As a seasoned Netflix enthusiast who has witnessed its evolution since its early days of DVD rentals, I eagerly await the Q3 2024 earnings report. The potential for a significant price increase, especially in the U.S., piques my interest as a subscriber. If Dan Salmon’s predictions are accurate, it seems like my wallet might need to stretch a bit more next year.
In the third quarter of 2024, it’s anticipated that Netflix will report strong earnings; however, as the growth in subscribers from their clampdown on password sharing starts to slow down, some financial experts predict a potential increase in prices in the short term.
The earnings report for Q3 2024 from the company will be made public on Thursday, October 17th, after the stock market has closed at 4 PM Eastern Time.
As a movie enthusiast, I find myself reflecting on Netflix’s recent predictions for Q3 global average revenue per member (ARM). They’ve anticipated this figure to remain relatively stable compared to last year, attributing the stagnation to foreign exchange rate challenges and shifts in their subscription plans and offerings across different countries. This has sparked discussions among analysts, who suggest that Netflix may need to boost its pricing power to maintain its robust revenue growth trajectory of over 10%.
Dan Salmon from New Street Research predicts that this week’s earnings report could signal a significant price rise announcement, affecting markets including the U.S., according to a note he wrote on October 15th. It’s important to note that Netflix last increased its prices in the U.S. back in October 2023, but only for the Premium and Basic tiers; the cost of the ad-supported plan ($6.99/month) and Standard plans ($15.49/month) remained unchanged. Salmon suggests that this price stability partially contributed to the initial appeal of the ad-supported plan as it was gaining traction. If a future price increase does occur in Netflix’s biggest market, the U.S., it may potentially affect all plans more broadly, according to Salmon’s prediction.
In simpler terms, the ad-free versions of Hulu (costing $18.99/month as of October 17) and Max (costing $16.99/month since June) are pricier than Netflix’s Standard plan, and analysts at Macquarie Equity Research believe that Netflix holds strong pricing power because it hasn’t increased the price of its Standard tier since January 2022.
Benjamin Swinburne, an analyst at Morgan Stanley, expects Netflix to continue raising prices on its premium plans to boost the average revenue per user. For the year 2025, Morgan Stanley predicts a global increase of 4% in Average Revenue Per Member (ARPU) due to mid-single digit growth in ad-free subscribers. This growth is expected to counteract any downward pressure resulting from changes in regional mix. Overall, Morgan Stanley projects a 13% increase in Netflix’s total revenue for the year 2025.
During a Q2 earnings conference call held in July, co-CEO Greg Peters shared insights on Netflix’s approach to price hikes, echoing his past views on the subject.
Generally speaking, Peters stated that it’s essential for us to enhance the worth we provide to all our members. This includes offering more films, series, upcoming live events, and games. When we receive indications from our members about their preferences (such as acquisition, engagement, retention, and churn), we determine the optimal time to ask them to contribute a bit extra to maintain our service’s momentum.
According to Zacks Investment Research, experts on Wall Street anticipate that Netflix will likely announce approximately 4.76 million new paid subscribers worldwide, with around a million of these expected to come from the United States and Canada.
Previously, I shared with investors that Netflix anticipates fewer new paid subscribers in Q3 compared to the previous year – a time when we added 8.76 million new members. This dip is due to the full-quarter effect of our efforts to curb unauthorized password sharing through our initiative to transform freeloaders into paying customers. This move, which has boosted our subscriber growth, has also encouraged competitors like Disney and Warner Bros. Discovery to take similar steps.
Despite some financial experts predicting that the rise of paid sharing may level off for the streaming service, Netflix is currently overcoming its password-sharing restrictions and still gaining benefits, as indicated by survey results. Moreover, analyst Alicia Reese from Wedbush Securities anticipates that Netflix’s advertising tier will continue to reap rewards for several years. This summary was penned on Tuesday in a note she published.
So far, the main advantage that Netflix’s ad-tier service offers is reducing subscriber cancellations, according to Reese. She believes that Netflix can boost its ad-tier earnings by the end of this year and up to 2025 as it enhances its advertising solutions and targeting, leverages new partnerships, and adds more live events like the NFL games on Christmas Day 2024 and WWE’s “Monday Night Raw” in 2025 and beyond, as suggested in her note.
As a movie enthusiast, I’m excited to share some financial insights about my favorite streaming platform, Netflix. Based on analyst predictions, we’re looking at an impressive year-over-year revenue growth of around 14%, with Q3 earnings projected to reach approximately $9.77 billion. This is compared to last year’s earnings of $3.73 per share, which would translate to a new EPS of $5.11.
Essentially, analyst Reese from Wedbush predicts that Netflix will match estimates in Q3 and provide robust guidance for the final quarter of 2024. Consequently, they have increased their stock price target to $775 per share, based on a projected price-to-earnings ratio of 29X for their estimated earnings per share (EPS) in 2026. Reese believes that Netflix can meet or even surpass expectations for EPS growth between 2023 and 2026, which justifies its premium valuation.
Moving forward, I should point out that starting from 2025, Netflix will cease to disclose a crucial statistic – subscriber counts. From the first quarter of next year, they plan to stop regularly reporting member numbers. Instead, they’ll focus on other indicators such as engagement and profitability, which they believe offer a more accurate representation of their overall performance. This decision, however, has sparked curiosity about how long the ongoing password-sharing restrictions and the introduction of an ad-supported tier can continue driving subscriber growth. As Netflix investors have traditionally paid close attention to member numbers, we might witness increased scrutiny on exit trends as this metric fades away.
According to TD Cowen’s John Blackledge, written on October 7th, investors are keeping their attention fixed on the trends of paid members and monetization strategies. He predicts that we will see ongoing growth in members and an increase in margins during Q3. In a survey conducted by TD Cowen in September 2024, Netflix was found to be the most preferred choice for ‘living-room viewership’ among U.S. consumers, with 23% of respondents choosing Netflix, followed by YouTube (15%) and basic cable (12%). Blackledge believes that Netflix’s extensive library spanning various genres provides a lasting advantage over time.
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2024-10-15 21:50