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    HomeBusinessSubscribers expected to surge again amid ad tier momentum

    Subscribers expected to surge again amid ad tier momentum

    Netflix (NFLX) is set to report its fiscal fourth quarter earnings on Tuesday after the market closes — and expectations are that the streaming giant ended 2023 on solid footing.

    New subscribers in the quarter are expected to surge by another 9 million or so, according to the company’s own guidance. That suggests full-year 2023 net additions will sit at roughly 24 million.

    Investors will also continue to assess the company’s revenue initiatives like its crackdown on password sharing and ad-supported tier in addition to the recent price hikes on certain subscription plans.

    Netflix film chief Scott Stuber will exit his position in March, the company announced late Monday, which may garner investor attention as well.

    Netflix’s revenue initiatives should help boost profitability metrics like free cash flow, operating margins, and average revenue per member, or ARM.

    The company previously said it expects full-year 2023 operating margins to hit 20%, which is the high end of its previous forecast between 18% and 20%. ARM, however, will likely continue to be weak in Q4 before picking up later this year as both the ad tier impact and price hike effects take hold.

    Here’s what Wall Street expects, according to Bloomberg consensus estimates:

    “It is becoming increasingly clear that Netflix has won the ‘streaming wars,'” Bank of America analyst Jessica Reif Ehrlich wrote in a note ahead of Tuesday’s results. “Over the last 18 months, changing market dynamics, investor focus on profitability, and the various talent strikes have led several media companies to re-evaluate their streaming aspirations.”

    Those changes have included reducing content spend and increasing third-party licensing — an acknowledgement that “not all media companies will be able to achieve Netflix’s global reach and scale in streaming,” she argued. The analyst maintained her Buy rating and raised her price target to $585 a share up from the prior $525.

    Earlier this month, Netflix said the ad tier has surpassed 23 million monthly active users, up 8 million from its November update.

    To note, monthly active users, otherwise known as MAUs, are not the same as paying subscribers. The company has yet to reveal actual subscriber figures for the ad tier, or how much revenue it’s generated so far. MAUs can include multiple people using the same account.

    Still, Oppenheimer analyst Jason Helfstein, who has an Outperform rating on the stock and $492 price target, said those numbers reflect an accelerated pace of ad-supported subs, which is a good thing for profitability.

    “While accelerating sub growth is positive, the faster NFLX reaches scale in advertising, the faster ARM levels reset higher,” he wrote in a note to clients, adding: “The bull thesis is strengthening”

    Wells Fargo analyst Steve Cahall, who has an Outperform rating and $460 price target, estimated 23 million ad-based MUAs could translate to about 13 million ad-based subscribers as of the end of 2023.

    “We think NFLX’s #1 initiative for 2024 will be investing to grow ads longer-term,” he said.

    An iPhone 13 with the Netflix logo. (Getty Images) (Wachiwit via Getty Images)

    Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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