Netflix Q4 Preview: Ad Level Achieved Highest US Signup Rate in Nearly Three Years, Study Says

Netflix’s new cheaper ad-supported plan may have given the streaming giant the subscriber acquisition boost it was hoping for.

Netflix reports Q4 2022 earnings results after the market closes on Thursday, and one of the key areas of focus for investors will be the performance of the ad-supported tier ($6.99/mo in the US), which debuted in early November in 12 markets.

Previous reports suggested Netflix’s ad-supported basic package got off to a slow start. But new data indicates the launch was a success: Netflix posted its highest daily subscription rate in the US since the start of the pandemic in April 2020 with the introduction of its ad-supported plan on November 3, according to A study. published Thursday by research firm Ampere Analysis. Specifically, average daily transmitter log volumes increased 58% from November 3-5 compared to the three days prior to launch, according to the researcher.

Since the launch of the ad-supported service, 8% of customers who sign up for Netflix or change their plan have taken the ad-supported tier, Ampere found. Of these, three out of four are new signups, with the majority being former customers re-subscribing (64%) and the remainder (36%) representing new users. Among Netflix subscribers who downgraded to the advertising tier, 67% were from the Basic tier, 21% upgraded from the Standard plan, and 12% were from the Premium tier.

Netflix’s Basic with Ads plan “has managed to attract more price-sensitive Netflix subscribers who have previously dropped out,” said Mayssa Jamil, an analyst at Ampere. Rather than risk cannibalization for its basic ad-free packages, the cheaper $6.99/mo plan “will help customer retention in the long run,” Jamil said. Ampere’s Subscription Video Economics Database tracks daily registration and cancellation activity for streaming services in the US based on a panel of “several million” households.

In reporting third-quarter earnings, Netflix did not provide guidance on how many subscribers it expected for the level of ads, but the company told investors that Netflix Basic With Ads would not make a “material” contribution to fourth-quarter earnings. Executives have said they expect the ad-supported package to be neutral or positive in terms of revenue per subscriber compared to their ad-free plans.

In it Variety Entertainment Summit at CES earlier this month, Netflix advertising president Jeremi Gorman said the company is “pleased with the growth we’re seeing” in its ad-supported tier since launch. He declined to reveal subscriber numbers, but added: “You could see if I was a concerned human being, I use it on my face.”

Overall, Netflix expects a net gain of 4.5 million subscribers globally in the fourth quarter, the latest forward-looking guidance the streamer will provide on this front. “As discussed in previous letters, we are increasingly focusing on revenue as our primary top-of-the-line metric,” Netflix said in its third-quarter letter to shareholders.

In the fourth quarter, Netflix had “healthy viewing hours” based on an analysis of company-reported metrics, driven primarily by a significant outperformance of the hit series “Wednesday,” Morgan Stanley’s Ben Swinburne wrote in a May 18 note. from January. “More engagement probably means less turnover.” Netflix’s share of the Top 50 streaming titles on a select number of services tracked by Nielsen also showed “a notable sequential increase” in November and December, he added. Additionally, Netflix mobile app downloads were down just 12% in the fourth quarter globally on a year-over-year basis, suggesting the company could beat the growth forecast of 4.5 million subs, “assuming a year-over-year decline.” modest in turnover,” according to Swinburne. Morgan Stanley raised its 12-month price target on Netflix shares to $300 from $275, based on favorable exchange rate trends.

Meanwhile, analysts will also be looking for updates on Netflix’s plan to urge password-sharing households to pay more for users who illicitly share their accounts. The company said it would launch “a thoughtful approach to monetizing account sharing” in early 2023, expanding beyond its initial test markets in Latin America, with signs pointing toward more of an honor system approach rather than one. punitive.

It is still early days for the company’s two new growth initiatives, which “will take time to scale,” UBS analyst John Hodulik wrote in a January 16 research note. Netflix’s password-sharing upsell program “should increase revenue, but will likely drive churn,” Hodulik said. “We also expect similar feedback on [the advertising tier] with management’s ‘crawl, walk, run’ approach.”

With Netflix management no longer providing guidance to subscribers, Wall Street will focus on revenue and earnings guidance for the first quarter. On average, analysts expect revenue of $8.15 billion (up 3.6% year-over-year) and earnings of $2.97 per share (-16%) for the first quarter of 2023, according to Refinitiv data.

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