Netflix Targets Operating Margin Expansion With Growing AVOD Members And Monetization - Analyst Sees Content Innovation At Scale

BMO Capital Markets analyst Brian J. Pitz reiterated the Outperform rating on Netflix, Inc. NFLX, raising the price target to $713 from $638.

Pitz highlights the company’s rising potential for 2024+ member growth through ongoing paid sharing initiatives, T-Mobile ad tier shift, and content innovation at scale.

The analyst writes that $20 billion of linear TV dollars will shift online globally over the next three years, including $8 billion in the U.S.

Related: Netflix Q1 Earnings Preview: Subscriber Growth, Potential Price Increase, Ad-Tier Plan And More On What Wall Street Expects

Of this net outflow, Pitz estimates that Netflix will capture a reasonable 24% of linear dollars globally or 34% in the U.S. 

While advertisers have multiple choices when deciding where to place ad campaigns, Netflix is increasingly well-positioned to garner an incremental inflow of linear budgets, the analyst notes. 

According to Pitz, output is that advertising will comprise ~10% of total revenue in 4Q25 and grow thereafter. 

Pitz estimates Netflix will have 41 million+ AVOD (Advertising-Based Video On Demand) members by FY24 and 54 million+ by FY25. Netflix added 8 million AVOD users in the second half of 2023.

Netflix advertising estimates for 2024/2025 comprise just 0.3% and 0.5% of global digital ad spend, with current revenue forecasts not exceeding 1% until at least 2028, the analyst writes.

The company is set to report first-quarter financial results on Thursday, April 18, 2024, after market close.

The analyst projects operating margin expansion in ’24 and beyond.

Price Action: NFLX shares are trading lower by 0.96% to $611.57 on the last check Wednesday. 

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