Struggling Netflix needs to consider drastic options including selling itself, Needham's Martin says

Published Mon, Feb 7 20227:25 AM ESTUpdated Mon, Feb 7 202212:10 PM EST

Netflix must consider some drastic changes to its business strategy in order to get back on track, according to Needham's Laura Martin. Shares of the streaming platform are down more than 31% this year, which was intensified by a weaker-than-expected quarterly earnings report last month that showed slowing subscriber growth. "NFLX can NOT win the 'streaming wars' given its current strategy, we believe," Martin said in a note Monday. The analyst even said Netflix should consider selling itself. Netflix in January raised prices for subscribers in U.S. and Canada , which some analysts believe could increase revenue. But Martin believes the price hikes will only exacerbate Netflix's user churn and shrinking lead over other streaming platforms. "We believe that NFLX's pricing strategy represents a competitive disadvantage because it offers a single pricing 'tier' whereby every consumer has access to identical content," Martin said. "By contrast, nearly every streaming competitor offers consumers lower-priced tiers." For example, NBCUniversal's Peacock has a free tier, a $5-per-month tier with five minutes of advertising and a $10-per-month ad-free tier. "This allows lower income homes to move among tiers as their cash status changes each month. It also lowers Peacock's customer acquisition costs as free subs move to $5/month to $10/month (and back)," Martin said. Netflix makes it relatively easy to drop a subscription, according to Martin. The company releases all episodes of a new TV series release at one time, so subscribers could binge the content and leave. A Needham survey of about 500 U.S. Netflix subscribers found that 41% of respondents said "they are more likely to churn in 2022 owing to its price increase." Martin suggests Netflix offer an advertising tier. The analyst also advised the company to add sports and news, and buy an old media library to grow its intellectual property moat. Needham maintained its underperform rating on the stock. Disclosure: NBCUniversal is the parent company of CNBC. — CNBC's Michael Bloom contributed reporting.

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Netflix must consider some drastic changes to its business strategy in order to get back on track, according to Needham's Laura Martin.