Netflix's surprise choice of Microsoft as its advertising technology partner could delay the offering of a lower-cost, ad-subsidized service tier at the internet television network until late next year, according to one analyst. Netflix stock slid on Thursday.
"Wall Street had hoped that Netflix would generate ad revenue by Q4 2022," Needham analyst Laura Martin said in a note to clients Thursday. "By choosing Microsoft, the earliest Netflix can have an ad-driven tier in market is Q3 2023, we believe."
If Netflix had picked Magnite or Comcast-owned FreeWheel, it could have been showing video ads on its platform in the fourth quarter this year, she said.
Martin reiterated her hold rating on Netflix stock.
"Since we expect Netflix to report weak subs until it has a lower-cost, ad-driven tier, we expect 12 months of share price weakness from here," she said.
Netflix Stock Drops
On the stock market today, Netflix stock sank 1% to close at 174.78.
Ad tech companies that were considered possible Netflix partners fell on the news. Magnite shares dropped 10.4% to 7.23. The Trade Desk declined 6.7% to 41.21. Roku retreated 5.4% to 82.34.
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Another potential ad partner, Google parent Alphabet, saw its shares slip 0.9% to 2,207.35.
Benchmark analyst Matthew Harrigan maintained his sell rating on Netflix stock.
Microsoft Not A First-Tier Ad Partner
"Microsoft, despite its 2021 acquisition of AT&T's Xandr and its programmatic capabilities, is not perceived as a first-tier digital video ad tech ecosystem entrant equivalent to Google, NBCUniversal/FreeWheel, Roku and Trade Desk," he said in a report Thursday.
Subscription video-on-demand leader Netflix announced its deal with Microsoft late Wednesday.
Netflix stock ranks fifth out of 23 stocks in IBD's Leisure-Movies & Related industry group, according to IBD Stock Checkup. It has a subpar IBD Composite Rating of 43 out of 99.
IBD's Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock's strengths. 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.
