Netflix stock rose Wednesday as investors reacted to news that the streaming video leader is broadly expanding its initiative to crack down on rampant account sharing.
The internet television network on Tuesday started emailing U.S. members who are sharing Netflix service outside their household. Netflix is giving those members the option to share their account with someone who doesn't live with them for an extra $7.99 a month. Alternatively, people using a shared account can transfer their profile to a new paid membership.
Also, members can still use their Netflix service while on the go or on holiday by reviewing devices that are signed into their account, Netflix said in a blog post.
Netflix had been testing its account-sharing enforcement in four countries ahead of the broad rollout this week. Those countries include Canada, New Zealand, Spain and Portugal. The company estimates that more than 100 million households worldwide have been sharing their Netflix accounts. Netflix ended the first quarter with 232.5 million paid subscribers worldwide.
Netflix Stock Rises After Crackdown
The company uses Internet Protocol addresses, device IDs and account activity to determine whether a device is part of the same Netflix household or not.
On the stock market today, Netflix stock rose 2.5% to close at 364.85.
On May 18, Netflix stock broke out of a cup-with-handle base at a buy point of 349.90, according to IBD MarketSmith charts.
Sharing Is Caring, But It Will Cost You
Netflix's password-sharing crackdown along with its ad-supported service tier should boost the company's cash generation, Wedbush Securities analyst Alicia Reese said in a note to clients Wednesday. She reiterated her outperform rating with a price target of 410.
Netflix could generate $1.7 billion in incremental revenue if 10% of subscribers opt to pay an account-sharing fee, Reese said.
"This is also likely to drive subscriber numbers higher over time, as many who are piggybacking off of friends' accounts will get pushed off," Reese said. "While the crackdown will likely drive higher churn in the near term, we think these users are likely to return in the following weeks or months."
Oppenheimer analyst Jason Helfstein kept his outperform rating on Netflix stock but upped his price target to 450 from 415.
Netflix stock ranks second out of 21 stocks in IBD's Leisure-Movies & Related industry group, according to IBD Stock Checkup. Its industry group ranks No. 15 out of 197 groups that IBD tracks.
Plus, Netflix stock has an IBD Composite Rating of 91 out of 99.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
