Netflix’s (NFLX) controversial password sharing crackdown hit US users on Tuesday, and analysts remain bullish on the initiative’s ability to add incremental revenue growth for the company.
CFRA analyst Ken Leon told Yahoo Finance the password sharing crackdown will transition Netflix into “a stronger business,” adding, “it’s an opportunity to really build the business to a more loyal subscriber base.”
Netflix stock rose immediately following Tuesday’s announcement before sinking 2%. Shares recovered on Wednesday with the stock closing the day up about 2.5%. Shares were down a modest 1% on Thursday.
Leon, who has a Strong Buy rating on the stock and a $390 price target, said it’s likely investors will see a few choppy quarters ahead but that Netflix should be in a stronger position by Q4 and set itself up “very well for 2024.”
When asked if he’s concerned about churn, Leon said, “You can’t really have churn for someone who’s not paying a subscription.”
In its quarterly shareholder letter last month, Netflix said the company expected short-term churn before users signed up for their own accounts: “In Canada, which we believe is a reliable predictor for the US, our paid membership base is now larger than prior to the launch of paid sharing and revenue growth has accelerated and is now growing faster than in the U.S.”
Shortly following the announcement, Oppenheimer reiterated its Outperform rating and raised its price target on the stock to $450 a share, up from the prior $415.
The move represents roughly 25% upside compared to current levels with the firm citing “multiple tailwinds, including decreased competition, long term unwind of linear TV, and the launch of advertising & password sharing.”
Oppenheimer, which conducted a survey of nearly 2,000 US Netflix users, wrote in its note to clients that the survey’s results indicate the potential for the streamer to add about 36 million new subscribers.
Nearly half of the respondents indicated they’d be willing to pay the $7.99 fee for remote users while 70% said they’d be open to signing up for the $6.99 ad-tier plan.
“With pricing above ad-tier, our survey suggests a significant portion of these users will be pushed towards advertising,” Oppenheimer analyst Jason Helfstein wrote. “We believe true benefits from password sharing & advertising tier is not properly factored into estimates.”
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com
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