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- Netflix is preparing to crackdown on password sharing in the US over the next couple of months.
- Wall Street is cheering the move as it could help add subscribers and grow revenue.
- "Password sharing should be a solid subscriber, revenue and operating income driver moving forward," BofA said.
Netflix is about to crackdown on password sharing in the US over the next two months, and Wall Street is cheering the move.
The streaming giant has estimated that more than 100 million households access Netflix without paying for it, and after a series of trials and tests of attempting to convert those households in countries outside of the US, the company feels like it has a good handle on a rollout in its biggest market: the US.
Netflix had originally planned to launch the password sharing crackdown measures in the first-quarter, but a wave of backlash from its US consumers on the initial plans led the company to postpone its rollout.
But after successful tests in cracking down on password sharing in Latin America and Canada, the company feels like it has a solid strategy to convert more of its biggest fans into paying customers. And Wall Street is very excited.
That's because the strategy could be a meaningful growth driver for Netflix's business, according to a Tuesday note from Bank of America.
"Password sharing should be a solid subscriber, revenue and operating income driver moving forward. Initial Canadian results revealed paid memberships and revenue growth accelerating relative to the US," BofA's Jessica Reif Ehrlich said.
And while there is expected to be a period of churn of subscribers following the rollout of the password sharing measures, it should "significantly" increase the longer-term monetization potential for Netflix, Ehrlich said.
The program in Canada started with Netflix requiring its users to set a location for its membership that is typically determined by the household's IP address. Anyone that tries to access the account from outside the authorized location will be unable to do so.
Netflix will offer plenty of options for password sharing households to start paying their share, with the ability for members to add other users outside of their household for a fee.
Alternatively, Netflix has built a lineup of different priced membership tiers for those users who might now need to start paying their own way. These include an advertising-based subscription that costs $7 per month, and JPMorgan expects the combination of an ad-supported tier and password sharing measures to help boost growth and the stock price.
"Paid sharing and advertising remain big opportunities and important drivers of both revenue and subs going forward, with paid sharing the bigger revenue contributor in 2023, and ads in 2024," JPMorgan said in a Wednesday note.
"Overall we continue to believe that more than 30 million of the 100 million non-paying households globally can become extra members or new subscribers, and that could be conservative," the bank said.
Bank of America and JPMorgan both reiterated their "buy" rating for the stock with price objectives of $410 and $380, respectively, representing potential upside of as much as 28% from current levels.