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Evercore ISI upgrades Netflix stock to Outperform

Yahoo Finance Live anchor discusses Evercore ISI's call on Netflix stock.

Video Transcript

JULIE HYMAN: All right, Evercore ISI is betting big on Netflix's ad-supported-- upcoming ad-supported tier with an upgrade to outperform from in-line, saying the opportunity will help the streaming giant reaccelerate revenue growth, as it continues to compete with other brands. And this call, by the way, being made by our friend, Mark Mahaney, over there at Evercore ISI.

This follows, by the way, yesterday, there was a story in the Wall Street Journal, which got a hold of a document that Netflix is using to pitch these ad sales. People saying it's going to reach about 40 million viewers globally by the third quarter of next year. Netflix shares were up about 3% yesterday on that.

And now they're up even more today on this note and this upgrade from Mahaney, who seems to be agreeing here that the catalyst that he's talking about, the ad-supported service, can drive a material reacceleration in revenue growth. There seems to be a lot of optimism baked into this introduction of the ad-supported tier.

BRAD SMITH: Yeah, some tertiary winners to that ad-supported tier as well. You think about Microsoft or the Trade Desk, and how some of that ad serving is actually going to take place moving through the inventory. Think about some of the DSPs and what their service providers are going to be able to see in terms of a benefit in that partnership there.

But for Netflix and how they're going to introduce this to the market, bringing up the time frame and the time span that they're going to go to market with this, I think it's significant that in an era where so many people are just looking to, or at least, in a time period where people are looking to monitor costs at the household level-- and perhaps that means more of a streamlining of or trimming of some of the services that they buy into or subscribe to-- this ad tier could be a major offering for people at a time when they're already monitoring some of these things.

JULIE HYMAN: Yeah, just a couple more things on the numbers that Mahaney, by the way, is putting around this. He says our work suggests 20% plus of churned users are likely to return to Netflix with the rollout of this cheaper offering. And so overall, he says potential for approximately 10 million in incremental subscriber net additions, $1 to $2 billion in incremental revenue, all being contributed by 2024.