Netflix Eyes Growth with 22M New Subs, Stock Hits $600

Key Takeaway

• Netflix's crackdown on password sharing spurred a record surge in H2 2023 subscriber growth, adding nearly 22 million new subscribers.
• Shares soared nearly 66% in six months, with the stock crossing $600 amid high expectations for continued subscriber expansion.
• Analysts forecast a 56% EPS increase to $4.50 on $9.3 billion revenue for Q1, as strategic content investments and new plans aim to sustain momentum.

Subscriber Growth Surge

Netflix has experienced a remarkable surge in subscriber growth, particularly in the second half of 2023, adding nearly 22 million net new paid subscribers. This growth, a record for the period, was significantly influenced by the company's crackdown on password sharing, which began in mid-last year. Netflix's co-Chief Executive Greg Peters attributed this success to paid-sharing "interventions," where subscribers sharing passwords outside their households were prompted to pay extra or secure individual accounts. With plans to continue these interventions into 2024, the streaming giant has set expectations for first-quarter subscriber additions to surpass the 1.8 million reported in the previous year's first quarter, yet remain below the 13.1 million added in the fourth quarter.

Market Expectations and Stock Performance

Analysts and investors have high expectations for Netflix's subscriber growth, with some predicting as many as 8 million new subscribers in the first quarter. This optimism has propelled Netflix shares to surge nearly 66% over the past six months, significantly outperforming major indexes like the Nasdaq and S&P 500. The stock has crossed the $600 mark for the first time since late 2021, reflecting investor confidence bolstered by strong subscriber growth in recent earnings reports. However, Netflix faces the challenge of maintaining this momentum, as past performance shows that the stock tends to react negatively to any shortfall in subscriber numbers.

Strategic Content Investments

Netflix continues to dominate the streaming market, thanks in part to its vast library of content and strategic investments in sports content and live events. The company's recent deal with WWE to stream the live wrestling show Raw starting in 2025, alongside a live event featuring Mike Tyson and Jake Paul, highlights its efforts to diversify content and attract more subscribers. Analysts have expressed optimism about these moves, anticipating they will drive substantial advertising revenue and boost viewership. Furthermore, Netflix's crackdown on password sharing is expected to contribute positively to its financial health, with analysts estimating the potential conversion of 36 million borrowers this year.

Financial Forecasts and Competitive Landscape

As Netflix approaches its first-quarter earnings report, analysts forecast a 56% increase in earnings per share to $4.50 on revenue of $9.3 billion, with an anticipated addition of 4.9 million net subscribers. Despite facing intense competition from companies like Apple, Amazon, Walt Disney, and Comcast, Netflix's strategic moves, including its expansion into gaming and the introduction of a cheaper ad-supported plan, are seen as efforts to maintain its market leader status and enhance profitability. Analysts have raised their price targets for Netflix, with optimistic outlooks based on higher subscriber and average revenue per user (ARPU) forecasts for 2024 and beyond.

Street Views

• Greg Peters, Netflix co-Chief Executive (Neutral on Netflix):

  "We’re going to continue to deliver [interventions] to new cohorts in 2024."

• Jason Bazinet, Citigroup (Bullish on Netflix):

  "Conversations with investors suggesting an expectation for 8 million subscriber additions in the first quarter."

• Doug Anmuth, J.P. Morgan (Bullish on Netflix):

  "Boosted his own subscriber target from 4.5 million to 6 million, adding 'though we recognize investor expectations are likely more toward 7M-8M.'"

• Mark Mahaney, Evercore ISI (Cautiously Optimistic on Netflix):

  "About 80% of U.S. users sharing an account have already received an intervention notice... The rate of paid-sharing interventions has been much lower in markets like Japan, as well as 'edge cases,' such as those who only view Netflix on mobile devices."