Analyst: Netflix's Ad-Supported Tier Could Rake in Billions

The equity is brushing off the tech sector's selloff today

Digital Content Manager
Oct 10, 2022 at 12:45 PM
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Netflix Inc (NASDAQ:NFLX) is brushing off the slump chip stocks and other Big Tech names are suffering today, last seen up 1.7% to trade at $228.48 on an upbeat note from J.P. Morgan. The analyst said the streaming giant may attract over 7.5 billion subscribers to its ad-based tier for U.S. and Canada markets in 2023, which would translate to $600 million in ad sales. By 2026, the firm expects numbers to grow to 22 million subscribers  and $2.65 billion in ad sales. 

The equity sports a promising technical setup that could create even more tailwinds, after a recent pullback put the stock within one standard deviation of its 70-day moving average. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, NFLX has seen five similar signals over the past three years. One month after 80% of these occurrences, the security was higher, averaging a 6.5% return. A similar move from its current perch would put Netflix stock above the $243 level, toppling pressure from the 150-day moving average. 

nflx oct 10

Though NFLX is distancing itself from its May lows, with a floor emerging at the $220 region, it still has a ways to go if it wants to close the two massive bear gaps it suffered this year. And though a bounce off its 70-day trendline could be the push the tech giant needs to start working its way back up the charts, Netflix stock is still off a hefty 62.2% year-to-date. 

A short-term pop could already be priced in for NFLX, too. The stock sits just on the cusp of "oversold," sporting a 14-day Relative Strength Index (RSI) of 31. 

Short-term options traders have been much more put-heavy than usual, and an unwinding of pessimism here could add an additional layer of support for the security. This if per NFLX's Schaeffer's put/call open interest ratio (SOIR) of 1.21, which sits in the 71st percentile of its 12-month range. 

 

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