JPMorgan Expects $600m in Ad-Supported Revenue for Netflix in 2023

By Sam Boughedda

JPMorgan analysts told investors in a note Monday morning that they expect $600 million in ad revenue for Netflix (NASDAQ:) in 2023 and $2.7 billion by 2026.

JPMorgan kept a Neutral rating and a $240 per share price target on the stock.

“Given NFLX’s recently muted sub growth, advertising is critical to re-accelerating revenue, expanding NFLX’s SAM, & driving greater profitability,” analysts wrote. “NFLX has made some key ad hires and has the help of Microsoft, but we still expect the ad offering to take time to scale. We expect NFLX to focus on large brand marketers in the US to start, and soon expand to Western Europe & other regions.”

The analysts added that overall, JPMorgan expects trade-down primarily from the lowest tier and to a lesser degree from the middle tier, but it also notes that Netflix has had a “wide range of tiers/price points for many years, which should mitigate some of the movement.” In addition, they believe the ad-supported tier should help reduce overall churn levels.

JPMorgan’s five key takeaways are: “1) We estimate 7.5M ad-supported UCAN subs in 2023 & 22.0M in 2026; 2) The ad tier could drive incremental UCAN subs of 5% in 2023 & 19% in 2026; 3) We estimate UCAN advertising revenue of ~$600M in 2023 & ~$2.65B in 2026; 4) Our analysis implies advertising monthly ARM of $8.69 in 2023 & $10.78 in 2026, outputs of our bottom-up build; & 5) The UCAN ad-supported tier could generate overall revenue of $1.15B in 2023 & $4.6B in 2026, including incremental revenue of $350M in 2023 & $2.3B in 2026, which would drive 2% upside to our current 2023 estimates & 13% upside to 2026.”

Netflix shares are up over 2% in early Monday trading.

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