Can current tailwinds support Netflix’s accelerated growth in 2024? (NASDAQ:NFLX)

Netflix (NASDAQ:NFLX) had a strong Q3 performance, driven by record subscriber growth. Near-term prospects appear solid as well, supported by analyst sentiment and market dynamics. However, current tailwinds may not last, and Netflix could be challenged to build up its ad revenues in the coming quarters, raising questions about whether it can meet expectations in the coming year.

The streaming giant closed out the first nine months of 2023 “well positioned” to meet its objectives for the full year. Shares have jumped just over 66% in the year to date, and 38% since its Q3 earnings, reflecting continued investor confidence in the streaming giant. Yet headwinds loom over the long term.

Wall Street is overwhelmingly positive about the stock, with a consensus Buy rating. SA analysts and the Quant system have a more cautious Hold rating for Netflix (NFLX), although more are swinging to the Buy side in recent weeks. In the last 30 days, 18 SA analysts have recommended a Buy or Strong Buy, compared to 16 who have a Hold or Sell position on the stock.

This is reflected in recent SA contributor analyses as well. Eric Sprague highlights the fact that management spent $2.5B buying back 6M shares in Q3, coming out to more than 1% of the market cap in a single quarter and higher than the free cash flow for the period. Gary Alexander noted that despite record growth in subscribers in Q3, market share of all TV viewership is still in the single digits, indicating significant scope for market share expansion.

On the other end, an analysis by The Value Portfolio suggests revenue growth is expected to slow down as Netflix (NFLX) moves past current short-term tailwinds. Margins have improved slightly, supported by the WGA and SGA-AFTRA strikes, and revenues have benefited from customers opting to make individual accounts after Netflix ended account-sharing.

There will be limited upside to subscription additions as the market matures, and Netflix will be looking to boost the share of ad revenues in its total top-line. This may take time, given its own leadership does not see meaningful impact in the near-term from its advertising tier.

Netflix (NFLX), for its part, expects revenue of $8.7B (up 11% Y/Y) in Q4 and assumes paid net adds will be “similar” to its latest quarter, with global average revenue per member “roughly flat”. For the next year, Netflix sees a more balanced mix of membership and ARM growth and roughly 22% to 23% operating margin, up from its current expectation of 20% in 2023.