The core value of Netflix’s 2027 AVOD expansion lies in user growth, not near-term ad revenue

Overview

This report focuses on Netflix Inc’s global expansion plan for ad-supported video on demand (AVOD). Netflix already has about 250 million ad-supported viewers and plans to expand AVOD to more than 15 new countries/regions in 2027. Bernstein’s core view is that the direct ad revenue contribution from these new markets may be modest, but AVOD could drive user growth in price-sensitive and highly competitive markets by lowering the effective subscription price.

Core views

The report’s core view is that the expansion into new AVOD markets is not primarily a story driven by ad revenue. Based on Netflix’s guidance for roughly $3 billion in ad revenue in 2026 and the existing 12 AVOD markets’ rough share of about 3% of local TV ad spending, the 15 new markets may contribute only less than $500 million of incremental ad revenue by 2030, representing under 1% of company revenue. But within the P x Q x M framework, the more important variable for AVOD is “Q,” meaning subscriber count. The low-priced ad tier can lower the entry barrier for consumers and, together with password-sharing crackdowns, may accelerate subscriber growth.

Analysis framework

The report combines market-size extrapolation with an operating framework: first, it uses the existing 12 AVOD markets as a benchmark, corresponding to about 70% of global TV ad spending, to estimate that the additional 15 markets would expand ad opportunity by about 10%; then it applies an assumption of roughly 3% share of ad spending to the new markets to derive an estimate of less than $500 million in incremental ad revenue before 2030; finally, it uses the P x Q x M framework to explain the strategic role of AVOD in subscriber count and revenue mix.

Methodology notes

• Business decompositionP x Q x M

  Price, volume, and margin framework

  The report argues that the key to AVOD expansion is not the absolute amount of ad revenue itself, but raising “Q,” meaning the number of subscribers, through a lower effective price, which may further affect revenue and margins.

• Valuation methodsP/E valuation

  FY27 EPS and target P/E

  The report uses FY27 EPS of $3.80 and about 29x P/E to estimate Netflix’s equity value, corresponding to a target price of $110.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Netflix Inc (NFLX.US)

  The company is the research target; AVOD expansion, content budget, and subscriber growth are the core analytical variables.

  Strengths

  The global ad-supported audience has already reached about 250 million, and the ad tier attracts about 60% of new subscribers in markets where it is available; content spending covers sports and series, helping sustain user engagement.

  Weaknesses

  The direct ad revenue potential from new AVOD markets is limited; by 2030 it may be less than $500 million, below 1% of total company revenue.

  Comparison

  The report compares the 15 new markets with the existing 12 AVOD markets; the existing markets cover about 70% of global TV ad spending, while the new markets would add only an additional 10% of ad opportunity.

  Risks

  AVOD may not materially increase ARM in UCAN; the digital ad recovery may be weaker than assumed by the model; streaming competition is intensifying; social platforms and short-form video are competing for user attention.

Key data

• Global ad-supported viewersabout 250 millionThe scale of Netflix’s current global ad-supported viewers.
• Ad-tier take-up among new subscribersabout 60%In markets where the ad tier is available, about 60% of new subscribers choose the ad tier.
• New AVOD markets in 2027more than 15 countries/regionsNetflix plans to expand AVOD coverage in 2027.
• Existing AVOD markets12 markets, covering about 70% of global TV ad spendingThese markets have been operating AVOD for about 3.5 years.
• Serviceable opportunity from new marketsabout another 10%The estimated incremental ad opportunity from the 15 new markets relative to the existing 12 markets.
• 2026 ad revenue guidanceabout $3 billionNetflix’s guidance for ad revenue in 2026.
• Share of TV ad spending in existing marketsabout 3%Estimated from 2026 ad revenue guidance and ad spending in the existing AVOD markets.
• 2030 incremental ad revenue from new marketsless than $500 millionA rough estimate obtained by applying the roughly 3% share assumption to the 15 new markets.
• 2030 revenue contribution from new marketsless than 1% of company revenueThe report believes the direct ad revenue contribution will be limited.
• Content budgetabout $20 billionThe report mentions that Netflix’s content budget includes sports and series.
• Content slate3 additional NFL games, 40 series, of which 27 are returning showsUsed to illustrate the direction of content budget deployment.
• Valuation assumptionsFY27 EPS $3.80, about 29x P/E, target price $110The valuation method disclosed in the report for Netflix.

Impact & implications

For Netflix, the investment implication of AVOD expansion is to strengthen its toolkit for user growth, rather than simply increase ad revenue. If the new markets are price-sensitive and highly competitive, the ad tier can attract users with a lower subscription barrier and may create a combined effect with password-sharing crackdowns. However, since the direct contribution of the new markets to total revenue is expected to be less than 1%, investors should focus on whether AVOD truly improves user growth, retention, and unit economics, rather than only looking at ad revenue scale.

Risks

• AVOD may lift ARM in UCAN less than expected.
• The digital ad market may recover more slowly or less strongly than assumed by the model, putting pressure on ARM.
• Streaming competition is becoming increasingly intense, and greater investment by large technology companies could cause Netflix to lose subscribers.
• User-generated content platforms and short-form video may divert user attention and affect long-term engagement.
• The implementation complexity and investment required for the new AVOD markets may be higher than the direct ad revenue return.

What to watch

• The actual rollout pace and market list for the more than 15 new AVOD markets in 2027.
• The actual impact of the ad tier in new markets on subscriber growth, retention, and conversion.
• Whether Netflix’s ad revenue can reach the roughly $3 billion guidance in 2026.
• Whether the new AVOD markets can approach or exceed the rough estimate of less than $500 million in revenue before 2030.
• UCAN ARM performance and the impact of ad-tier pricing on overall revenue quality.
• The contribution of sports content, returning series, and the overall $20 billion content budget to user engagement.