Netflix's role 'as a must-have service' is 'more of a curse than a blessing': Analyst

Netflix (NFLX) might be the number one streaming service on the market — but that’s not always a good thing, at least according to a new note from Bank of America (BAC).

The big bank, which slashed its price target on the stock from $240 a share to $196, surveyed over 1,200 U.S. adults to better understand Netflix’s position amid the competitive streaming landscape.

According to the survey, Netflix remains the top most-subscribed-to service, capturing 79% of total respondents. Amazon Prime (AMZN) and Hulu (DIS) rounded out the top three, earning 71% and 60%, respectively.

“Our survey highlighted Netflix as a must-have service by a wide margin, leaving us very cautious on incremental net subscriber additions going forward,” Bank of America said, adding that the platform’s role as a “must-have service” is “more of a curse than a blessing.”

Analysts Nat Schindler, Justin Post and David Malinowski went on to explain that future subscriber growth will likely come from outside of the United States as the market reaches peak levels of saturation.

Overall, “while our survey indicates Netflix is currently consumers’ top choice, we believe our results are indicative that streaming has very quickly become a commoditized product following the pandemic,” the analysts wrote.

As a result, original content will be key moving forward, allowing smaller platforms the opportunity to capture some of Netflix’s 220 million-plus global subscriber base.

Netflix stock, currently trading at around $180 a share, has plummeted 70% year-to-date amid a broader market sell-off that’s slammed growth stocks and fueled talk of a potential recession.

Bank of America claims that although streaming “could be sticky in a recession,” reoccurring cancellations and re-subscriptions (pegged to the releases of original content) are likely to occur.

Netflix announced an unexpected first-quarter subscriber loss of 200,000 users in April. It expects to lose another 2 million subs in the current quarter.

To offset some of that churn, the company issued another round of job cuts on Thursday, eliminating 300 positions.

A Netflix spokesperson told Yahoo Finance in a statement, “While we continue to invest significantly in the business, we made these adjustments so that our costs are growing in line with our slower revenue growth.”

The job cuts follow Netflix’s last round of layoffs in May when the streamer laid off 150 members of its workforce. In recent weeks, a number of technology companies and venture capital–backed firms have announced plans to either freeze hiring, rescind accepted offers, or lay off employees.

In addition to layoffs, Netflix has unveiled other strategies to boost revenue.

The platform is currently testing a crackdown on password sharing, in addition to rolling out an ad-supported tier at the end of this year.

Bank of America’s data revealed that customers across all income levels would switch to a discounted ad-based alternative — however, “ad-tiering could serve as a way for consumers across all income brackets to extend their streaming budget by trading down to subscribe to an additional service, benefiting Netflix’s competitors much more than Netflix itself.”

The analysts noted that Netflix should enter the ad space cautiously, describing it as a costly endeavor that needs to be crafted with the consumer experience in mind.

“Advertising isn’t a cure-all and it isn’t free money,” the note emphasized.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]

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