Netflix Stock Trades at 2018 Prices Is It Time to Buy
Netflix $NFLX shares have dropped 70% this year, owing in large part to the streaming-video company's dismal first-quarter results. Netflix, for example, lost 200,000 net members in the March quarter and expects to lose another two million in the current one. Netflix CEO Reed Hastings has proposed two solutions: limiting password sharing and investigating the possibility of a lower-cost, ad-supported membership tier.
Citigroup analyst Jason Bazinet explained how an ad strategy may generate free-cash-flow growth and rekindle investor interest in Netflix. He isn't confident that clamping down on password sharing will result in a large payout. According to him, the stock lacks a visible investor base: “Once Netflix’s sub base began to contract, investors stopped viewing the firm as a growth stock. But given the lack of [free cash flow], value investors are unsure how to assess the firm.”
His calculation says that if Netflix can produce $10 in ad income per U.S. user per month in a lower-priced tier, it can decrease its monthly pricing to $6 and still make money from consumers who are now paying $9.99 for basic subscription. In the United States, he estimates an increase in free cash flow of $900 million to $3.6 billion. He believes that ad income of $3 per month may be generated outside of the United States, allowing for a $6 basic subscription. Cash flow would increase by $800 million per year to $3.1 billion. As a result, Netflix's worldwide cash flow might increase by $1.7 billion to $6.7 billion each year.
Bazinet's statement came on a day when ad-supported internet companies were battered by Snap's earnings warning $SNAP. Netflix, on the other hand, is expected to offer an ad-supported tier by the end of 2022, far sooner than Hastings predicted.