Netflix’s Valuation Decimated: How it Plans to Rebound

Valuation Craters

Netflix (NFLX) stock is having a tough year. After its share price peaked at $691.69 on November 17, 2021, the company’s valuation has tumbled, bouncing along at levels below $200 a share since early May.

The streaming pioneer faces increasing competition. While numerous alternative platforms, big and small, have eroded its subscriber base, it still holds the top spot in terms of customers on its platform. Now, similar to entertainment giant Disney (DIS), the company is evaluating how to introduce an ad-supported tier.

A New Subscriber Avatar

The move is intended to address the leaks of its subscriber base by providing a low-cost option to price-sensitive viewers. However, the new revenue structure will require amendments to programming contracts so that the company can include content on the new ad-supported tier. This is likely to result in rising costs for the rights to stream these shows, which market observers estimate will be a markup of 15-30%. Time will tell how the seesaw effect of the strategic shift will impact the company’s bottom line.

Netflix is currently negotiating contracts with Warner Brothers Discovery (WBD), creator of You; Universal (CMCSA), which makes Russian Doll; and Sony (SONY) producer of “The Crown.”

Scant Details

The streaming giant wants to launch the new ad-supported tier by the fourth quarter of this year. It has yet to elaborate on the details, such as how the ads will be displayed, the difference in content between the commercial-free and less expensive tier, or the pricing structure.

Historically, studio executives have been dissatisfied regarding the lack of transparency Netflix has provided about viewership. The value to marketers could potentially be diminished if subscriber data remains limited.

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