Netflix gains with analysts positive on paid sharing, advertising
Mario Tama
Netflix (NASDAQ:NFLX) stock was higher in a mixed Communication Services sector Wednesday amid some analyst positivity, with financial models updating due to the company's opportunities in advertising and its password-sharing crackdown.
That follows Netflix's first-ever advertising upfront presentation a few weeks back, a major update that spurred a double-digit move in the stock, and the rollout of its paid account sharing approach in the key U.S. market (and dozens more).
It's the broader paid sharing opportunity that's spurred J.P. Morgan to increase estimates for revenue and operating income. The company had previously said it estimated 100M users globally were borrowing from an existing paid account.
Of those, "we estimate Netflix will monetize 14M by the end of 2023, 26M by the end of 2024, and 33M by the end of 2025," analyst Doug Anmuth said. Those monetized borrowers will be "roughly split" between new subscribers/net additions and lower-priced paid-sharing "extra members" (which don't count as net adds).
Meanwhile, some 54% of the new subscribers will probably opt for the company's advertising-supported tier in each of 2023 and 2024, he said.
Paid sharing revenue should be $2.4B in 2024 and $3.5B in 2025, Anmuth said, and he's boosting revenue estimates overall by 4% for 2024 and 6% for 2025. Operating income should rise 6% in 2024 and 9% in 2025, he added.
He came out of the upfront "incrementally positive," not so much on advertising but due to confidence in better execution of the paid sharing rollout.
"We believe that is playing out as NFLX has improved communications w/sharers & borrowers (as well as non-sharing members) & eased concerns related to access while traveling," Anmuth said.
With further upside, he's established a price target at $470, higher than the firm's previous price target of $380.
Meanwhile, Wells Fargo is focused on the ad tier as it boosts Netflix's price target to a Street-high $500, implying another 24% upside ahead.
The U.S. ad market is "unique, arcane and still pretty analog," analyst Steven Cahall said. Of $70B-plus that would seem to be easy pickings, only about $8.7B is up for grabs with a lot of the market locked up in upfronts, he said, adding "brands are hooked on linear."
"However, as scale grows through paid sharing and eventually new tiers, we think advertisers will treat the larger inventory like linear: Some is premium, some is volume," he said.
Even though he's somewhat cautionary on ads, "we still think NFLX is improving its customer lifetime value. It has proven that ARPU maximization and is not the same as revenue maximization, and ad scale should lead to owner economics and higher revs/margins/FCF."
More on Netflix's new revenue streams

Netflix logs 10% gain amid positivity from first ad upfront
Netflix brings password crackdown home to America
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Netflix earnings call: Password crackdown goes global; buybacks to increase
Netflix's paid sharing promises near-term upside, Wells Fargo says