According to analysts at UBS, Netflix’s first-quarter earnings report is expected to demonstrate continued progress toward re-accelerating growth. The company is anticipated to exceed management’s projection for “modest” subscriber additions, as paid sharing is introduced at a slower pace, thereby reducing potential churn in the second quarter.
Anticipated Subscribers Increase
UBS analysts have predicted that the company will add 2.1 million subscribers in the first quarter and 2.5 million in the second quarter. This is an improvement from the prior estimates of 1.5 million and 2.8 million, respectively. The full-year estimate for subscribers also stands at 13 million compared to 9 million in 2022.
Impact of Paid Sharing on Near-Term Growth
However, analysts expect the primary debate surrounding the earnings report to focus on the impact of paid sharing on near-term growth. Netflix introduced paid sharing in several markets, including Canada, New Zealand, Portugal, and Spain, in early February. However, there have been no new markets added since then, despite prior comments suggesting a broader rollout in the late first quarter.
Potential Revenue Increase from Paid Sharing
UBS analysts believe that password sharing restrictions could provide a modest percentage uplift to revenue, excluding churn. Paid sharing rollout could also help drive ad scale, resulting in benefits from sharers migrating to lower-priced ad products and better targeting, as ad buyers will know precisely which households they are reaching. Analysts estimate that ad tiers could drive a revenue tailwind of around 10%, which could be seen over several years.
Overall, analysts expect Netflix’s first-quarter earnings report to show continued progress toward re-accelerating growth. The introduction of paid sharing in select markets, along with the slower ramp-up, is expected to help reduce churn and drive subscriber growth. Despite concerns about the impact of paid sharing on revenue, analysts remain optimistic about the potential for revenue uplift through password sharing restrictions and ad scale.
