2024 could be a breakout year for Netflix stock

After delivering incredible revenue growth to investors in 2020 and 2021; Netflix‘s (NFLX -0.49%) Growth slowed to single digits throughout 2022 and remained at that level in 2023. But there are signs that his double-digit growth is just around the corner for the streaming TV service giant. In fact, Netflix will likely report double-digit revenue growth when it releases its fourth-quarter results next week.

Here’s why 2024 will be crucial for both Netflix’s business and stock price.

big catalyst

Netflix has had more than a year of single-digit year-over-year revenue growth, but several key catalysts could significantly contribute to the streaming company’s growth this year. First, there’s Netflix’s ongoing efforts to crack down on free account sharing. The company has been slowly building and deploying the infrastructure to allow households to access Netflix for free by logging into someone else’s account through an initiative it calls “paid sharing.”

Management attributes the company’s significant increase in membership growth over the past two quarters to paid shares. This tailwind is expected to remain strong over the next few quarters.

The second notable factor that is expected to contribute significantly to Netflix’s growth in 2024 and beyond is the company’s nascent and rapidly growing advertising business, which will be critical to Netflix’s business in 2024. It will be.

So far, the focus has been primarily on increasing membership in ad-supported tiers, and not necessarily generating significant revenue. And it’s working.

“in [the third quarter of 2023]our advertising membership grew nearly 70% sequentially and now accounts for approximately 30% of all new signups in the 12 countries we advertise in,” management said in a third-quarter letter to shareholders. states.

Executives recognize that large audiences are the key to attracting significant advertising dollars for advertisers. In its 2023 investor meeting, the company was adamant that its advertising business is still in the “crawling” stage of product rollout. But in 2024, Netflix could enter a phase where it really starts to move toward revenue growth.

Accelerating growth

Investors are waiting for Netflix’s advertising business to make a significant contribution to revenue, but the company’s revenue growth rate is already accelerating. After recording just 2.7% year-on-year revenue growth in the second quarter of 2023, Netflix’s growth accelerated to 7.8% in the third quarter of 2023. Additionally, management coached him to achieve his double-digit growth rate of 10.7% in 2023. Fourth quarter of 2023.

In the future, the continued contribution of the crackdown on free account sharing, and the company’s small but fast-growing advertising business, will see the company not only achieve double-digit growth, but increase its numbers throughout the year. There is also a good chance of accelerating the Achieving this could accelerate earnings growth, increase investor confidence, and ultimately benefit the stock price over the long term.

Investors will learn whether the company has been able to continue accelerating its business when Netflix releases its fourth quarter results after the market closes on Wednesday, January 23rd. Revenue growth and guidance reported for the quarter will be key for investors in their assessment. Stock potential.