June 19, 2024

Netflix expected to outpace Q4 new subscriber estimates

Netflix (NFLX) plans to release fourth-quarter 2023 earnings on Tuesday, January 23, projecting another quarter of subscriber growth after rolling out ad-tier subscription plans and cracking down on password sharing.

Wedbush Securities Managing Director of Equity Research Michael Pachter joins Yahoo Finance to discuss the data expected out from the streaming giant in its earnings results.

“Investors will be pleasantly surprised when they report their numbers. They should beat that 8.75 million [new subscriber] target, and I think they’ll probably beat it by a million or two,” Pachter says.

Pachter goes on to comment on Netflix’s venture into streaming top video game titles.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor’s note: This article was written by Luke Carberry Mogan.

Video Transcript

JARED BLIKRE: Netflix expected to post a strong finish to the year when it reports earnings next week. Two analysts raising their price targets on the stock ahead of results. In the past year, the streamer has weathered the storm of Hollywood raising– or Hollywood strikes, raising prices, and adding an ad tier plan. Joining us now is Michael Pachter, Wedbush Managing Director of Equity Research. Thank you for joining us here today on a Friday afternoon. Just tell us broadly, what do you expect for this report next week?

MICHAEL PACHTER: I think they’re going to have solid subscriber additions. And in particular, I think you’re going to see them grow in the US and Canada. And we say that because we conducted a survey and saw some real traction on both the ad-supported product and on the password-sharing crackdown. We had 15% of subscribers who were notified that they were sharing passwords say that they had actually opted to add another account. So that raises ARPU. That’s considered the same account.

But that number that you reported in your canned piece just before this said 15 million ad-supported subs. That number rose to 23 million during the quarter. So where did those 8 million people come from? That should be directly from a reduction of the people who otherwise would have churned out. So I think you’re going to be pleasantly surprised or investors will be pleasantly surprised when they report their numbers. They should beat that 8.75 million target. And I think they’ll probably beat it by a million or two.

JOSH LIPTON: And, Michael, listen, it is great to see you, my friend, and always love having you on the show. I wanted to get your take on another angle for this company, Michael, because, listen, nobody knows the video game sector better than you. Their gaming strategy, Michael, right now they do offer games. They’re free. It’s sort of a way to keep the users engaged. What do you think, Michael, their long-term strategy is when it comes to gaming? And how do they– how do they make money off it?

MICHAEL PACHTER: You know, you showed the two guys who are making the decisions, Ted Sarandos and Greg Peters. My guess is, neither of them has ever played a game in their lives, and it shows. They clearly have no idea what they’re doing. So their strategy is to offer things on Netflix that you can’t get elsewhere. And the problem is that consumers can get games pretty much anywhere, and they don’t really think of Netflix as the place to go. So they’re trying to do the same strategy with games that they have with TV and film, you know, exclusive content. It’s just not going to work.

I mean, the smarter thing to do would be to put all sorts of games on your landing screen on Netflix. So let us play “Candy Crush” but launch it from our Netflix app, as opposed to having to go to our PC or go into a separate app. And if they get consumers used to playing, that’ll work. So long-term strategy is going to have to change. This one is doomed. There’s no chance they ever make money from this.

They did recently back off of that exclusive thing by adding the “Grand Theft Auto” mobile trilogy. I know you guys are dying to buy that. It’s 11.99 on your iPhone. And it is free on Netflix. So go for it. There have been over 20 million downloads. So consumers will respond to something that they’d have to pay for elsewhere and get it free on Netflix. But that costs money. I’m sure that Netflix had to spend 20 or 40 million bucks to get that exclusive.

I think they have to do a lot more of that. And instead of paid downloads, they should just offer free-to-play games like “Fortnite” that otherwise we wouldn’t be playing on our phones because “Fortnite” is banned from the App Store, for example.

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