Disney+ Could Hit $1.8B In Ad Revenue by 2025, Netflix May Reach $1.2B, Analyst Estimates
With streaming giants Netflix and Walt Disney planning to roll out advertising tiers with lower subscriber prices, MoffettNathanson analyst Michael Nathanson has shared his estimates for how much ad revenue the companies may bring in over the coming years.
Disney+ could generate $1.8 billion in U.S. ad revenue by 2025, with Netflix reaching $1.2 billion, he estimated in a Tuesday report entitled “Mad Men to the Rescue?,” which highlighting that “very little is known about the pricing and available commercial impressions of these new ad tiers.”
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Nathanson summarized his view this way: “Netflix has the potential for much larger global ad growth, yet the domestic advertising opportunity for Disney+ appears greater due to a much lower starting revenue per user (RPU) versus Netflix, a more developed advertising infrastructure, pent up demand, affinity for Disney content and greater monetizable content availability as Disney owns the majority of their content.”
The analyst also analyzed the reasons and timing of the decisions by the companies to add ad tiers to the mix. “Over the past 90 days, both Netflix and Disney decided to revisit prior strategic decisions by embracing the development of an ad-supported streaming service to complement their legacy ad-free products,” he wrote. “As Stranger Things on Netflix and Obi-Wan Kenobi on Disney+ each set respective viewership records, both companies are now looking to build a new advertising-supported streaming product in order to open up a second revenue stream, increase consumer adoption and drive overall revenues and profits higher.”
So, what changed for the sector biggies? “The most obvious answer is that the slowdown in subscriber growth and the ability to broaden out the reach of each service with lower price points, especially in developing markets, have necessitated the development of an ad-supported tier,” the Wall Street expert argued. “In addition, if managed correctly, the pivot to advertising has the ability to strength the margin profile and growth trajectory of each service.”
For example, the addition of “high incremental profit ad dollars should augment 2025 operating margins by 200-300 basis points, respectively,” Nathanson suggested. “However, due to the scale of Disney’s other businesses (e.g. Disney Parks and Resorts and linear networks), the pivot to domestic advertising should be much more incrementally accretive to Netflix’s long-term (post-2025) earnings per share than Disney.”
The analyst maintained his “neutral” ratings on both companies’ stocks, with a $245 price target for Netflix and $125 for Disney. “We are not officially changing our estimates at this time based on the preliminary analysis in this report,” Nathanson concluded. “While we are excited by the opportunity that advertising creates at those two streaming giants, the devil will be in the details of how each company prices these new offerings and how much of the available content impressions will be available and suitable for advertising. In general, we feel that the growth of these ad offerings will be mainly sourced by non-sports and news linear cable and broadcast network dollars.”
