Netflix Turns to Ads to Free Itself From ‘Value Trap’
Netflix Inc.'s stock has looked cheap for months and yet buyers discovered to their dismay that it just kept getting cheaper. Now bulls say the video-streaming giant is on the verge of proving that it's an actual value stock and not a value trap.
The launch of a much-anticipated advertising supported service this year, plus a crackdown on password sharing, could help reverse the company's shocking subscriber losses and provide a new revenue stream, the thinking goes.
“All of these factors could help put Netflix back on a lasting multiyear growth trajectory –- and there is a strong likelihood investors will reward that with a higher multiple,” said Pedro Palandrani, director of research at Global X ETFs.
Investors will have to look past some more bumpy days: The company, which has more than 200 million subscribers, reports second-quarter results after the close Tuesday, and it's already said it expects to have lost 2 million customers in the period, even with the huge success of the fourth season of sci-fi thriller “Stranger Things.”
The stock price already reflects plenty of bad news, though, so a better-than-expected quarter might spark a rally: Netflix trades at 2.5 times estimated sales, its lowest level since early 2013 and well below its 10-year average of 5.4 times. In comparison, the Nasdaq 100 Index is priced at 3.6 times forward sales.
Netflix plans to introduce the ad-supported tier by the end of the year after shunning the idea for years. Last week, the company surprised the industry by picking Microsoft Corp. as its technology and sales partner for the ad-supported service. The stock has gained 9.4% since the announcement.
Conservatively, the business may be able to boost quarterly revenue in the US
Read more on tech.hindustantimes.com
