Netflix could rise 24% on the back of its new ad-supported tier and password crackdown, BofA says

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  • Netflix shares could rise 24% from current levels to hit $370, Bank of America said Tuesday.

  • The stock could benefit as the company expands ad-supported subscriptions and cracks down on password sharing.

  • Netflix introduced its "Basic with Ads" subscription service earlier this month.

Netflix shares could spring up by more than 20% over the next year in part as the streaming service expands subscriptions that include advertising, Bank of America said Tuesday.

The investment bank put a 12-month price objective of $370 a share on Netflix in reinstating coverage with a buy rating. That view implied a 24% upside from Monday's closing price of $299.27 a share.

"Despite slower sub growth, we believe efforts to improve monetization via a value-oriented ad tier and significant conversion of password sharers has the potential to drive operating/financial upside," analyst Jessica Reif Ehrlich wrote in a research note.

Netflix shares on Tuesday rose as much as 4.5% to $312.71, the highest price in about six months. The stock later pared the advance to 3.2%.

Netflix earlier this month rolled out its "Basic with Ads" subscribership tier that costs $6.99 a month. Advertisers can run 15- and 30-second videos before and during programs capped at four to five ads an hour. The tier was initially launched in the US and 11 other countries.

There are "legitimate shorter-term concerns" such as inventory glut, competition, and a softening macro backdrop, said BofA, but Netflix's advertising-based video-on-demand, or AVOD, offering will be accretive on the company's ability to drive engagement. As well, there should be "extraordinary advertiser demand" as they reach for Netflix's younger viewers and for cord-cutters.

BofA estimated the Basic AVOD tier could drive $719 million in revenue in the United States and Canada in 2024.

Meanwhile, Netflix in 2023 plans to start charging account holders who share their passwords. The company in letter to shareholders last month said it aimed to launch "extra member" sub-accounts.

Netflix estimates 100 million potential subscribers, including 30 million in the US and Canada, are lost as a result of password sharing, said BofA.

"We view this current headwind as an enormous potential long-term opportunity, with sizable upside realized in 2023/2024," the bank said. "Given the strong level of engagement on NFLX's service, we believe they are particularly well-positioned to convert a significant percentage of these lost subs (otherwise these viewers will be cut off)."

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