Netflix is expected to hike prices on its streaming plans in 2024 — a move that should accelerate its revenue and earnings growth — as it continues to take a bigger bite out of overall TV viewing, according to analysts at UBS Securities.
“We expect to see rate increases this year” by Netflix, UBS analysts led by John Hodulik wrote in a Feb. 27 research note. That, along with a ramp-up in revenue from its ad-supported tier and healthy subscriber gains, should push the company’s total revenue growth in 2024 to 15%, per the analysts’ estimates, compared with 7% growth in 2023.
Last October, Netflix increased the price of the Basic plan from $9.99 to $11.99 per month in the U.S., and also hiked prices of the tier in the U.K. and France. Netflix hasn’t announced specific plans to hike subscription prices in 2024, but execs have said rate increases are on the table.
On the company’s Q4 2023 earnings call, Netflix co-CEO Greg Peters noted that last year the streamer had “largely put price increases on hold” while it was rolling out the paid-sharing program — “because we saw that as a form of substitute price increase. Now that we’re through that, we’re able to resume our sort of standard approach toward price increases. And price increases, you’ve seen us do that in the U.S., U.K. and France. Those changes went well better than we forecasted.”
Peters continued, “We will continue to monitor other countries and try and assess… when we’ve delivered enough additional entertainment value” to “ask [customers] to pay a bit more to keep that positive flywheel going and we can invest in more great films, series and games for those members. So, you know, the summary statement might be, ‘Back to business as usual.’”
In the note, the UBS team raised their 12-month price target on Netflix shares from $570 to $685 per share, maintaining a “buy” rating on the stock. Shares of Netflix were up 1.5%, to over $596 per share, in midmorning trading Tuesday.
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In outlining the bull case for the streamer, UBS cited Nielsen data showing Netflix’s share of U.S. TV viewing rose to 7.9% in January 2024, up from 7.7% in December. And Netflix currently has strong pricing power relative to other streaming services, because on average its prices are lower than rivals on a per-hour basis, according to UBS.
The analyst firm estimates Netflix’s price per hour of consumption at about 30 cents/hour on ad-free tiers, versus 56 cents/hour for Hulu, 58 cents/hour for Peacock, 73 cents/hour for Disney+ and 81 cents/hour for both Max and Paramount+.
Meanwhile, Netflix is the “main beneficiary of structural changes in media,” the analysts wrote in the note. Traditional media companies, as their linear TV businesses have declined, have shifted to focus on profitability in streaming. As the UBS team wrote, “The new playbook includes 1) price increases, 2) platform consolidation, 3) library curation (with attendant asset write-downs), 4) cuts to content spending (adjusting for strike-related declines in 2023) and 5) a renewed focus on content licensing.”
“As the objective in streaming shifts from subscriber growth to profitability for the traditional media companies, we see Netflix as the ultimate beneficiary of this industry rationalization,” the UBS analysts wrote.
Also Tuesday, UBS upped its estimates for Netflix net subscriber adds in 2024 from 18 million to 20 million “to reflect continued momentum in subscriber trends, upside to [average revenue per membership] and higher operating leverage.” The company added 29.5 million net new subscribers in 2023, up from an annual average of 21 million in 2020-22 as it “successfully implemented” the paid sharing program across the globe, the analysts wrote.
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“While we expect net adds to slow, we believe Netflix still has significant runway as it continues to convert users to paid subs and attracts new cohorts,” the analyst wrote.
UBS also raised estimates on Netflix’s free cash flow generation through 2027. The analysts expect operating margins to expand on average 300 basis points per year over 2024-27, driving a 26% compound annual growth in operating income.
Assuming cash content spending of about $17 billion in ’24 and $18 billion-$21 billion in ’25-’27, UBS projects Netflix’s free cash flow will see a CAGR of about 20% (up from 18%) through 2027, “supporting a ramp in [stock] buybacks.”