Streaming giant Netflix, Inc. (NASDAQ: NFLX) recently revealed that the company has picked technology major Microsoft (MSFT) as its partner for the company’s ad-supported streaming plan.
Shares of Netflix were up 1.2% in normal trading hours only to decline marginally to close at $175.34 in yesterday’s extended trade.
These are the Reasons Why Netflix Picked Microsoft
Although Netflix was in talks with companies like Comcast (CMCSA) and Google (GOOGL) for its ad-supported plan, Microsoft scored over them on some critical points. The primary among them is that Microsoft has no intention to enter the streaming business and compete with Netflix. This is unlike Comcast, which operates the Peacock streaming service, and Google, which owns YouTube.
Moreover, Microsoft’s capabilities in the online-advertising space are established with its search engine, Bing. Further, the company’s acquisition of AT&T’s digital ad business Xander in 2021 and its earlier purchase of LinkedIn further tilted the scales in Microsoft’s favor.
Lastly, Netflix cited Microsoft’s enhanced privacy as a clincher for choosing it as its partner for the ad-supported plan.
Management’s Commentary
Chief Operating Officer of Netflix, Greg Peters said, “Microsoft has the proven ability to support all our advertising needs. More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side.”
Wall Street’s Take
Yesterday, Loop Capital Markets analyst Alan Gould reiterated a Hold rating on the stock with a price target of $215, which implies upside potential of 21.8% from current levels.
Consensus among analysts is a Hold based on 10 Buys, 25 Holds, and six Sells. The NFLX average price target of $268.59 implies upside potential of 51.5% from current levels. Shares have declined 67% over the past year.
Investors are Bulking up on Netflix Stock
The TipRanks’ Stock Investors tool shows that top investors currently have a Very Positive stance on NFLX. Further, 12.5% of the top portfolios tracked by TipRanks, increased their exposure to NFLX stock over the past 30 days.
Key Takeaways
Netflix’s choice of Microsoft as its partner for the new ad-supported plan was a bit of a surprise. This is considering the fact that deliberations were on with companies like Comcast and Google which have had stellar records in the online advertising space. Netflix may have appreciated Microsoft’s decision to stay out of the streaming market, though.
Now that a partner is on board, Netflix may soon develop a suitable plan so that it can arrest its subscriber and revenue decline and get back on the path of growth.
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