Netflix (NFLX) may be the number one streaming service out there, but that’s not always a good thing, at least according to a new note from Bank of America (BAC).
The major bank, which cut its share price target from $240 per share to $196, surveyed more than 1,200 American adults to better understand where Netflix stands in the competitive streaming landscape.
According to the survey, Netflix remains the most subscribed service, capturing 79% of total respondents. Amazon Prime (AMZN) and Hulu (DIS) round out the top three, gaining 71% and 60% respectively.
“Our survey highlighted Netflix as a must-have service by a wide margin, leaving us very cautious about additional net subscriber additions in the future,” 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 the US as the market reaches peak saturation levels.
“Stranger Things” (Courtesy Netflix)
Overall, “while our survey indicates that Netflix is currently the top choice for consumers, we believe our results indicate that streaming has very quickly become a commoditized commodity post-pandemic,” the analysts wrote.
As a result, original content will be key moving forward, allowing smaller platforms to capture some of Netflix’s global subscriber base of over 220 million.
Netflix stock, which currently trades at around $180 a share, has fallen 70% year-to-date amid a broader market sell-off that has dragged growth stocks down and fueled talk of a possible recession.
Bank of America says that while streaming “could be sticky during a recession,” recurring cancellations and resubscriptions (related to original content releases) are likely to occur.
Netflix reported an unexpected first-quarter subscriber loss of 200,000 users in April. It expects to lose another 2 million subscribers in the current quarter.
To offset some of that turnover, 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 make significant investments in the business, we have made these adjustments so that our costs increase in line with the slower growth of our income”.
The job cuts follow Netflix’s latest round of layoffs in May, when the streamer laid off 150 members of its workforce. In recent weeks, a number of tech companies and venture capital-backed companies have announced plans to freeze hiring, rescind accepted offers, or lay off employees.
In addition to the layoffs, Netflix 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 later this year.
Data from Bank of America revealed that customers of all income levels would switch to a discounted advertising-based alternative – however, “ad prioritization could serve as a vehicle for consumers of all income brackets to ‘expand their streaming budget by trading in to subscribe to an additional service, benefiting Netflix’s competitors far more than Netflix itself.
Analysts noted that Netflix should enter the ad space with caution, describing it as an expensive business that needs to be designed with the consumer experience in mind.
“Advertising is not a panacea and it is not free money,” the note stresses.
Alexandra is a senior entertainment and food reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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