Netflix turning password sharing clampdown into paid sharing boost, say analysts

By James Rogers

"Netflix has more levers to grow in 2024," according to KeyBanc Capital Markets analyst Justin Patterson

Netflix Inc. is reaping the benefits of its clampdown on password sharing and its paid sharing push, say analysts.

The streaming giant reported third-quarter results after market close Wednesday, enjoying a huge jump in subscribers as revenue improved to $8.54 billion from $7.9 billion in the same period last year.

Third-quarter revenue growth was boosted by a 9% year-over-year increase in average paid memberships due to the roll out of paid sharing, Netflix (NFLX) said, also citing the company's "strong, steady programming" and the ongoing expansion of streaming globally. Speaking during a videoconference call to discuss the results, Netflix Co-Chief Executive Greg Peters said that the company will continue its rollout of paid sharing for the next several quarters.

Related: Netflix's stock jumps more than 10% on huge spike in subscribers, price hikes

"Paid Sharing is clearly working, as evidenced by the 8.8M net adds in 3Q, which is the 2nd straight quarter of strong Paid Sharing bump & NFLX's highest ever net adds in a 3Q," wrote J.P. Morgan analyst Doug Anmuth, in a note released Thursday. J.P. Morgan raised its Netflix price target to $480 from $455 and reiterated its overweight rating.

TD Cowen analyst John Blackledge notes that Netflix's paid sharing rollout is progressing ahead of expectations. "NFLX reiterated its commentary from 2Q that they are revenue positive in all regions following the launch of paid sharing, which has now been rolled out to all of their regions, up from 80% at the 2Q print," he wrote, in a note released Thursday. "Finally, the company believes that paid sharing should ultimately drive incremental sub gains for several more quarters." TD Cowen maintained its outperform rating for Netflix.

KeyBanc Capital Markets upgraded its Netflix rating to overweight from sector weight Thursday, citing the company's growth potential. "Netflix has more levers to grow in 2024," wrote KeyBanc Capital Markets analyst Justin Patterson in a note released Wednesday. "Paid sharing will likely benefit subs into 2024E."

Related: Netflix stock soars toward biggest gain in nearly 3 years, would add more than $21 billion to market cap

"Netflix maintains that its ability to convert paid members is better in the wake of paid sharing," he added. "The Company believes paid sharing will continue to provide benefits over several quarters, which will create more balanced revenue growth between subscribers and pricing."

Of 48 analysts surveyed by FactSet, 25 have an overweight or buy rating for Netflix, 21 have a hold rating, and two have a sell rating.

Wedbush maintained its outperform rating for Netflix. "We think Netflix has reached the right formula with its global content to balance costs and generate increasing profitability, while password sharing crackdown and eventually its ad-supported tier should further boost cash generation," wrote Wedbush analyst Alicia Reese, in a note released Thursday. "We think Netflix is well-positioned in this murky environment as streamers are shifting strategy, and should be valued as an immensely profitable, slow-growth company."

Related: Netflix shares surge as streaming site hikes prices while Tesla stock slumps after Musk's comments

Shares of Netflix climbed 13.9% in premarket trades Thursday.

Jon Swartz contributed.

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-19-23 0813ET

Copyright (c) 2023 Dow Jones & Company, Inc.