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Investors Business Daily
Investors Business Daily
Technology
PATRICK SEITZ

Netflix Stock Surges On Upbeat Advertising Business Outlook

Netflix stock jumped Thursday after the internet television network reported steady growth for its advertising-supported subscription service.

The Los Gatos, Calif.-based company disclosed that it now has nearly 5 million monthly active users for its ad-supported offering, launched in November. Further, Netflix said more than 25% of new subscribers are selecting the ad-supported service.

Netflix made the announcements at a meeting with analysts in New York City after its inaugural upfront presentation to advertisers.

The company reiterated its long-term goal of generating at least $3 billion, or 10% of its total revenue, from advertising.

Netflix Stock Breaks Out Of Base

On the stock market today, Netflix stock rocketed 9.2% to close at 371.29. With the move, Netflix shares broke out of a cup-with-handle base at a buy point of 349.90, according to IBD MarketSmith charts.

"Quick math on our part would suggest that ad revenue is not likely to achieve 10% of total Netflix revenue until perhaps 2025," Evercore ISI analyst Mark Mahaney said in a note to clients.

However, the Netflix announcements show that the streaming video leader's ad-supported offering is getting traction, Mahaney said. He rates Netflix stock as outperform with a price target of 400.

So far, Netflix has rolled out the advertising-supported service offering in 12 countries.

Pace Of Ad Service Rollout Debated

But some Wall Street analysts were unimpressed with the Netflix news.

Rosenblatt Securities analyst Barton Crockett maintained his neutral rating on Netflix after the company's presentation. He said the uptake of Netflix's ad-supported service was lower than he expected.

"What surprised us, however, was the limited audience," he said in a note to clients. "Netflix said it now has 5 million monthly active users of its ad tier, suggesting about 2.5 million subscribers, or around 1% of its global subscriber base. We'd been assuming a footprint by this point over three times that."

Netflix stock ranks second out of 21 stocks in IBD's Leisure-Movies & Related industry group, according to IBD Stock Checkup. Also, NFLX stock has an IBD Composite Rating of 90 out of 99.

IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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