflix will need to boost its advertising revenue much faster than it has so far. Needless to say, Netflix has cracked the advertising game too fast. But, it needs to do it faster.
The company’s cheaper, ad-supported viewing option is seen as crucial to this strategy, but it will require more subscribers and higher engagement.
The analysts also suggested that Netflix might eventually have to phase out its basic and possibly even standard plans in certain markets. Needless to say, it will start doing it pretty soon.
This would widen the price difference between the ad-supported and ad-free options, and it would naturally frustrate the audiences. But, it is important for Netflix at this point in time.
In July, Netflix mentioned that its advertising unit, which analysts once thought could drive major revenue growth, won’t be its biggest revenue source until 2026.
While Netflix’s ad-supported membership grew by 34% from April to June, the company hasn’t provided specific numbers on how many people chose this option.
How strange is the fact that even after being the largest streaming platform in the world, the financial security of Netflix is not so good health?