Netflix’s earnings report on Thursday is anticipated with heightened interest especially after experiencing two consecutive quarters of significant subscriber growth. However, analysts are cautious suggesting that the surge in new subscribers following a crackdown on password sharing may start to wane.
The streaming giant witnessed remarkable growth in the latter half of 2023 with approximately 22 million individuals subscribing to the service following measures to limit password sharing globally. Yet, projections indicate that the momentum from this initiative might taper off this year. Consequently, attention is shifting towards other strategies employed by Netflix including the introduction of an ad-supported tier and an increased focus on sports content.
Here are the key aspects to monitor in Netflix’s upcoming earnings report:
1. Subscriptions in March quarter:
LSEG data suggests an estimated addition of 5 million subscribers in the first quarter ending in March. Although this represents a substantial increase compared to the same period last year, it signifies a deceleration from the robust growth witnessed in the previous two quarters of 2023. Notable original content like “Fool Me Once” and “Griselda” along with licensed shows such as “Grey’s Anatomy” have contributed to Netflix’s popularity.
2. Future of password-sharing crackdown:
The effectiveness of Netflix’s crackdown on password sharing implemented globally since May last year has been a driving force behind its recent growth. However, analysts are questioning its sustainability particularly in mature markets like the United States. While there may be room for further expansion in international markets, concerns regarding saturation persist.
3. Ad-supported tier:
Netflix has seen considerable success with its ad-supported tier attracting over 23 million monthly subscribers. This tier accounting for 30% of new sign-ups across 12 countries offers potential for growth especially following recent price increases for commercial-free plans. Analysts anticipate further expansion of the ad-supported model driving revenue growth beyond 2024.
4. Content spending:
Netflix’s commitment to content investment remains steadfast with plans to allocate up to $17 billion this year. Despite competing pressures to ensure profitability, maintaining consistent content spending has been crucial in attracting and retaining subscribers distinguishing Netflix from its rivals.
5. Sports entertainment strategy:
The company’s foray into sports entertainment evidenced by a significant deal with World Wrestling Entertainment (WWE) reflects a strategic shift. By offering sports-related content like WWE’s flagship program “Raw”, Netflix aims to enhance viewer engagement without the exorbitant costs associated with traditional sports rights.
While Netflix continues to navigate evolving market dynamics and consumer preferences, its focus on subscriber growth remains paramount. The upcoming earnings report will provide valuable insights into the effectiveness of its strategies and its ability to sustain momentum in a competitive streaming landscape.
