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

Zinger Key Points
  • Analyst estimates Netflix to have 41M+ AVOD members by '24 and 54M+ by '25.
  • Analyst forecasts operating margin expansion for Netflix in '24 and beyond, driven by content innovation and ad monetization.

BMO Capital Markets analyst Brian J. Pitz reiterated the Outperform rating on Netflix, Inc. NFLXraising 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. 

Photo by freestocks on Unsplash

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