© Reuters. ‘Math Doesn’t Work’: BofA Says Netflix’s (NFLX) Pivot to Ad-Tier is Happening ‘Far Too Fast’
By Senad Karaahmetovic
Bank of America analysts reiterated an Underperform rating on Netflix (NASDAQ:) while their price target of $196 per share implies a 20% downside risk compared to yesterday’s closing price of $245.10.
Netflix shares are up almost 15% since last Tuesday after the company announced a $6.99 domestic ad tier, lower than what the BofA analysts expected.
“The discount to our original assumption of $7.99 hints at a higher-than-expected take rate on the ad-tech partnership with Microsoft (Xander) in addition to lower average CPMs and higher ad loads. Outside of English speaking markets, we are surprised to see the inclusions of countries with low average CPMs in the initial launch,” the analysts said in a client note.
For the analysts, the numbers don’t really look sustainable. They argue Netflix pivoted “far too fast,” while shares also trade at a high multiple, hence the reaffirmed Underperform rating.
“We think investors could begin to approach this like the mobile tier internationally, additive but not necessarily a driver of subs,” the analysts added.
Netflix shares are up a further 2% in pre-open Tuesday.
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