News: Netflix will be 'stronger business' after password sharing crackdown: Analyst

Netflix implemented its controversial password sharing crackdown in the US, which received mixed reactions. However, analysts remain optimistic about the initiative's potential to drive additional revenue growth for the company.

According to CFRA analyst Ken Leon, the password sharing crackdown will strengthen Netflix's position as a business and enable the development of a more loyal subscriber base. Following the announcement, Netflix's stock initially increased but later experienced a 2% decline. However, shares recovered on Wednesday, closing the day with a 2.5% gain, and experienced a modest 1% drop on Thursday.

Leon, who has a Strong Buy rating on Netflix with a price target of $390, expects some turbulent quarters for investors but believes that Netflix will be in a stronger position by Q4 and well-prepared for 2024.

When questioned about concerns regarding customer churn, Leon stated that it is not a significant issue for non-paying subscribers.

In its quarterly shareholder letter, Netflix previously anticipated short-term churn as users transition to their own accounts. They cited the example of Canada, where paid membership surpassed pre-paid sharing levels, leading to accelerated revenue growth.

Following the announcement, Oppenheimer reaffirmed its Outperform rating on Netflix and raised its price target to $450 per share from $415, representing a potential 25% upside. The firm cited various factors, including decreased competition, the long-term decline of linear TV, and the introduction of advertising and password sharing, as contributing to Netflix's positive outlook.

Based on a survey of nearly 2,000 US Netflix users, Oppenheimer suggested that the streaming platform has the potential to attract approximately 36 million new subscribers. The survey revealed that almost half of the respondents would be willing to pay the $7.99 fee for remote users, while 70% expressed openness to signing up for the $6.99 ad-tier plan.

Oppenheimer analyst Jason Helfstein noted that pricing above the ad-tier could push a significant portion of users towards advertising. The analyst believes that the true benefits of password sharing and the ad-tier plan are not fully reflected in current estimates.