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Analysts wrote in a note, “We continue to see under-appreciated opportunity in Netflix shares over the next 12 months even after year-to-date outperformance (up 44% vs. 35% for the NASDAQ 100). We believe that the company’s position as the global leader in high-quality, long-form streaming video will drive further financial upside through higher subscription ARPU, advertising revenue, and margin expansion.”
The company rolled out its paid sharing initiative in the U.S. and select markets worldwide in late May. Analysts believe that 24M of the estimated 100M households engaged in password sharing worldwide will be converted to paying customers over the next 12 months.
Supporting Guggenheim’s theory in that conversion, data from third-party data provider Apptopia indicates that U.S. download trends have increased 10% over the first 14 days following the launch of consumer-facing announcements of the password sharing limitation when compared to the 14 days immediately prior.
Netflix highlighted the success of its 1Q paid sharing launches in Canada, New Zealand, Spain, and Portugal, which took place on February 8. Despite an initial wave of cancellations, similar to what was observed in tests conducted in Latin America, management highlighted a subsequent surge in user acquisition and revenue as borrowers began activating their own accounts.
The company specifically pointed out the strong performance in Canada, considering it a reliable indicator for the United States. Furthermore, Netflix mentioned that the paid membership base in the U.S. had surpassed its pre-launch numbers for paid sharing, with revenue growth gaining momentum.
Analysts forecast that the addition of sub-accounts for paid sharing will contribute approximately $70 million in 2Q23 revenue, growing to ~$360M of revenue by 2Q24. This represents a ~4% contribution to Guggenheim’s total company revenue estimate in that period.
Shares of NFLX are up 1.65% in early trading on Tuesday.
