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Netflix paid sharing could be a meaningful new revenue driver, but it needs advertising and gaming to contribute, says Barclays

Published 2023-04-13, 12:34 p/m
© Reuters.  Netflix paid sharing could be a meaningful new revenue driver, but it needs advertising and gaming to contribute, says Barclays
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Proactive Investors - Analysts at Barclays (LON:BARC) said that Netflix Inc (NASDAQ:NFLX)’s paid sharing plan could be a “meaningful” new revenue driver, but the company still needs advertising and gaming to start contributing quickly.

Netflix has a paid sharing plan to deal with rampant account sharing: a program that lets subscribers pay extra to share their account with people outside their household.

The streaming giant introduced paid sharing in Canada, New Zealand, Portugal and Spain in February this year. It was previously rolled out in multiple markets in Latin America. It has also been introduced to Netflix’s subscribers that live in the US and Canada.

“We assume that core Netflix subs growth is the same as last year, with paid sharing the driver to get to at least 10% revenue growth,” said a Barclays analyst.

“These goals of course are our assumptions for what we think could be reasonable; but as becomes more evident in our analysis, goals above this threshold may be tough to get to purely on the back of this one initiative.”

Barclays said that based on its analysis, in order for Netflix to get to at least 10% revenue growth, with at least 5% coming from price, it may need to convert at least roughly 35-to-40% of its 100 million password sharing base of homes into paying subscribers.

“Implicitly, this equates to potentially 80% and 50% of the password sharing base in high income and low-income countries, respectively, paying more in some form,” added the analyst.

“Even if we were to use conservative assumptions, paid sharing could be a meaningful new revenue driver.”

However, Barclays said that the process may be "quite volatile" during implementation.

“At NFLX’s present valuation levels (21x ‘23E EBITDA), there doesn’t seem to be much priced in for execution risk. We also note that even at the more optimistic ends of the scenarios, the implied revenue growth rate in the aggregate may not really alter consensus growth estimates too much,” said the analysts.

“This is why we believe Netflix will need other growth drivers such as advertising and gaming to start contributing soon, especially if subscriber trends do not change.”

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