Netflix could be seeing 'significantly stronger' user growth amid password crackdown

By Emily Bary

BofA Securities analyst says data suggest strong recent user growth in Canada in wake of clampdown on account sharing

Netflix Inc. shares were continuing their rally Friday amid building optimism for the company's password-sharing crackdown.

The streaming giant is in the process of clamping down on an estimated 100 million people who are using others' Netflix (NFLX) accounts instead of paying for their own. The move represents a financial opportunity for Netflix if the company is able to convert password sharers into paying subscribers, but it also carries the risk that some existing subscribers will flee after being told they can no longer share account access.

Some early data suggest the company may be having more success with the initiative than expected at this stage. While Netflix has yet to crack down on password sharing in the U.S., it's started to do so in Canada, and a BofA Securities analyst recently cited third-party data suggesting that gross account additions in Canada have accelerated meaningfully.

In the short run, that suggests potential upside to first-quarter results, BofA's Jessica Reif Ehrlich wrote Thursday. The data indicated that subscriber numbers for the U.S./Canada region could be "significantly stronger than current consensus," which is about 100,000. Reif Ehrlich herself had been expecting a decline of 350,000 in the region.

Longer term, the data bode positively for Netflix's broader password-crackdown initiative.

"In addition to the data indicating net adds will be much better than current estimates, the new data also counters previous third-party data that UCAN sub results were trailing expectations," she wrote. "This aligns with management commentary that churn initially will increase and then quickly reverse, which appears to be exactly what is occurring."

Her view is that Netflix's move "will result in a greater number of subs and revenue as primary account holders either pay an additional fee for members who have moved out of the household or those sharing accounts become full subscribers."

Netflix shares were up more than 2% in Friday trading after rocketing 9% in Thursday's action.

-Emily Bary

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03-25-23 1056ET

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