After delivering staggering top-line growth for investors in 2020 and 2021, Netflix's (NFLX -0.63%) growth rates slowed to the single digits in the entirety of 2022 and have remained there in 2023. But there are signs that double-digit growth is on the horizon for the streaming TV service giant. In fact, Netflix will likely report double-digit revenue growth when it reports its fourth-quarter results next week.
Here's why 2024 is pivotal for both Netflix's business and stock.
Big catalysts
Though Netflix has been on a streak of single-digit year-over-year revenue growth rates for over a year, some key catalysts are likely to contribute meaningfully to the streaming company's growth rate this year. First, there's the continued rollout of Netflix's efforts to crack down on free account sharing. Through efforts it calls "paid sharing," the company has been slowly building and implementing the infrastructure to begin monetizing households logging into someone else's account to access Netflix for free.
Management has credited paid sharing for the company's substantial uptick in membership growth over the past two quarters. This tailwind should remain strong over the next few quarters.
The second expected notable contributor to Netflix's growth in 2024 and beyond will be the company's nascent and fast-growing advertising business, which will become material to Netflix's business in 2024.
The focus so far has been primarily on increasing membership in its ad-supported tiers, not necessarily generating material revenue. And it's working.
"In [the third quarter of 2023], our ads membership increased nearly 70% quarter-over-quarter and now accounts for ~30% of all new sign-ups in our 12 ads countries," management wrote in its third-quarter shareholder letter.
Management recognizes that a large audience for advertisers is key to attracting major ad budgets. It has been adamant in meetings with investors in 2023 that its advertising business is still in the "crawl" stage of a crawl-walk-run product rollout. In 2024, however, Netflix could enter stages that really start to move the needle on revenue growth.
Accelerating growth
While investors wait for Netflix's advertising business to become a substantial contributor to revenue, the company's top-line growth rates are already accelerating. After posting year-over-year revenue growth of just 2.7% in the second quarter of 2023, Netflix's growth accelerated to 7.8% in the third quarter of 2023. Even more, management guided for a double-digit growth rate of 10.7% in the fourth quarter of 2023.
Looking ahead, the continued contribution of cracking down on free account sharing and the company's small but fast-growing ads business will likely be enough for the company to not only achieve double-digit growth, but also possibly accelerate the number throughout the year. Achieving this could accelerate earnings growth, win increased confidence from investors, and ultimately be good for the stock over the long term.
Investors will find out whether or not Netflix was able to continue accelerating its business when the company reports its fourth-quarter results, scheduled after market close on Wednesday, Jan. 23. The quarter's reported revenue growth and guidance will be key to helping investors assess the stock's potential.
