Netflix is gearing up for the release of its third-quarter earnings for 2024, and analysts are closely watching for possible outcomes, including potential price increases. The aftermath of Netflix's crackdown on password sharing has led to substantial subscriber growth, however, that momentum is now expected to taper off. Some analysts on Wall Street are suggesting that Netflix could soon announce price hikes to sustain its revenue growth. The company is set to release its Q3 2024 financial results on Thursday, October 17, following the market's close.
Netflix's previous forecast anticipated that its global average revenue per member (ARM) would remain "roughly flat" year over year due to challenges such as foreign exchange fluctuations and the mix of plans and countries. This has led to speculation that Netflix needs to leverage its pricing power to maintain its double-digit revenue growth rate. Analysts, including Dan Salmon from New Street Research, suggest a major announcement of price increases could be on the cards, possibly affecting the US market too.
The last significant price adjustment in the US was in October 2023, impacting only the Premium and Basic tiers, while ad-supported and Standard plans retained their prices. This strategy appeared to drive early adoption by positioning the ad-supported plan at a competitive price point. Analysts speculate that the potential upcoming price changes in the US could encompass broader tiers, reinforcing Netflix's pricing advantage in contrast with pricier streaming options like Disney's Hulu and Warner Bros. Discovery's Max.
Moreover, Netflix's pricing power is evaluated against the fact that it hasn't increased the Standard tier price since January 2022. Morgan Stanley analysts forecast that Netflix will likely pursue a series of price hikes on premium, ad-free plans to improve ARM. Projections show a global ARM growth of 4% in 2025, fueled by ad-free subscriber growth and price increases, setting the stage for a substantial 13% growth in top-line revenue.
In their Q2 earnings call, co-CEO Greg Peters shed light on the company's strategic thinking regarding price increments. The approach focuses on enhancing member value by introducing more engaging content and events. Netflix gauges when to exercise pricing changes based on metrics like acquisition, engagement, retention, and churn. Wall Street's expectation for Q3 is an additional 4.76 million paid subscribers, acknowledging a slowdown compared to the previous year where the results were bolstered by the password sharing crackdown. This initiative, aiming to convert non-paying users into subscribers, remains a driver for growth, even as competitors emulate.
As operations unfold, some analysts remain optimistic about the sustained growth driven by the ad tier. The tier's main advantage lies in reducing churn and can possibly spur revenue increases through improved advertising solutions and partnerships. Upcoming live events such as NFL games and WWE shows are expected to bolster this growth track. On the financial front, market consensus predicts Q3 revenue at $9.77 billion, marking a 14% increase, with earnings per share at $5.11. Netflix's own guidance closely aligns with these projections. Operating margin improvements support the anticipation of Netflix meeting its performance expectations.
In perspective, Netflix aims to discontinue reporting subscriber counts starting in 2025, shifting focus to engagement and profitability metrics. This move has stirred discussions on the future impact of the password crackdown and ad-supported model on membership growth. Analysts and investors alike continue to emphasize Netflix's stronghold on viewer preferences and its expansive content catalog as enduring advantages, supporting the notion of sustained growth through strategic pricing and member engagement frameworks.
