By Sam Boughedda
Benchmark remains cautious on Netflix (NASDAQ:NFLX) despite recent reports indicating that its ad-supported service has gained approximately one million active users in the US after its second month on the market.
Benchmark analysts said in a note to clients Tuesday that advertising initiatives and the "nettlesome password sharing crackdown should be ARM accretive," but in their view, it largely positions the stock to offset subscription video on demand (SVOD) competitive pressure.
They maintained a Sell rating and a $250 price target on the stock, stating that Netflix's indication for $3 billion in 2023 free cash flow is positive but not impressive relative to its $135B market cap without significant growth acceleration.
"We fully expect Netflix's advertising alternative to emerge as a significant member share component as reflected in our model," they added.
"Bloomberg also suggested, with Netflix declining comment, that the advertising user base grew 500%+ in its first month and another 50% in its sophomore month, not surprising given the law of small numbers and access to a huge member base."
"Netflix is subject to the same difficult streaming market conditions as its peers, even as its operating margins benefit from maturity relative to newer entrants."