Netflix has won the streaming wars but Wall Street still has big questions about its future

• Netflix's stock recently hit an all-time high, but can the growth keep going?
• The US and Canada drive 70% of Netflix's revenue growth and are crucial for its future ad expansion.

By now, it's become a common refrain in Hollywood: Netflix has won the streaming wars. It has a giant subscriber base and a towering lead over its rivals (most of which are still struggling to figure out a profitable streaming model), and its stock price recently hit an all-time high.

Still, that gargantuan comeback — it hit $725 a share earlier this month after falling below $180 in summer 2022 following a rare subscriber loss — has some investors asking if the company is worth its high price tag. After all, Netflix still trails YouTube in terms of TV watch time, and its share of the total TV viewing, per Nielsen, hasn't materially changed over the past year. Amazon threw a wrench into Netflix's advertising ambitions by steamrolling into the market earlier this year.

Netflix has already made clear to investors that weaker subscriber growth may be ahead as its password-sharing crackdown benefits taper off, writing in its Q2 shareholder letter: "We expect paid net additions to be lower than Q3'23, which had the first full quarter impact from paid sharing."

While some analysts think Netflix could grow revenue by as much as 15% in 2025, others are more tepid. Barclays even gave the stock a rare downgrade on October 7, writing that it would be harder for Netflix to grow revenue over time and that every growth lever comes with trade-offs.

Ahead of Netflix's Q3 earnings report on October 17, here are the top questions on Wall Street's mind about how Netflix can keep its growth going and live up to its sky-high valuation.

Where will future revenue come from?

For all of Netflix's expansion overseas, the US and Canada remain by far its biggest growth engine, accounting for 70% of revenue growth from 2019 to 2023, Barclays analysts wrote this month.

How much growth is left?

The benefits of Netflix's password-sharing crackdown will fade over time, which could weigh down subscriber growth.

Netflix is also counting on the US and Canada to drive advertising growth, but Barclays argued that this could come with trade-offs in either lower revenue (if more people choose its ad tier) or lower subscriber growth (if Netflix raises prices to compensate for that).

How is advertising going?

With subscriber growth potential limited in the US because Netflix is already quite saturated in the market, Netflix needs to ramp up ad revenue. This is a point that analysts have been making for a while, and Netflix has made progress, announcing a 150% increase in ad commitments at this year's TV upfronts (off a small base). It's also opening up advertising sales through tech partnerships, and deals to broadcast live events like the Tyson-Paul fight, two NFL Christmas Day games, and WWE fights — all things that are catnip to advertisers.

Netflix execs have said that they expect advertising to eventually account for at least 10% of the company's revenue. But the ad tier base is still relatively small (15 million in the US and Canada, LightShed Partners estimated). It needs a lot more to become a meaningful contributor to revenue, though how much is unclear.

While Netflix's ad tier growth is steadily adding inventory, those tech deals will take a couple of years to ramp up. The WWE partnership won't start until 2025. And as part of its effort to attract advertisers, Netflix is spending to acquire more ad-friendly content like live sports (as well as to build a video gaming library), which could increase its content costs and cut into its margins.

Meanwhile, Amazon came on strong when it rolled out ads by default across Prime Video this year, putting downward pressure on Netflix's and other streamers' ad rates.

Barclays wrote that forcing people to watch more ads could also have a downside for Netflix: "It's tough to see how this doesn't come with its own engagement trade-offs."

Are price increases coming?

One way Netflix can keep growing revenue if subscriber and advertiser growth are limited is to raise prices for consumers. There's broad consensus among Wall Street analysts that Netflix has room to do so, given its relative value in the market and price increases by its peers.

Citibank analysts think Netflix could raise US prices by 12%. But a US price increase would only do so much for Netflix, given its ability to raise prices overseas is limited, Citibank wrote.

Netflix last raised prices in October 2023, on its premium and basic tiers, but not its ad-supported or standard plans.

Netflix has the lowest cancellation rate, per research from the data firm Antenna, and the lowest-priced ad tier of the streamers, so it has a lot of credit with subscribers on this front.

So, the question is more when prices will go up — not if.

Or, as NewStreet analysts wrote, is it possible Netflix could go in the opposite direction, at least in some markets? The streamer could decrease prices in small markets to build penetration or launch a free, fully ad-supported tier in select markets.

What's happening with games?

Netflix has been building out a video game library since 2021 but has shared little data on its progress.

Meanwhile, questions persist inside and outside the company about what the strategy around games is and if they're worth the investment.

The company recently installed a new gaming leader from Epic Games, who has already begun shaking things up.

With doubts about where Netflix's next growth act could come from, don't be surprised if questions grow louder about the games business, such as how efforts to promote games on the home screen have paid off and how Netflix might be looking to monetize them.

What's next?

For all the talk of Netflix's dominance, the overarching question looming for the company is how it moves from what's long been a single business model — selling subscriptions — to multiple business lines. Beyond advertising and games, the company also has been putting on events and selling merch tied to its popular shows like "Bridgerton" — areas that they say are about building fandom and retaining subscribers.

"But those are business lines at Disney," Dan Salmon of NewStreet said in an interview. "If you think about the next five, 10 years, that's the question: Do they build all the ancillary businesses like Disney has to leverage their IP?"

It's worth noting that Netflix recently hired Lowell Singer, a longtime investor relations exec from none other than Disney.

There's also an inconvenient truth looming for Netflix.

Despite Netflix ticking up in Piper Sandler's latest teen survey, kids spend more time watching short video clips on mobile screens versus TV shows and movies that are Netflix's bread and butter.

Netflix will have to evolve to meet that generation as they grow into adulthood and when — or if — they become subscribers on their own.

But those are questions that won't be solved in the next quarter.

October 18, 2024 — This story was updated to clarify when Netflix most recently raised prices. It was October 2023, not October 2024.