Netflix (NFLX) shares edged higher Wednesday after Goldman Sachs analysts boosted their rating and price target on the streaming service heading into its second-quarter earnings report later this month.
Goldman analyst Eric Sheridan lifted his rating on Netflix to neutral from sell, while upgrading a dated price target by $170 to $400 a share. The analyst cited "the overall positive current operating performance" and "continued forward positive operating momentum" heading into the second half of the year.
"Netflix management has executed its password sharing initiative in excess of our prior assumptions ... and overall industry competition has become more muted," Sheridan wrote. He noted that Netflix shares have more than doubled (up 135%), compared with a 12.5% gain for the S&P 500, since the stock was added to Goldman's sell list in June of last year.
"Our neutral rating reflects our continued low visibility into the pathway to that upside node, but we do acknowledge that a probability weighted outcome toward such a result makes it unlikely the shares would underperform for any extended period in the coming quarters," he added.
Netflix shares at last check were up 0.4% at $443.16.
Netflix Implements Password-Sharing Restrictions
The Wall Street Journal reported last month that Netflix had its best four-day sign-up period in four years over the final days of May. The company had begun notifying users in the U.S. that it would limit their ability to share passwords, and force those living outside the homes of the account holders to purchase their own subscriptions.
Netflix rolled out the first phase of its "paid sharing" effort earlier this spring in Canada, New Zealand, Spain and Portugal, and launched its main U.S. focus on May 23.
Netflix has said password sharing, which involves an estimated 100 million households that aren't currently paying for the service, "undermines our long-term ability to invest and improve."
Analysts have also said Netflix's new password-sharing crackdown, which uses location-services data, could provide an offsetting revenue spike as users pay the added fee required to use a device to access Netflix at different locations.
The password-sharing crackdown is likely to boost overall subscriber gains, which are expected to rise by 3.43 million over the three months ending in June. But the revenue addition for each new sub gained by signing up to a password sharing account at $7.99 per person will be around half a full-scale membership.
Netflix is expected to post second quarter earnings on July 19, with analysts looking for a bottom line of $2.84 a share on revenue of $8.27 billion.
First-quarter profits were $2.88 a share, down 18% from the year-earlier period, while group revenue rose 3.3% to $8.16 billion.
Netflix, which no longer provides specific guidance on new subscriber additions, added 1.75 million new subscribers over the first three months of the year, missing the Wall Street forecast of just over 2 million.
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