Netflix's paid sharing promises near-term upside, Wells Fargo says
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Netflix's (NASDAQ:NFLX) initiatives to monetize paid sharing of accounts look like they're creating "significant" upside to estimates, Wells Fargo suggests -- noting that's a key part of the long-term bull case on the stock.
Last year the company started testing account sharing as a revenue stream in Latin American markets, and expanded the "extra member" tests to Canada, New Zealand, Portugal and Spain last month -- at "meaningfully higher" fees than the earlier round.
And Netflix stock's (NFLX) recent late-March move from about $300 per share to a current $339 "reflects early bullishness" around the paid sharing opportunity, analyst Steven Cahall suggested.
"While much has been written on AVOD [ad-supported video on demand], paid sharing is arguably the bigger near-term earnings opportunity given some 100M global paid sharers, [including] 30M domestically," Cahall said.
Digging in, he suggested the 30M paid sharers in the U.S./Canada will likely be asked to add about $8 per month for extra members -- and some accounts will pay that, while others will drop their sharers (with some of those then subscribing on their own).
Cahall's base case is that 15% of extra members will convert, and the base case for new members is 25% -- suggesting that there would be a net addition of 7M domestic net adds from paid sharing, with revenue upside of $1B-$2B.
Internationally, both conversion rates should be lower, he said, as well incremental average revenue from additional members. "Still, with 70M international paid sharers the revenue lift could be quite big," he said, amounting to an incremental $900M-$2.5B.
And while forecasting paid sharing is tough, Wall Street consensus is at 15M net adds this year while "paid sharing alone could be [more than] 20M in our base case," Cahall wrote, saying that implied 2024 Street consensus on revenue is far too low.
Despite the recent stock run, he says Wells Fargo still likes the stock and sees an attractive entry point. He has a price target of $400, implying 18% further upside from here.
Last week, BofA said domestic subscriber counts at Netflix (NFLX) could end up better than projected.