Netflix 'is in a unique position' with advertisers, says analyst with $325 price target

Netflix (NFLX) enjoyed another upgrade on Wall Street as the stock closed higher, up about 1.5%, to end Monday's trading session.

Oppenheimer upgraded shares of the streaming giant to Outperform earlier in the day, citing increased opportunity and greater engagement in the ad space.

"Netflix is in a unique position to aggregate large audiences and control the timing of series launches for top-tier advertisers, commanding high [cost per thousand views]," Oppenheimer Analyst Jason Helfstein wrote in a new note to clients.

Helfstein has a current price target of $325 per share, which would be a 33% rise from the current stock price. He is expecting Netflix's advertising revenue to reach $4.6 billion by 2025, driving total revenue to $42.4 billion with 282 million subscribers.

The analyst did caution that one potential downside risk could be more subscribers trading down in favor of the new ad tier. He told Yahoo Finance Live that about 70% or less will switch subscription plans, citing a recent Oppenheimer survey.

Nevertheless, Helfstein doubled down on the longterm benefits of an ad tier.

"If you think about what Netflix can do, they actually have the ability to time the launches of shows in the best interest of their top advertisers... this is pretty unique in the scope of advertising, which in itself is a pretty mature industry," he wrote, crediting Netflix's established position in the market and the breadth of content the service provides.

Netflix estimated that its ad-supported tier will reach 40 million viewers by the end of next year, according to a recent report from The Wall Street Journal, which noted that executives at Netflix and its advertising partner Microsoft (MSFT) met with ad buyers in recent weeks.

"We are still in the early days of deciding how to launch a lower-priced, ad-supported tier and no decisions have been made," a Netflix spokesperson told Yahoo Finance at the time. "So this is all just speculation at this point."

As competition intensifies in the streaming space and Wall Street looks beyond subscriber counts, platforms have grown more open to exploring various distribution and pricing models in order to diversify audiences and offset shrinking growth.

Netflix and Disney (DIS) are the latest platforms to hop on the ad-tier bandwagon, with the latter aiming to officially launch its ad option on Dec. 8.

Netflix recently announced two senior hires in its own efforts to roll out an ad-supported tier next year, although recent messaging signaled that the company may be moving up the launch to Nov. 1 in order to get ahead of Disney's December timeline.

"The sooner the better, but investors should expect there will be some growing pains when you when you launch this," Helfstein noted, adding that he expects the streaming giant to deal with significant kinks at the start of the launch.

The ad-supported version will cost between $7 to $9 a month, according to Bloomberg, with the company planning to play four minutes of ads for every hour of content.

Netflix is looking to charge advertisers roughly $65 for reaching 1,000 viewers (a measure otherwise known as CPM or "cost per thousand"), WSJ previously reported. That charge is significantly higher than most other streaming competitors.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

Click here for the latest trending stock tickers of the Yahoo Finance platform

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube