Netflix’s subscriber growth comes under fire as profits from the password-sharing crackdown are seen dwindling

Netflix’s subscriber growth comes under fire as profits from the password-sharing crackdown are seen dwindling

Netflix’s plans 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 will diminish.

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 clamped down on password sharing globally.

Read: Meta faces backlash for allegedly sharing Facebook users’ private messages with Netflix

But the impact of the password-sharing crackdown is expected to slow this year, focusing on other efforts, including ad-supported tiers and a growing focus on sports.

Here are five things to watch 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’s nearly triple 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” are among the U.S. streaming programs. tops through January and February, with licensed content like “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 ending in June.

What’s next for the 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 ), opening a new tab and helping its share price rise by about a third in 2024.

But some analysts say the crackdown has reached saturation point in the United States, although it may have some room to run in international markets including India.

“There will be some concerns about saturation in the core market, given the initial growth from the password-sharing crackdown,” said Paolo Pescatore, analyst at PP Foresight.

Ad-supported rankings

Netflix has surpassed 23 million monthly subscribers for its ad-supported tier and the show accounts for 30% of all new signups in the 12 countries where it’s available, the company’s advertising president said in January.

Analysts expect usage of the ad-supported plan, which costs $6.99 a month in the US, to grow this year after Netflix recently raised the price of its commercial-free shows.

“This (price increase) is likely to push more of its basic tier customers to the ad-supported tier while driving ARPU (average revenue per user) higher than the premium tier price hike,” analysts at Wedbush Securities said last month.

“Ad tiers will continue to limit churn, and it has a huge opportunity to grow its advertising revenue in 2024 and beyond.”

Content spend

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

Analysts say that the company’s flat spending on content has helped it attract subscribers at a time when rivals are scaling back investments in an effort to make their streaming services profitable.

“Especially in the US, their streaming competitors seem increasingly willing to sell Netflix their ex-exclusive content, which should help reduce churn,” said Jeff Wlodarczak, an analyst with Pivotal Research Group.

sports entertainment betting

Investors will be keeping an eye on the company’s plans for sports content after it signed a blockbuster deal with World Wrestling Entertainment earlier this year to run its flagship weekly program, “Raw,” starting next year.

The move deepens Netflix’s bet on what the company calls sports entertainment, as it looks to capitalize on the stickiness of such content without paying the billion-dollar price tag that comes with traditional sports rights to leagues like the NBA.

“WWE represents a pretty attractive financial deal. It’s geared more toward entertainment than sports so it makes a lot of sense for Netflix to do it,” Wlodarczak said.