Netflix is expected to begin charging for sharing passwords in the first quarter of 2023, according to their letter to shareholders on 19 January.
They also added that they expect come “cancel reaction” in the market, where users will cancel their subscriptions once the paid sharing is rolled out, but added that “as borrower households begin to activate their own standalone accounts and extra member accounts are added, we expect to see improved overall revenue”.
Snippet of Netflix’s letter
As we noted in our Q3’22 shareholder letter, revenue is our primary top line metric, particularly as we
develop additional revenue streams where membership is just one component of our growth (like
advertising and paid sharing).
The quarterly guidance we provide is our actual internal forecast at the time we report. As always, we strive for accuracy although the rollout of major new initiatives (paid sharing and ads) plus current uncertain macroeconomic environment leads to less-than-normal visibility.
We forecast Q1’23 revenue growth of 4% (8% on a F/X neutral basis). We expect our F/X neutral revenue
growth to be driven by a combination of year over year growth in average paid memberships and ARM.
This translates into modest positive paid net adds in Q1 ‘23 (vs. paid net adds of -0.2M in Q1’22).
Our expectation of fewer paid net adds in Q1’23 vs. Q4’22 is consistent with normal seasonality and factors
in our strong member growth in Q4’22, which likely pulled forward some growth from Q1’23.
In addition, we expect to roll out paid sharing more broadly later in Q1’23 (more details below in the
Product and Pricing section).
We anticipate that this will result in a very different quarterly paid net adds pattern in 2023, with paid net adds likely to be greater in Q2’23 than in Q1’23.
From our experience in Latin America, we expect some cancel reaction in each market when we roll out paid sharing, which impacts near term member growth. But as borrower households begin to activate their own standalone accounts and extra member accounts are added, we expect to see improved overall revenue, which is our goal with all plan and pricing changes.
Our long term financial objectives remain unchanged – sustain double digit revenue growth, expand
operating margin and deliver growing positive free cash flow.
For the full year 2023, as we continue to improve our service, grow our advertising business and launch paid sharing, we expect constant currency revenue growth to accelerate over the course of the year. We also expect year over year operating profit growth and operating margin expansion for the full year (assuming no material swings in F/X).
We have been targeting a FY23 operating margin of 19%-20% based on F/X rates at the beginning of 2022
We now expect to deliver roughly 21%-22% operating margin on this basis (above the 19%-20%
range). Rolling forward to F/X rates as of January 1, 2023, this translates into a FY23 operating margin
target of 18%-20%.
For Q1’23, we expect operating margin to be down year over year (20% vs. 25%) due
primarily to the timing of content spend.