Netflix (NFLX) Needs to Take Advertising Dollars, Needham Explains Why

Needham & Company analyst Laura Martin reiterated an Underperform rating on Netflix (NASDAQ: NFLX) citing the need for the company to begin a hybrid revenue model that includes advertising for 3 reasons:

1) lack of advertising revs lowers ROIC materially for NFLX investors
2) lowers NFLX's valuation multiple compared with dual revenue stream business models
3) funds its SVOD competitors, thereby undermining its ability to win the "Streaming Wars."

In essence, the analyst believes that by not accepting the revenue, it funds competitors and pressures the share price, The analyst stated "Wall Street values dual revenue-stream business models at a 3-multiple point premium (our estimate) to a single rev stream, owing to risk diversification. Also, since traditional TV has always had two revenue streams, we believe that using both ads and subscription revs more clearly demonstrates that streaming is a superior option and a direct substitute."

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix closed at $508.82 yesterday.

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