/Netflix%20On%20TV%20with%20Remote.jpg)
In an attempt to boost its revenue prospects, Netflix (NFLX) is cracking down on the ability of its users to share subscriptions across locations. This strategy and implementing a lower-cost subscription tier service with advertising could boost user growth and maintain upside momentum in Netflix’s stock price.
Shares of Netflix have more than doubled off of last year’s 5-1/2 year low. However, the stock price remains about 50% below an all-time high from late 2021. The action by Netflix to crack down on shared accounts could push more users to buy their own plans. Third Bridge said this is a “huge opportunity” for the company as “there are millions of people on shared accounts, and if you get a few bucks per month out of even a small percentage of them, that creates a huge recurring revenue base that can supplement current growth.”
Analysts have recently been boosting their earnings estimates for Netflix. According to data from Bloomberg, the average estimate for Netflix’s 2023 earnings per share has risen by +8.4% over the past three months. After rising by +6.5% in 2022, revenue is expected to increase by +8.6% this fiscal year before accelerating to almost +12% growth in fiscal 2024. Shares of Netflix trade at about 26 times estimated earnings, about 33% of the stock’s average valuation over the past ten years.
Some analysts see the crackdown by Netflix on shared passwords as a primary driver of earnings optimism. For example, Wells Fargo Securities said the efforts “appear to be creating significant upside to estimates” as “paid sharing is arguably the bigger near-term earnings opportunity.” Also, Bank of America said it expects subscriber results for the U.S. and Canada “will be significantly stronger than current consensus.”
Netflix said more than 100 million people are using its service without paying for it. Analysts expect the company to have added 2.3 million subscribers when it reports Q1 earnings results on April 18. That will bring total paid memberships to 233 million. Zacks Investment Management said, “Even if the password move adds just 10-12% growth to subscribers, that’s a measurable number. In an economy that is likely slowing, where else are you going to get that kind of growth?”
