Netflix (NFLX) shares fell on Friday after soaring 9% on Thursday — its best intraday stock performance since October 2022 and its best closing since April 2022.
The positive swings come after the streamer revealed its ad-based plan, dubbed "Basic with Ads," has 5 million global monthly active users, or MAUs, a metric that Netflix Worldwide Advertising President Jeremi Gorman said "actually matter[s] to advertisers." Netflix launched the plan in November.
The company has yet to reveal actual subscriber figures for the ad tier, or how much revenue it's generated so far. MAUs can include multiple people using the same account.
Still, Wall Street remains bullish, with Wedbush reiterating its Outperform rating and listing the stock on its "Best Ideas" list.
"We think Netflix has reached the right formula with its global content to balance costs and generate increasing profitability, while its ad-supported tier and password sharing crackdown should further boost cash generation," Wedbush analysts Alicia Reese and Michael Pachter wrote in a new note on Friday.
The analysts added those catalysts set up the streamer to "generate significantly more free cash flow than its guidance suggests."
Profitability, margins and free cash flow surpassed Wall Street expectations in Netflix's first-quarter results. The streamer cut its content spend by $1 billion in the quarter compared to the same period last year.
The media giant, which raised its full-year free cash flow projection to $3.5 billion from $3 billion, said it will stay around its $17 billion annual content spend through 2024 but added there's more room to grow.
On the ad front, Wedbush said, "We continue to see significant room for upside as Netflix learns to balance viewership levels with CPM and ad views per hour." CPM, or premium cost per 1,000 impressions, is an important metric for advertisers.
"Netflix should be able to increase Ad [average revenue per user] to the $16 range or higher over time," the note added.
Netflix currently boasts 232.5 million global subscriber base, but the company said ad-based users have more than doubled since early 2023, with more than a quarter of Netflix sign-ups now choosing the ads plan in countries where it's available.
Netflix is still battling an ongoing writers' strike, which could impact content spending and upcoming releases, although the company has said it has enough content banked to weather the shutdown.
The platform is also facing continued backlash surrounding its password sharing crackdown. It previously said the crackdown will hit the US some time this quarter.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com
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