Accelerating Growth in Ad-Supported Tier
The trajectory of Netflix’s ad-supported tier has recently received attention from Oppenheimer analyst Jason Helfstein. The company reported an impressive surge in monthly active users (MAUs) for its ad tier, surpassing 23 million, a significant leap from the 15 million recorded in November. This steep acceleration, according to Helfstein, indicates that Q4 net additions are likely to exceed both the company’s guidance and the Street’s expectations. Helfstein is anticipating 10 million consolidated net adds in Q4, compared to the consensus at 8.7 million.
Potential for Substantial Revenue Growth
Using the disclosed data points for ad-supported users, Helfstein projected the addition of approximately 0.7 million MAUs per month in 1Q23, followed by 1.25 million in Q2, 1.6 million in Q3, and a significant 2.6 million in Q4. Helfstein also anticipates a shift in momentum to 4 million MAU adds per month in December and January. Moreover, he believes that this accelerated pace suggests substantial room for subscriber growth in 2024, expecting ad-supported MAUs to reach 51 million at the end of the year.
Strengthening Bull Thesis
Helfstein’s analysis points to a strengthening bull thesis, underpinned by the positive impact of accelerating subscriber growth. He explained that the faster Netflix reaches scale in advertising, the quicker average revenue per membership (ARM) levels will reset higher, benefiting from the substantial incremental margins associated with advertising. With a projection of $6 billion in ad revenue for 2025 and a conservative 80% margin, this translates to $4.8 billion of incremental EBITDA compared to the total of $7.3 billion in 2023.
As a result, Helfstein expects this growth to allow substantial cash content spend and potential stock repurchases, further reinforcing the company’s market position.
Optimistic Price Target
As a culmination of his assessment, Helfstein revised his price target for Netflix from $475 to $600, indicating potential growth of 22% over the upcoming year, thus maintaining an Outperform (Buy) rating. It’s imperative to note that this optimistic outlook from Oppenheimer stands out as one of the most bullish perspectives on the Street.
