Netflix has already created many hit shows that are exclusively available on its platform and have attracted a massive customer base.Read more about Netflix’s risk and uncertainty. These factors make it possible that Netflix will have a tougher time growing its subscriber base or generating as much revenue per subscriber. Customers now have other choices for streaming subscriptions and the price they pay for Netflix is no longer an afterthought, creating uncertainty around the firm’s ability to attract and retain customers.Īs competing streaming businesses mature, their parent companies may bundle their services together (with or without Netflix), or they may offer these services as add-ons for pay-TV subscribers who receive their linear channels-a foothold Netflix doesn’t currently have. Also, Netflix is more focused on profitability and cash generation than it was in its infancy, meaning its prices have risen substantially over the past several years. The landscape has now changed, as nearly every major media company is promoting a standalone streaming service. In our view, Netflix’s tremendous success is due to it being a first mover in the streaming industry, as well as how it successfully adapted its business model to where the industry was going while its media peers were largely still focusing on their legacy businesses. Netflix Historical Price/Fair Value Ratio Netflix began selling ad-supported subscriptions in 2022, but we think it has not yet reached its potential, leaving room for upside. The firm should continue raising prices at least every two years, but we also expect a bump in advertising revenue. We expect UCAN average revenue per user to rise at a low-to-mid-single-digit rate each year. We believe rising competition and higher prices will keep Netflix from reaching a greater percentage of households. This will imply a household penetration rate in the low-to-mid-50% range throughout our forecast. Over our forecast, we project UCAN member growth to track the rate of growth in household formation, about 1%-2% annually. After a jump in household penetration in 2023, which we attribute to the company’s crackdown on password sharing, we expect new member growth in the United States and Canada, or UCAN, to slow significantly in 2024. We expect subscriber growth to come mostly from international markets. This should give insight into how much longer (if at all) the resultant boost in subscriber additions will last. Finally, it will be interesting to hear where the firm thinks it is on its password-sharing crackdown. Has ad revenue been material to the top line yet? How far away are we from ad-supported subscribers being as valuable as traditional subscribers? We’ll also be interested to hear where the firm is with generating revenue from advertisers on ad-supported subscriptions.Most notably, we’re looking to see whether net subscriber additions are again very high and driven by the ad-free tier. The biggest items of interest concern Netflix’s ad-supported subscriptions.What to Watch for In Netflix’s Q4 Earnings Morningstar Economic Moat Rating: Narrow.Here’s Morningstar’s take on Netflix’s earnings and stock. Netflix NFLX is set to release its fourth-quarter earnings report on Jan.
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