Though investors will have to wait until next month to get a full-fledged quarterly update on Netflix (NFLX -0.63%), there's a lot of good information to digest in the meantime, thanks to an in-depth interview with the company's Chief Financial Officer Spencer Neumann by Bank of America analysts on Wednesday. In the wide-ranging interview, the CFO covered a lot of topics. But one theme that surfaced repeatedly was the company's focus on its top-line growth -- particularly next year.
Netflix's revenue growth rates have slowed to a crawl recently, with year-over-year growth rates coming in at 1.9%, 3.7%, and 2.7% in the fourth quarter of 2022 and the first and second quarters of 2023, respectively. But it's clearly one of Netflix's priorities to get this key metric up to a more respectable level.
"[W]e really have to get back to what is more balanced kind of revenue growth in '24 and beyond," Neumann said on Wednesday.
There are several ways the company anticipates giving its top line a lift in 2024. But one of the two catalysts could be particularly big.
Two key catalysts
One important catalyst for the streaming service company heading into 2024 is the continued rollout of paid account sharing. This strategic effort will ultimately help the company crack down on its more than 100 million people borrowing Netflix accounts to stream content on the platform. By rolling out ways for these borrowers to transfer their profiles, user experiences, and viewing preferences to paid accounts, Netflix is seeing success in converting this valuable cohort.
But Neumann emphasized that Netflix is still early in the process of fully monetizing these accounts. "[I]t's going to roll out over multiple quarters in terms of when you see it more in the member growth -- the paid member growth initially and then it builds into revenue growth."
The other catalyst Netflix plans to tap into is its nascent advertising business. This is likely the catalyst that will drive the most growth for Netflix over the long haul.
"I'm super bullish and confident in the long-term opportunity of ... advertising as a big incremental revenue and profit contributor to the business," Neumann said, "but we do have to build it out over time."
Netflix says its ad business is still in the "crawl" phase
Of course, it's no surprise that Netflix depends on these two catalysts to accelerate its growth. Management talked about these expectations in its second-quarter update in July. But it's worth emphasizing just how early Netflix is in both of these growth drivers. Its advertising catalyst, in particular, has hardly even scratched the surface of the opportunity management sees ahead.
"I just want to kind of reinforce: We're still in the crawl of the crawl-walk-run stage," Neumann said when discussing the company's advertising business.
To date, ads haven't even been material to its revenue. But management has emphasized on several occasions that, over the long haul, it thinks advertising revenue will grow to at least 10% of its overall revenue. With Netflix's trailing-12-month revenue greater than $32 billion, management clearly expects its ad business to be enormous.
2024 will likely be the year Netflix starts to roll out more significant advertising capabilities and begin tapping into more substantial advertiser demand. But investors shouldn't have to wait for 2024 for the company's top line to accelerate. Management said in the company's second-quarter 2023 update that it expected growth to accelerate in the year's second half.
