Netflix (NFLX) shares are up nearly 25% year-to-date. The streaming giant is set to release its first quarter results on Thursday, April 18, after the market close.

Wedbush Securities Vice President of Equity Research Alicia Reese says a couple of things have driven the share price higher: the company's password-sharing crackdown and the launch of its ad tier. On the ad tier, Reese thinks it will become accretive over the course of the year and will grow even more in 2025. Reese argues that, ultimately, ad-tier subscribers will prove to be more valuable than premium-tier subscribers because more advertisers will come aboard as the tier grows.

When it comes to earnings, Reese says she does think Netflix will beat expectations, noting that she's watching free cash flow growth given that "they have not had to materially expand their content spend over the last quarter because they're really leaning into more licensed content and not quite as much original content."

Watch the video above to hear what Reese says about more live sports content coming to Netflix.

For more expert insight and the latest market action, click here to watch this full episode.

This post was written by Stephanie Mikulich.

Video Transcript

JOSH LIPTON: Earnings season is here and this week we're getting the latest numbers from Netflix. Streaming giant expected to announce quarterly results Thursday after the close. And to get you ready for those results, Alicia, Reese Wedbush Securities Vice President of Equity Research joins us now.

Alicia, it is good to have you on the show. So you look at this stock, Alicia, what a move. It's up about 25% already just this year. It's about 80% over the past 12 months. What explains that move, Alicia? Why all the enthusiasm?

ALICIA REESE: Right. So Netflix put in place quite a few initiatives over the last year that drove the share price quite a bit higher, as you mentioned. One of those was the password sharing crackdown, and that did two things. One, it knocked off all of the people who had been sharing who then had two choices. The account holder could either add them for an additional fee, that's the extra member fee. And then those who got kicked off the accounts could opt for their own subscription or stay off for a time. Many of those have gone on to get their own subscriptions.

And so that helped on both the subscriber growth front and also the average revenue per user front. At the same time, Netflix implemented its average-- sorry, its advertising tier. And that's at a lower price. So that really enticed quite a few of those members who are or not members, the sharers who are kicked off the shared accounts to take their own account for quite a low price.

That offset some of the gains on the average revenue per user as that was dilutive for a long time, but we're now starting to approach parity. And over the balance of the year, I think we'll reach accretion. And throughout 2025, I think that accretion will expand.

JULIE HYMAN: So Alicia, if I'm understanding you, so the ad tier subscriber and the premium subscriber, which one of them is going to end up being more valuable in the end?

ALICIA REESE: In the end, the ad tier. At the moment, it's still the premium tier. And the survey work that we do inter-quarter still shows extreme stickiness on the premium tiers. But for the new-- for members or potential subscribers, people who are coming in who were not subscribers before or who are returning subscribers are more inclined to opt for the ad tier. And currently, the ad tour is still slightly dilutive. I think it's reaching accretion soon. It'll be at parity with the premium tiers, the average premium tiers.

But until it does so, that's going to draw the down a little bit, that extra member feature that Netflix is still benefiting from and also selective price increases have kept that RPU relatively elevated. But once we really start seeing that viewership rise on the ad tier, more and more members on the ad tier, more advertisers will flock to the service. And that will become significantly more accretive to Netflix than its premium tiers.

JOSH LIPTON: Alicia, let's talk professional wrestling. So Netflix is going to be streaming WWE's "Raw" next year. Do you see them kind of just moving harder into live sports, Alicia? I mean, they got the cash to do so. And live sports means plenty of eyeballs.

ALICIA REESE: Yeah. I think they're being really careful with that. I think WWE is a really smart move to start with. It's like they say the drama of sports that they want to lean into. And I think it's really a testing ground, because they don't have a very robust ad platform as it stands. They need to build that out. They need to continue building that out. So far, that's gone very well for them. But they still have quite a ways to go.

So what they can do with the WWE is advertise not just on their advertising tier, but to their premium members as well on some of those live-- the live shows. They also have a lot of shoulder programming, where they don't necessarily need to advertise on the premium tier, but they can on their advertising tier. So as they really build that out and make that more robust over time, I certainly think they'll lean into more sports content. And meanwhile, they have more gaming content that they can lean into with advertising as well.

JULIE HYMAN: So a lot of the catalysts we've been talking about are a little bit longer term. Let's talk super short term and talk about the earnings that are coming. You're in an outperform. Would you add to holdings of Netflix going into the numbers? And do you think they're going to beat and that'll be a catalyst for the stock?

ALICIA REESE: I do think they'll beat. I think they'll be able to hit the subscriber numbers that the Street is calling for at about, I think, it was 4.8 million the last I checked. I think Netflix can handily beat that. I think the average revenue per user, like I said, is still seeking parity with the premium tier. So I don't see a huge benefit in Q1 on the RPU.

But I think with between that being similar to Q4 and then having more subscribers should certainly get them to and above their revenue targets. And I think that free cash flow growth, particularly as they have not had to materially expand their content spend over the last quarter, because they're really leaning into more licensed content and not quite as much original content, that should really help drive an earnings beat and free cash flow expansion.

JULIE HYMAN: And we're waiting for those numbers after the close on Thursday. Alicia, thank you so much. Appreciate it.

ALICIA REESE: Thanks for having me.