Netflix’s Remarkable Comeback: A Closer Look at Its Future Growth

Netflix (NASDAQ: NFLX) has surprised many investors by bouncing back after struggling in 2022 with consecutive subscriber losses. Body lines may have turned against this stock last year, but it has since soared over 400% from its lows.

The company’s revival can be attributed to several strategic changes. Netflix introduced an ad-supported tier that has gained traction among users and advertisers alike. Additionally, it has implemented a paid sharing program to manage password sharing. By also exploring live sports and mobile gaming, Netflix is diversifying its content offerings.

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Recently, Netflix’s stock price surpassed $1,000 per share for the very first time. Their fourth-quarter earnings report demonstrates how well these strategies have worked. The company boasted a record addition of 18.9 million subscribers in the last quarter, pushing revenue to over $10 billion—the highest ever in a single quarter. Impressively, Netflix gained at least 4 million subscribers across all four global regions, confirming the success of its content strategy.

Image source: Getty Images.

Expanding into Live Sports

Netflix’s prior hesitation to embrace advertising seems to mirror its late recognition of the importance of live sports. The two have consistently been successful staples of television, driving viewership and subscriber growth.

Subscriber numbers surged in the last quarter, thanks in part to its live sports offerings. The company reported that the Jake Paul-Mike Tyson boxing match became the most streamed sporting event ever, while their Christmas Day NFL games achieved record viewership. Looking forward, Netflix has secured U.S. rights for the Women’s World Cup in both 2027 and 2031. The company intends to focus on “can’t miss, special event programming,” rather than committing to full regular seasons, which could attract a wider audience.

Enhancing Its Advertising Strategy

While Netflix has yet to disclose subscriber figures for its advertising tier, the advertising sector appears to be entering a promising phase. The company aims to achieve “sufficient scale for ads members” across all countries by 2025, focusing on improving its advertising offerings.

After launching an ad tech platform in Canada, Netflix plans to extend this into the U.S. and other markets. Given its unique position as a video platform that can target ads effectively, Netflix is a powerful advertising partner for brands. It allows for more engaging advertisements than platforms like Alphabet‘s Google or Meta Platforms‘ Facebook.

By improving its ad targeting, Netflix has the potential to boost ad revenue considerably, especially as it attracts new subscribers to its ad-supported tier.

Projected Financial Outlook

Investors foresee steady growth for Netflix, anticipating the addition of 41 million subscribers in 2024 alone. Projecting an annual gain of 30 million for the next three years would raise the total subscriber count to 390 million.

If average revenue per member (ARM) increases by 10% through adjustments in pricing and revenue growth, the overall revenue could rise by 43% over the next three years—jumping from $39 billion last year to $56 billion. As operations expand, profitability is expected to follow suit, with a target operating margin of 29% for 2025 and 31% by 2027, potentially yielding an operating profit of $17.4 billion, doubling last year’s figure.

Earnings per share are projected to grow at an even faster pace, benefiting from reduced interest expenses and share buybacks. If Netflix meets this target, the stock may continue to be a strong performer in the coming years.

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Randi Zuckerberg, a former director of market development at Facebook and sister of its CEO Mark Zuckerberg, serves on The Motley Fool’s board. Suzanne Frey, an executive at Alphabet, is also a board member. Jeremy Bowman has positions in Meta Platforms and Netflix. The Motley Fool recommends Alphabet, Meta Platforms, and Netflix and holds positions in these companies. For more, check their disclosure policy.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of Nasdaq, Inc.