Could Netflix, Microsoft Ads Cooperation Impact NFLX shares?

Netflix stock gained some relief on the back of news headlines announcing partnership with Microsoft for lower-cost advertising model. Netflix has been under pressure as the pandemic outperformance gradually faded with the stock down nearly 70% so far this year. It has retraced significantly below its pre-pandemic level, which was around $370. Currently, the stock trades at $176.

Microsoft fell slightly, but this was not related to the Netflix news. This tie-up is not significant for Microsoft. Netflix reports earnings on July 19, while Microsoft reports earnings on July 27.

Other streaming platforms have successfully used advertising models along with paid subscription models for some time. The only issue is the potential additional fees Netflix would need to pay to Hollywood studios to run advertising. Netflix may need to pay the studios up to 30% more to run their content on an advertising platform.

The larger problem for Netflix is the loss of its dominance in the streaming market. For the first ten years, Netflix had an open playing field in the streaming market with virtually no competition. Eventually, the big tech companies saw the potential and made some channels via Amazon Prime and Apple TV.

Subscriber growth will probably be poor, but earnings should be more or less in line with current Wall Street forecasts. This should allow some temporary bottom to form with the potential for a short-term catalyst up to $240.