Like many technology stocks, Netflix (NFLX 1.84%) has taken it on the chin over the past year or so. After hitting its peak in late 2021, the stock plunged more than 75% as fears grew that Netflix was past its prime. However, investors may have been too quick to dismiss the streaming leader. Over the past year, Netflix stock has risen like a phoenix from the ashes, gaining 150% since it bottomed last June.
There's little question that Netflix's return to subscriber growth -- after suffering two consecutive quarters of year-over-year declines -- was the catalyst that fueled the stock's initial resurgence. However, Netflix has since made two strategic moves that helped pull the company back from the brink and catapulted the stock to its highest levels since the height of the pandemic.
Let's take a look to see how these strategies are playing out.
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Netflix's advertising tier is an unqualified success
Late last year, Netflix debuted its Standard with Ads tier at $6.99 per month. After a rocky start, the lower-priced plan appears to have hit its stride. Early last month, the company informed advertisers that the plan had attracted nearly 5 million monthly active users across the globe. Perhaps as importantly, the engagement of subscribers on the Standard with Ads tier is on par with comparable plans without advertising.
Thus far, Netflix has been mum concerning the progress of its ad revenue, but that hasn't stopped others from drawing their own conclusions. Estimates compiled by Insider Intelligence, eMarketer, and Guggenheim Securities -- courtesy of MediaPost -- conclude that Netflix will generate roughly $620 million in digital ad revenue in 2023. Add to that the roughly $419 million earned in estimated subscribers' fees from the lower-cost plan, and revenue from the Standard with Ads tier is starting to add up.
The sunset of password-sharing
After years of turning a blind eye to users who shared their passwords, Netflix has done an about-face. After running tests in several global markets, the company began notifying U.S. users of the change. Just weeks ago, the streaming pioneer began sending emails to members, reminding them that each account was limited to one household. The company went on to say that those "sharing Netflix outside their household" would be given the option to "share your Netflix account with someone who doesn't live with you for $7.99 per month more." The offer was pretty reasonable compared to the basic plan, which costs $9.99 per month.
It was widely believed that many of those users would simply drop the service, but evidence suggests that isn't how it's panning out.
Netflix has experienced a bigger jump in new subscribers than the spike at the onset of the pandemic, according to streaming data analytics company Antenna. In the four days after sending out those notices, Netflix accumulated more new U.S. subscribers than in any comparable period going back to 2019, when the company began tracking these statistics. The data revealed that Netflix generated average daily signups of more than 73,000, an increase of 102% compared to the averages from two months prior -- while also exceeding the pandemic-fueled sign-ups when lockdowns began in March and April of 2020. Antenna noted that cancellations also increased, but not nearly at the level of sign-ups.
The jury is still out
While these reports are encouraging, we won't know how well Netflix's ad-supported tier or its password-sharing crackdown are faring until we hear it directly from the horse's mouth. If history is any indicator, Netflix will report the results of the second quarter in mid-July, so watch closely for updates on the company's progress.
Given its history of savvy business moves, I expect the news to be good.
