Netflix subscriber growth in focus as gains from password-sharing crackdown seen easing

NEWYORK:

Netflix's plan to maintain subscriber growth after two quarters of blockbuster increases will be in focus when it reports earnings on Thursday, with some analysts warning that gains from a crackdown on password sharing are set to ease.

The streaming pioneer saw its strongest growth since the pandemic in the second half of 2023, with about 22 million people signing up for the service after the company curbed the sharing of passwords globally.

Read: Meta facing backlash for allegedly sharing Facebook users' private messages with Netflix

But the bump from the password-sharing crackdown is expected to slow this year, turning the spotlight on its other efforts, including an ad-supported tier and a growing focus on sports.

Here are five things to look out for in Netflix's earnings:

Subscriptions in the March quarter

Netflix is expected to add 5 million subscribers in the first quarter ended March, according to LSEG data. While that is nearly three times the 1.8 million additions it saw in the same period last year, it would mark a slowdown from the bumper growth it witnessed in the last two quarters of 2023.

Netflix originals including "Fool Me Once" and "Griselda" were among the top U.S. streaming programs through January and February, with licensed content such as "Grey's Anatomy" also among the most streamed, according to data from Nielsen.

The company is expected to add 3.7 million subscribers in the second quarter ended June.

What's next for password-sharing crackdown?

Implemented globally in May last year, the success of Netflix's password-sharing crackdown has prompted similar moves by streaming rivals such as Walt Disney (DIS.N), opens new tab and helped its share price rise by about a third in 2024.

But some analysts have said the crackdown has hit a saturation point in the United States, even though it may have some room to run in international markets including India.

"There will be some concerns of saturation in key core markets, given the initial growth from password sharing crackdown," said Paolo Pescatore, analyst at PP Foresight.

Ad-supported tier

Netflix has crossed 23 million monthly subscribers for its ad-supported tier and the plan accounts for 30% of all new sign-ups in the 12 countries it is available, the company's president of advertising had said in January.

Analysts expect the adoption of the ad-supported plan, which costs $6.99 per month in the US, to grow this year after Netflix recently raised the prices of its commercial-free plans.

"This (the price increase) likely pushed more of its basic tier subscribers to the ad-supported tier while driving ARPU (average revenue per user) higher from the premium tier price hike," analysts at Wedbush Securities said last month.

"The ad tier will continue to limit churn, and it has a significant opportunity to expand its advertising revenue in 2024 and beyond."

Content spending

Netflix said during an investor call last quarter it expects to invest as much as $17 billion this year on content in a "smart, judicious, responsible way".

Analysts said that the company's flat spending on content has helped it attract subscribers at a time when rivals are pulling back investments in a bid to make their streaming services profitable.

"Specifically in the US, their streaming competitors seem increasingly willing to sell Netflix their former exclusive content, which should help reduce churn," said Jeff Wlodarczak, analyst with Pivotal Research Group.

betting on sports entertainment

Investors will be watching for the company's plans on sports content after it signed a splashy deal with World Wrestling Entertainment earlier this year to carry its flagship weekly program, "Raw", from next year.

The move deepened Netflix's bet on what the company calls sports entertainment, as it looks to tap the stickiness of such content without paying the billion-dollar price tags that come with traditional sports rights to leagues such as the NBA.

"WWE represented a pretty attractive financial deal. It is geared more towards entertainment over sports so it made quite a bit of sense for Netflix to do it," Wlodarczak said.