Netflix To Face Plenty Of Financial Concerns In 2023

Netflix shares have mostly increased in the last six months, but financial experts predict the company could struggle with ad tier revenue and subscriber growth in the coming year.

Netflix (NFLX) stock has performed well at the end of 2022, which analysts at Bloomberg have said is due to its recent move of providing a $6.99 ad-tier experience for users who do not want to pay between $9.99 and $19.99 for other plan offerings.

Compared to its current favorable reputation on the market, the company's stock plummeted earlier this year after announcing its lost 200,000 members in the first quarter. Netflix's subscriber loss, its first in 10 years, came amid stiff competition from other streamers such as Apple TV+ and Disney+.

While there are no known plans to increase subscriber prices going into the new year, users who share their Netflix login information with others will likely face higher rates.

To kick off 2023, Netflix will implement an end to free password sharing. According to the Wall Street Journal, the streaming service plans to crack down on account sharing between users by charging a premium to those who log in to accounts outside their designated household.

This reported change comes as the company has been testing add-on payments for password sharing in Latin American countries where if a person attempts to access an account outside of their designated household, Netflix then asks the owner to provide a verification code. If Netflix is repeatedly asked for this code, a monthly fee is added.

Analysts at Cowen Inc., as reported by WSJ, estimated that Netflix's effort could generate an additional hundreds of millions in revenue next year in the U.S. and Canada, where there are about 30 million sharers, but some analysts warn it could be risky.

"It's a boost and it can definitely help, but it's also a one-time boost," Neil Macker, senior equity analyst at Morningstar, told WSJ. Macker added that he thinks the streaming service may be underestimating how much the change could cause customers to cancel their Netflix subscriptions.

In addition to the slowing rate of subscriptions, its ad tier may also impact Netflix revenue. According to a study by subscription analytics firm Antenna, the service's ad-supported monthly option is not performing well with the offering only accounting for 9% of sign-ups during its November launch.

"Netflix's performance this quarter suggests increased price sensitivity amongst its subscriber base, likely heightened by the abundance of consumer choice and proliferation of other services," said Brendan Brady, Antenna's media and entertainment lead.

There's also Netflix's gaming sector, Netflix Games, to consider. According to S&P Global, the content medium is still developing and has only recruited about 1% of subscribers since its launch in 2021.

"Netflix is in dire need of a new strategy to recoup its losses as increasing pricing is not a viable strategy anymore, given that they are already at the top end of what most consumers are willing to pay," said Michael Goodman, the director of media strategies at Strategy Analytics.

Finally, Laura Martin of Needham & Company said in a client note that the Federal Trade Commission's recent antitrust lawsuits against Microsoft, which has an ad agreement with Netflix, may face a controversial regulatory environment going into 2023.