Analyst: Netflix Will Add 8.5 Million Q1 Global Subs, Including Upwards of 2 Million in North America

Netflix is projected to add 8.5 million global subscribers in the first quarter (ending March 31), including upwards of 2 million net new subs in North America, according to new data from Wedbush Securities media analyst Michael Pachter.

Netflix, which added more than 13 million subs in the fourth quarter, ended 2023 with more than 260 million subs worldwide, including more than 80 million subs in North America.

Michael Pachter

Citing a proprietary survey of more than 1,120 respondents, of which 60% were Netflix subscribers, Pachter contends that while sub growth cooled in Q1, the streamer’s lower-priced ad-supported option is bringing in new subs, while also attracting returning subscribers.

“Netflix continues to benefit from former account-sharers, at least 13% of whom opted to pay more for the extra-member feature post-crackdown, resulting in higher ARPU (average revenue per user),” Pachter wrote in a March 27 note.

The analyst believes that another 10% of former Netflix subs illegally sharing their account password kicked off the freeloaders, many of whom, Pachter says, have signed up or will sign up for their own accounts in the coming quarters.

“We think this quarter’s survey results once again show remarkable subscriber retention, and continued desire for the premium tier, and consistent retention for the ad-tier,” Pachter wrote.

The analyst contends that 23% of subscribers who did not renew service in the past month are “definitely” planning to re-start their subscriptions, while 31% are “likely” to re-start their subscriptions over the next three months. On the flipside, 25% of former subs are “not likely” to re-start their service, with another 20% “definitely not” re-starting service over the next three months.

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“In other words, those who recently churned out of the service are more likely to return in the next quarter than those who churned out more than
one quarter ago,” Pachter wrote.

Netflix reports first quarter fiscal results on April 18.

Analyst: Netflix Remains the Gold Standard Among SVOD Platforms Heading Into 2024

Four of the studio-backed subscription streaming video services — Disney+, Paramount+, Max and Peacock — may reach profitability in the next 18 months, according to an Ampere study, but that’s a distinction market pioneer Netflix has held for more than a decade. The streamer’s last quarterly loss occurred in Q1 2012.

Heading into 2024, Netflix is firing on all cylinders balancing market saturation, putting the brakes on content spending, and mining incremental subscriber acquisitions (and lowered churn) through shared account options.

It’s enough to make former Netflix bear — Wedbush Securities media analyst Michael Pachter — sing continued bearish praise for the SVOD pioneer.

“We think Netflix has reached the right formula with its global content to balance costs and generate increasing profitability, while the password sharing crackdown, and eventually its ad-supported tier, should further
boost cash generation,” Pachter wrote in a Dec. 21 note.

The analyst expects Netflix to add 25.2 million global subscribers in 2023, including 1.5 million in North America (8.75 million globally) in the fourth quarter, ended  Dec. 31. Pachter expects subscription growth to decline to 19.3 net additions annually through 2025.

Citing a proprietary consumer survey, Pachter found that only 2% of premium tier subscribers plan to cancel service in the next three months, while 5% of current subs identified as premium plan to switch to the lower-cost ad-supported tier in the next three months.

Overall, just 3% of current Netflix subscribers plan to cancel in the next three months, compared with 2% in Q3, 5% in Q2, and 3% in Q1.

“We think this is aligned with typical seasonality,” Pachter wrote.

Notably, the analyst found that 29% of respondents who had canceled service were “definitely” planning to re-start their subscriptions. Of those who had subscribed to Netflix in the past, but not within the last three months, 8% were planning to re-start in the next 90 days.

“In other words, those who recently churned out of the service are more likely to return in the next quarter than those who churned out more than one quarter ago,” Pachter wrote.

News Analysis: Netflix Posts Big Profits While Saying Actors’ Demands ‘Bridge Too Far’

NEWS ANALYSIS — Netflix hit another home run in its most-recent financial quarter (ended Sept. 30). The subscription streaming VOD pioneer exceeded industry expectations, adding almost 9 million paid subscribers worldwide to top 247 million subs.

Revenue over the 90-day period increased nearly 11% to more than $8.5 billion. The streamer saw a 22.9% increase in operating income to more than $1.9 billion, and net income of $1.67 billion, the latter up more than 20% from $1.39 billion in profit in the previous-year period.

Indeed, profit is no stranger to Netflix. Over the past 12 months, the streamer reported quarterly net incomes of $1.48 billion, $1.35 billion and $1.39 billion. The lone outlier was $55 million in profit in the fourth quarter of 2022 when adjusted operating margin for the year remained an impressive 20%.

Netflix was practically immune from the industry shutdowns during the pandemic, and remains aggressive on multiple fronts, including content spending ($17 billion annually) and in rejecting demands in the ongoing SAG-AFTRA labor strike that has seen working actors (not the stars) on the picket line for almost 100 days seeking higher daily compensation in the production of myriad TV shows and movies streaming on Netflix and other platforms.

A chief studio face during the labor negotiations is Netflix co-CEO Ted Sarandos, who grew up in a pro-labor union household, and says he is committed to finding a solution to the strike.

“That union was very much part of my life growing up,” Sarandos said in July. “I remember on more than one occasion my dad being out on strike. I remember that because [a strike] takes an enormous toll on your family, financially and emotionally.”

Yet, when negotiations between SAG-AFTRA and the Alliance of Motion Picture and Television Producers, the entity negotiating with actors on behalf of Netflix and the major studios, broke down last week over a last-minute $1-per-streaming-subscriber levy actors wanted to impose on streamers, Sarandos went public calling the proposed $800 million fee “a bridge too far.”

Speaking on the Oct. 18 fiscal webcast, Sarandos doubled down on the statement, adding the union’s demand “really broke our momentum, unfortunately.”

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“The industry, our communities, the economy are all hurting,” he said. “So, we need to get a deal done that respects all sides as soon as we possibly can. We want nothing more than to resolve this.”

No doubt, Sarandos and other media giant CEOs want an end to the strike and return to business as usual with all parties satisfied. So how would a $247 million levy (247 million subs x $1) break Netflix? The same company that last month shuttered a profitable by-mail DVD rental business generating $100 million in revenue?

Michael Pachter, media analyst at Wedbush Securities in Los Angeles, said the proposed levy at most would require a 15 cents monthly increase in subscription fees for each service. Virtually every SVOD platform has raised monthly subscription prices in recent years, including Netflix just yesterday upping the fees for its basic and premium tiers by $2 and $3 respectively.

“It’s crazy that any of them can claim [the levy] would bankrupt them with a straight face,” Pachter said. “If the cost is really that modest, they should suck it up and pay.”

The analyst said that as the streaming services raise prices, the actors have a right to ask for a financial participation on the back end.

“I think if [the streamers] struck a deal with inflation-adjusted escalators built in, they would never face this issue again,” Pachter said.

AMC Theatres Gains on Record Weekend Box Office as Court Rules Against Stock Proposal

AMC Theatres, the world’s largest exhibitor, saw its common stock shares skyrocket nearly 25% in value in early morning trading following the blockbuster weekend box office driven by the debut success of Warner Bros. Pictures’ Barbie and Universal Pictures’ Oppenheimer.

More than 7.8 million moviegoers in the U.S. and internationally saw a movie at AMC from Thursday-Sunday last week, as the exhibitor recorded its busiest weekend since 2019 based on global attendance and global admissions revenue.

On the flipside, a Delaware court ruled against the exhibitor’s desire to convert its AMC Entertainment Holdings Preferred Equity Units (“APE”) to common stock. AMC last year issued the special APE shares as a dividend to shareholders rather than seek their approval to issue more common shares.

Shareholders rejected the move, with more than 3,000 stock holders reportedly sending their complaints to the court, alleging APE shares diluted the value of their common shares. AMC CEO Adam Aron argues that without the ability to raise cash, the exhibitor risks the ability to pay off debt and sustain operations.

AMC on July 22 sent a modified version of its APE/common stock conversion to the court, if approved, would enable the exhibitor to roll out a 10-1 reverse stock split.

“If we are unable to raise equity capital, the risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt (which is required of us beginning as early as 2024),” Aron wrote in a July 23 social media post.

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, expects continued volatility in shares of both AMC and APE while the judge considers the modification AMC submitted. In the meantime, he thinks AMC will wait as long as possible before issuing APE shares at such a significant discount to AMC shares, and Aron attempts to persuade his shareholders to act in the best interest of AMC.

“If the modification is approved, AMC would be able to proceed with its proposals, which were passed by nearly 90% at its special meeting of shareholders in March,” Pachter wrote in a note.

FTC Loses Final Attempt to Stop Microsoft’s Activision Acquisition; U.K. Remains Last Obstacle

On July 14, the U.S. Court of Appeals for the Ninth Circuit denied the Federal Trace Commission’s appeal of a district court decision refusing to issue an injunction in Microsoft’s pending $69 billion acquisition of Activision Blizzard and its “Call of Duty” franchise that dominates the video game market.

The FTC had asked the appeals court for a temporary pause on the July 18 termination date where Microsoft or Activision could walk away from the deal (and Microsoft pays Activision a $3 billion dollar separation fee). Last week, the U.S. District Court in San Francisco denied the FTC’s motion for a preliminary injunction during the federal government’s review process continued, with the trial set to begin on Aug. 2.

In addition, the S.F. court modified its temporary restraining order unless the FTC was able to obtain a stay from the Ninth Circuit Court of Appeals. The FTC did not get that stay, and the restraining order has now expired. The U.K.’s regulatory “Competition and Markets Authority” ruling remains the lone obstacle to consummation of the deal.

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In response to the appeals court decision, U.K. regulators said they would be open to reviewing a restructured deal, extending its final decision from July 18 to Aug. 29, in order to receive “a detailed and complex submission from Microsoft claiming that there are material changes in circumstance.”

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, remains confident Microsoft can operate its Game Pass subscription business in the United Kingdom separately and will receive the CMA’s approval.

Even Sony Interactive Entertainment, a major objector to the deal, has reportedly accepted the reality of Activision Blizzard being owned by one its largest competitors. On July 16, Phil Spencer, CEO of Microsoft Gaming, tweeted that Microsoft and PlayStation had signed a binding agreement to keep Call of Duty on the PlayStation platform.

“The most likely change, if any, could be the extension of the termination date through Aug. 29,” Pachter wrote in a July 17 note. “It is also possible that the $95 per share deal price could be increased to $99 or more to account for the termination fee if the deal is terminated due to an injunction by July 18.”

Analyst: Netflix to Top Fiscal Q2 Results Guidance, Including Adding 2 Million Global Subs

Analyst Michael Pachter, with Wedbush Securities in Los Angeles, remains bullish on Netflix heading into its July 19 second-quarter fiscal results report.

Citing a commissioned third-party survey, Pachter says there is improved consumer awareness and uptake of Netflix’s lower-priced advertising subscription tier, in addition to a positive overall reception to the SVOD behemoth’s password-sharing crackdown.

Michael Pachter

Pachter said he believes Netflix will add 2 million global subs, ahead of industry guidance of 1.75 million new subs. The analyst is projecting 200,000 new subs in North America, along with $8.242 billion in quarterly revenue vs. Wall Street consensus of $8.276 billion.

“We think there could be meaningful upside to our estimates and guidance with what appears to be solid uptake of Netflix’s proposed family plans after its recent password-sharing crackdown,” Pachter wrote in a July 14 note. “We think Netflix’s Q2 earnings results will meet or exceed Street expectations, and we expect shares to rise.”

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Specifically, the analyst believes Netflix could see an additional $8 in average revenue per user (ARPU) through the addition of both the ad-supported tier and shared-password crackdown.

“We think Netflix is well-positioned in this murky environment as streamers are shifting strategy, and should be valued as an immensely profitable, slow-growth company,” Pachter wrote. “Even while the ad-supported tier is not yet directly accretive, the ad-tier should continue to reduce churn and draw new subscribers to the service.”

Analyst: Netflix Driving Connected-TV Advertising Revenue Gains; Roku, Fubo Less So

The recent upfront advertising presentations by media companies to marketers reflected the expanding shift toward connected TV (CTV) from linear TV. New data suggests major studios highlighted and pushed advertisers toward their branded streaming services from their linear channels — underscoring the fact that their content and viewership is increasingly concentrated in streaming.

Citing a March 2023 eMarketer report, which projects that even while overall 2023 television ad spending is declining, Wedbush Securities media analyst Michael Pachter believes the slowing linear-TV ad spend (down 8% year-over-year) will be offset by a 21% increase in CTV ad spend, driven in large part by Netflix’s initial presentation at the upfronts.

Michael Pachter

“There has [also] been a massive expansion of free ad-supported TV (FAST) channels that are drawing more ad dollars to CTV, although primarily in the scatter market,” Pachter wrote in a June 13 note.

The analyst contends Netflix can maintain its industry-high CPMs (cost-per-thousand ad impressions) given its expansive content offering, positive early reads on ad revenue, and recently released Antenna data that claims a spike in new subscribers after the streamer cracked down on password sharing.

“We are increasingly positive Netflix can drive revenue growth, beat its guidance for free cash flow in 2023, and expand free cash flow for the foreseeable future,” Pachter wrote.

At the same time, the analyst cautions on streaming device/platform pioneer Roku joining the ad revenue party in a major way. That’s because Roku is largely driving its marketing revenue on the back of its branded Roku Channel featuring AVOD and FAST programming.

“As a FAST channel streamer, Roku is beholden to the scatter market, which is experiencing extremely light advertising spend against a difficult macroeconomic backdrop,” Pachter wrote. The analyst thinks the fourth quarter will likely be inflection point for Roku’s ad revenue, and that with meaningful leverage in its business model, the company is poised to reach or beat its goal of positive pre-tax earnings-per-share by 2024.

Separately, like all other ad-facing CTV participants, online sports streaming service Fubo’s overall ad revenue has declined, while the platform’s sports-focused ad volume remains robust.

“A potential increase in political advertising aligns well for Fubo as it inches toward profitability,” Pachter wrote, adding that he believes the volume of sports advertising should remain at normal levels this year, unimpacted by the general downturn in advertising, while political advertising may even rise given greater general consumer interest than in previous cycles.

“The TV networks with live sports will bargain with advertisers to commit additional dollars to their respective streaming platforms in the upfront in exchange for live sports spots on their linear channels,” he wrote.

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Netflix Pulls Advertising Ace Card: Targeting Top 10 Content

NEWS ANALYSIS — Announced at Netflix’s first-ever marketing Upfronts in New York this week were plans to allow marketers to target the streamer’s daily, weekly top 10 content.

“Brands can become part of the cultural zeitgeist by aligning themselves with Netflix’s biggest hits,” Nikki Merkouris, corporate communications executive in the streamer’s New York office wrote in a post.

That’s no small thing guaranteeing ad placement within Netflix’s most popular shows and movies. While media companies regularly tout their content prowess, few can back it up with third-party verification like Netflix.

According to Peter Naylor, VP of sales at Netflix, the streamer has had the top-streamed TV series for 15 of 16 weeks this year, and the top streamed movie 14 of 16 weeks in 2023, according to Nielsen. That’s just this year. The trend has been pretty consistent since Nielsen began reporting weekly streaming viewership on household televisions in 2020.

Netflix, which launched a lower-priced ($6.99) “basic with ads” subscription tier last November, has quietly amassed nearly 5 million average monthly viewers — a tally that reportedly translates to upwards of 3 million new paid subscribers.

To Rich Greenfield, media analyst with LightShed Partners, the proposition is a win-win since it reduces the likelihood of marketers buying ads months in advance on programming that turns out to be a ratings flop.

“You are always buying [ads for] what people are watching and can never make a mistake that requires make-goods, especially when you consider almost all of the top streamed programming is on Netflix,” Greenfield wrote on May 18 post.

The announcement by Netflix suggests the streamer will up “basic with ads” access to original content, in addition to increasing the tier’s format resolution to 1080 pixels from 720.

“The ad-tier should continue to reduce churn and draw new subscribers to the service, while the password sharing crackdown may drive [average revenue per user] higher initially with some churn, but ultimately expand Netflix’s subscriber base,” Michael Pachter, media analyst with Wedbush Securities in Los Angeles, wrote in a May 19 note.

Pachter believes “basic with ads” viewers watched on average 30 hours per month and saw four ads per hour, with Netflix earning its peak CPM of $65, or the amount a marketer will pay for every one thousand impressions of a digital ad. That works out to nearly $15 ad ARPU ($6.99 subscription fee + $7.80 from advertisers) on 3.5 million ad-tier subscribers at the end of Q1, according to Pachter.

“Netflix’s ad-tier viewer engagement is as high as its regular [non-ad] tiers, underscoring that viewership on its ads plan was just an early growing pain and will not be an ongoing problem,” Pachter wrote.

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Analyst: Netflix’s ‘Slow-Growth’ Strategy Paying Dividends in ‘Murky’ Market

As media companies recalibrate their branded subscription streaming video platforms due to evolving market conditions, industry pioneer Netflix continues to quietly lead all streamers with slow growth efficiency.

To Wedbush Securities media analyst Michael Pachter, a longtime Netflix bear turned budding bear, the streamer remains an “immensely profitable” company, in stark contrast with rivals who continue to hemorrhage billions of dollars in fiscal losses.

Specifically, Pachter credits Netflix for quickly pivoting to an ad-supported subscription tier after eschewing advertising since its inception. He contends the lower-priced ad tier will help jumpstart subscriber growth in the long-term.

“We think Netflix made a great decision to launch an ad-tier, as [subscriber] growth had stalled in [North America] and was heading toward full market saturation in [Europe, Middle East and Africa],” Pachter wrote in a note to investors. “We … expect this to continue to drive a re-acceleration of subscriber growth.”

The analyst expects Netflix added 3.5 million global net subscribers in the first quarter (ended March 31), which includes 500,000 new North American subs, 1.5 million in EMEA, 1 million in Asia Pacific, and 500,000 in Latin America. Revenue is projected to top $8.1 billion.

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More importantly (to Pachter, anyway) is the continued generation of free cash flow after years of nothing, which led to the analyst’s bearish outlook. Citing an internal domestic survey of subscribers, Pachter contends Netflix’s crackdown on password sharing between subscribers and non-subs is working, and that price increases in select regions is offsetting price reductions in others.

The analyst expects Netflix to double free cash flow this year with a $1 billion annual growth rate going forward. Helping spur free cash is a rethinking of breaking the wallet on content spending.

“The company appears to us to be producing fewer feature length films, which we have always viewed as a poor investment, and appears focused on lower-cost television content, including workout videos,” Pachter wrote. “This focus on lowering content costs leads us to conclude that Netflix can grow its revenue faster than its operating expenses, resulting in outsized profit and free cash flow growth in the coming years.”

Netflix reports Q1 fiscal results on April 18 after the market close.

Analyst Says AMC Theatres’ Reverse-Stock Split, Improved Theatrical Slate Bodes Well For Exhibitor

AMC Entertainment shareholders March 14 approved a 1/10 reverse-stock split, reducing the number of outstanding common shares to 51.8 million from about 518 million. The world’s largest theatrical exhibitor’s controversial 930 million AMC Preferred Equity (APE) shares will convert to 93 million AMC common shares, resulting in 145 million total shares outstanding effective the date of conversion, when APE shares will no longer trade.

“I would like to commend our shareholders for the wisdom exhibited in your votes by approving these proposals, and doing so by a wide margin,” CEO Adam Aron said in a statement following the vote.

AMC began issuing special APE dividends last August in an effort to attract investors to help reduce its massive $12 billion debt load — much of it accrued during the pandemic when its theater operations ground to a halt.

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Some common share holders have not approved of APEs, contending the dividends dilute their shares’ value. In February Allegheny County’s (Pa.) pension fund sued AMC, alleging that the APEs circumvented AMC common shareholders’ will to not further dilute shares. The case is set to go to trial April 27.

Going forward, AMC has the authorization to issue up to 550 million additional common shares, which could generate upwards of $11 billion, according to Wedbush Securities media analyst Michael Pachter.

“We expect AMC to continue raising cash with its equity while chipping away at its massive debt balance,” Pachter wrote in a note.

Meanwhile, the analyst is buying into Aron’s optimism regarding the 2023 theatrical slate, which began with February’s Ant-Man and the Wasp: Quantumania, and features upcoming releases John Wick: Chapter 4 (Lionsgate); Universal Pictures’ The Super Mario Bros. Movie; Disney’s The Little Mermaid and Marvel Studios’ Guardians of the Galaxy Vol. 3; Sony Pictures’ Spider-Man: Across the Spider-Verse; Paramount Pictures’ Dungeons & Dragons: Honor Among Thieves and Transformers: Rise of the Beasts; and Warner Bros. Pictures’ The Flash, among others.

Regardless, AMC saw revenue decline 15% to $990.4 million in the most-recent fiscal period, from $1.17 billion in the prior-year period. The company’s net loss rose to $287 million, up from a loss of $134.4 million a year earlier.