By Senad Karaahmetovic
Wall Street analysts reflected today on Netflix’s (NASDAQ:NFLX) ad partnership with Microsoft (NASDAQ:MSFT).
The streaming giant said MSFT “offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members.”
Needham & Company analyst Laura Martin believes the Microsoft partnership is “bad for Netflix” as the streaming giant won’t be able to generate ad revenue this year.
“Wall Street had hoped that NFLX would generate ad revenue by 4Q22. By choosing Microsoft, the earliest NFLX can have an ad-driven tier in market is 3Q23, we believe. By contrast, if NFLX had chosen Freewheel or Magnite, they could have been inmarket with CTV ads by 4Q22, we believe. Since we expect NFLX to report weak subs until it has a lower cost ad-driven tier, we expect 12 months of share price weakness from here,” Martin told clients in a note.
On the other hand, BMO analyst Daniel Salmon reflected positively by saying Microsoft emerged as an “unexpected winner”, beating Google (NASDAQ:GOOGL) and Comcast (NASDAQ:CMCSA).
“We expect recently acquired Xandr (fka Appnexus) will play a key role and NFLX could start with some variation of its Monetize offering. Despite trimmed estimates in 3Q22 and beyond, we expect the subscriber outlook to stabilize, and FCF resiliency to build (we remain ahead of consensus) as total content spending growth continues to ease, with originals and video games growing faster than the total,” Salmon told clients in a note.
JPMorgan analyst Doug Anmuth added that the partnership “could expand in strategic scope over time to also potentially include elements of cloud and gaming.”
Netflix shares are down 1% in pre-open today.