Netflix (NFLX) is getting an upgrade on Wall Street.
On Wednesday, Macquarie analyst Tim Nollen upgraded the stock to Neutral from Underperform, citing optimism around the streamer's upcoming ad-supported tier.
Nollen also raised his price target to $230 per share from $170.
Netflix shares were up about 1.5% on Wednesday, trading near $221.
In his note to clients, Nollen estimated Netflix could generate as much as $3.6 billion in ad revenue in the U.S. and Canada by 2025, and $8.5 billion globally, which would represent an incremental $2.1 billion in annual revenue against current estimates.
"The basic premise here is that Netflix launching an advertising tier is probably a good thing for revenue and earnings," Nollen told Yahoo Finance Live on Wednesday.
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, notably through ads.
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 December 8.
Netflix last week announced two senior hires in its own efforts to roll out an ad-supported tier next year; although new reports now say the company is moving up the launch to November 1 in order to get ahead of Disney's December timeline.
Netflix's ad-supported will cost between $7 to $9 a month, according to Bloomberg. The outlet added that the company plans to play four minutes of ads for every hour of content.
Last week, The Wall Street Journal revealed that Netflix is looking to charge advertisers roughly $65 for reaching 1,000 viewers (a measure otherwise known as CPM or "cost per thousand"). That charge is significantly higher than most other streaming competitors, the Journal said, citing potential ad buyers.
Nollen cautioned the competition for ad dollars will be steep, especially amid a slowing ad market overall.
"In some cases, [Netflix] will be competing for ad dollars versus the traditional TV networks and, obviously, versus other existing streaming services that already have ad tiers," he explained.
Still, the streamer should also have a leg up due to, not only the structurally growing connected TV market, but also the platform's 220 million-plus global subscriber count.
"Netflix, just by virtue of its subscriber base, is the largest single player in terms of the number of people on its platform...that's very, very interesting for advertisers who want that large audience," Nollen said.
Nollen added that Netflix should also have access to customer data that will allow ad buyers to more effectively target paying users.
Netflix shed 1 million subscribers in the second quarter, the worst quarterly decline in the company's history after the streamer lost 200,000 users in April. Netflix said in July it expects to add 1 million new subscribers in the current quarter.
Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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