Netflix (NFLX -0.51%), like many of its streaming rivals, has seen its share price tumble over the last year as global inflation rates have crunched household budgets. But despite the challenges, the company has implemented some interesting strategies that could bear fruit. With this in mind, let's explore what Netflix is doing right now, and how it might influence the streamer's stock over the coming years.
Ad tier could drive significant revenue
After reporting a dip in user numbers earlier this year, Netflix announced it would introduce a lower-cost ad-supported tier. The decision represented somewhat of an about-face for the streamer, which had long resisted investor calls to explore an ad-based model.
Netflix rolled out its $6.99 per month Netflix Basic with Ads offering on Nov. 3, 2022, and within weeks, founder and co-CEO Reed Hastings admitted the company had held out too long. "Hulu really proved that you could do ... [ad-supported streaming] at scale and offer consumers lower prices," said Hastings during the recent New York Times' DealBook Summit. "I wish we had flipped a few years earlier on it, but we'll catch up and in a couple of years we won't remember when we started it."
Wall Street analysts and industry experts have a mixed view on the future success of Netflix's ad-supported plan. Ampere Analysis projects the tier will generate an additional $2.2 billion over the next five years, while Global X ETFs analyst Tejas Dessai anticipates the offering could eventually bring in $2 billion to $2.5 billion annually. However, Dessai also suggests that some of that growth will come from subscribers switching from Netflix's higher-cost plans, which would dampen its contribution to the company's bottom line.
Account sharing is getting more expensive
The practice of sharing a Netflix account across multiple households is something that the streamer has long forbidden, though rarely enforced. But with user growth proving harder to come by, the company is now clamping down on its rules.
Netflix is piloting a couple of plans in several Spanish-speaking countries, charging subscribers an additional fee of about $3 per month if it sees an account is being accessed at multiple locations. The move has not been without controversy. Customers in some territories have questioned what makes up a household, while others say they are being unfairly penalized for using mobile devices when away from home for long periods.
Despite the criticism, Netflix has made it clear to investors that it plans to more widely enforce its account sharing policies in 2023. The streamer has said account holders will be able to pay for users based at another address (aka "sub-accounts"), and it has already introduced a profile migration tool, allowing viewers to move existing viewing histories and watch lists to a fresh subscription.
Video games for growth
Perhaps the most interesting growth strategy for Netflix is its move into video games. The company first announced its intention to get into the space in spring 2021, and soon after, it acquired several mobile games studios. Toward the end of 2021, Netflix launched its first batch of iOS and Android titles, all of which are exclusive for subscribers of its streaming service.
For all it is doing in the video games arena, Netflix is seemingly yet to find much success. According to a study published earlier this year, fewer than 1% of Netflix customers were actively engaging with its mobile games. Still, with the smartphone and tablet gaming industry estimated to be worth $152.5 billion this year, Netflix clearly has good reason to pursue the space.
"[W]e believe that the future of television, of films, and games is streaming," said Netflix Co-CEO Ted Sarandos during the company's Q3 2022 earnings call. "And we can only do that by bringing the shows, the films, and games that people love."
Netflix's long-term prospects
While Netflix is still in the nascent stages with the strategies outlined above, if executed well, these approaches could well see shareholder value increase substantially in the coming years. Hulu, which is controlled by Walt Disney, reportedly generated $2.1 billion from its ad-based plan last year, and when it comes to gaming, the industry is projected to be worth roughly $257 billion by 2025.
Success is not guaranteed, of course. Ad-supported streaming is only getting more competitive, and even tech giants such as Alphabet's Google have failed to crack the gaming space. But Netflix is well-versed in taking long-term bets (the streaming company once made all its income from renting DVDs by mail), so the odds are good that investors may see plenty more growth from this streaming service stock over the next three years.
