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According to the perma-bulls, netflix (NASDAQ:NFLX) made a brilliant move by adding commercial membership tiers recently. However, NFLX stock is still a long way from a real recovery and the latest insights from Netflix management are no guarantee of success. Even the much-vaunted ad-supported service strategy could backfire.
People sometimes call Netflix the king of streaming, but it’s a crowded field now. Netflix’s competitors are nipping at the company’s heels and threatening to steal market share.
Maybe that’s why Netflix management wants to try new ideas. Investors might be encouraged by this, but be careful. Not all new concepts are good, and when they go wrong, the negative impact on a company’s revenue and bottom line can be significant.
Don’t deny the bearish trend in NFLX stocks
When NFLX stock hovered around $700 in October 2021, value investors should have probably seen the red flags waved. It was an epic merger, but Netflix’s price-to-earnings (P/E) ratio absolutely had to deflate.
Netflix stock price has rallied somewhat since its low in the summer of 2022, but there is no guarantee that this was actually the bottom. In any case, there is no denying that the stock is still in a downtrend over the past year.
Over the course of this year, Netflix management has considered a number of changes to try to catalyze a recovery. For example, Netflix reportedly made a bid to buy the streaming rights to a European tennis tour, but then backed out. Apparently, Netflix also considered buying the UK rights to the Women’s Tennis Association and cycling competitions and even considered buying the World Surf League.
These ambitions have not worked so far. Meanwhile, Netflix is also planning a foray into video games. This means the company would face fierce competition from gaming companies with decades of experience and brand recognition.
Ad-supported services are not a surefire winner
The only bet that seems to be drawing investors into the fold, however, is Netflix’s venture into commercial subscription tiers. This, supposedly, will be the savior of Netflix.
Still, it’s usually not a good idea to assume victory until some time has passed and Netflix can prove that ad-supported services are worth it. After all, some Netflix users may cancel their subscription if they switch to a free or discounted subscription.
It’s no secret that Netflix’s subscriber growth slowed earlier this year. However, streaming ads may not be the solution. To be honest, some people hate ads and that’s why they watch Netflix in the first place. Otherwise, they could just watch TV.
Additionally, not everyone is optimistic about Netflix’s pivot to ads. In fact, Needham analyst Laura Martin expressed concern that Netflix could experience negative revenue growth in the fourth quarter of 2021 or 2023 if “more US subscribers at $16 or $20 per month traded to its new ad at $7 per month. -lighter level than Netflix and consensus expect.
What you can do now
Netflix doesn’t deserve an “F” rating now because the company is still a strong contender in the streaming space. However, a “D” rating is warranted because Netflix hasn’t conclusively demonstrated that its latest ideas will actually benefit the company.
Among these ideas are ad-supported subscriptions, which could cause Netflix to lose some paying customers. So, don’t feel the need to jump into NFLX stock now as it might not break its one-year downtrend for a while.
As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.