An Improved View Of Netflix's Ad-Supported Content And Gaming Strategy Leads To A Rise In Stock Price

Netflix (NFLX) shares rose on Thursday after the company reported robust subscriber growth for its ad-supported streaming video service and boosted investment in its embryonic mobile video gaming business.

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Today on the stock market, Netflix shares rose 9% to close at 320.37. According to IBD MarketSmith charts, Netflix stock is aiming to regain its 50-day moving average line. On February 23, it went below that critical support level.

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According to Trade Algo, Netflix's lower-cost, ad-supported service tier has 1 million monthly active subscribers just two months after its introduction. According to Bloomberg, Netflix has also met its expected delivery to advertising.

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Netflix claims that the new ad-supported service level will not compete with its ad-free premium service tiers. According to Bloomberg, the majority of those signing up for the ad tier are new or lapsed subscribers, not people who abruptly changed plans.

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Companies Focused on Advertising and Gaming

However, Netflix is mulling a change away from ad tech and sales partner Microsoft (MSFT). As its contract with Microsoft expires next year, Netflix is considering bringing ad tech operations in-house. Netflix, on the other hand, may elect to prolong its agreement with Microsoft.

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In other matters, Netflix continues to spend in developing mobile video games for users to enjoy when they aren't viewing TV episodes and movies.

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A Monday report indicated that Netflix intends to have a lineup of 95 games ready to play by the end of 2023. It presently has roughly 55 games for smartphones and tablets. It also has 40 more scheduled for release later this year.

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The stock of Netflix is still rated as a buy.

JPMorgan analyst Doug Anmuth restated his overweight, or buy, recommendation on Netflix shares in a client note on Monday. He retained his price objective at 390. Anmuth advised investors to purchase the fall in Netflix stock.

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Nonetheless, subscriber opposition to Netflix's password-sharing policy remains a short-term impediment, according to him. Netflix's paid-sharing service is now available in a number of overseas regions, including Canada, New Zealand, Spain, and Portugal. It has not yet started the program in the United States.

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"Regardless of the precise date, we expect Netflix to continue along the path of migrating customers away from extensive account sharing, making select policy and customer service modifications along the way to lessen friction, Anmuth says."

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The paid-sharing program would eventually create additional cash through new accounts, he added.

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Anmuth favors Netflix stock because of its massive subscriber base, which boosts free cash flow and profit margins.

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"Netflix is a significant beneficiary and driver of the ongoing disruption of linear TV," he said, adding that "the company's programming is doing well internationally and producing a virtuous loop of high subscriber growth, greater revenue, and rising profit."

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According to IBD Stock Checkup, Netflix stock ranks top out of 21 stocks in the Leisure-Movies & Related industry category. It received an IBD Composite Rating of 84 out of a possible 99.

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IBD's Composite Rating combines five distinct proprietary ratings into a single, simple rating. A Composite Rating of 90 or above indicates the top growth stocks.

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