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Netflix Inc. shares have outperformed the broader technology universe so far this year, but a pair of analysts sees ample room for them to extend their recent run, in part due to signs of apparent success with the company’s clampdown on account sharing.
BofA Securities analyst Jessica Reif Ehrlich is upbeat about data points from various third-party entities indicating a better-than-expected rollout for Netflix’s
NFLX,
password-sharing crackdown, which is meant to get account holders to pay for additional members who borrow their credentials, or to get those freeloaders to pay up for their own memberships.
See also: Netflix password-sharing crackdown seems to be working
“According to Antenna, after alerting subscribers that [Netflix] would curb password sharing, [Netflix] had the four single largest days of U.S. user acquisition in the four and a half years Antenna has been tracking the data,” Reif Ehrlich wrote.
The initiative could mean serious money for Netflix. If just over 60% of account sharers convert into paying users to some degree, Netflix could recognize an additional $2 billion in annualized revenue, by her math.
She’s also optimistic about Netflix’s advertising tier, which she sees as “inextricably linked” to the stricter rules on account sharing. Price-conscious viewers who are about to be booted off a shared Netflix account but who want to stick with the service might be tempted by the company’s $6.99 ad-supported tier, she reasoned, as she boosted her price objective on Netflix shares to $490 from $410 and kept a buy rating.
The stock was up 2% in Tuesday morning action and on track to log its fifth straight day of gains.
Don’t miss: Netflix is a ‘unique tech growth story’ — and its stock could hit $535, says Wall Street’s biggest bull
“We continue to see under-appreciated opportunity in Netflix shares over the next 12 months,” Guggenheim’s Michel Morris said Tuesday, as he lifted his price target on the stock to $500 from $375 and also maintained a buy rating.
His optimism for a further rally comes as Netflix’s stock has increased 44% so far in 2023, compared with a 35% rise in the Nasdaq 100
NDX,
index over the same span.
Morris highlighted third-party data points as well, noting that they signal better results for Netflix’s U.S. password-sharing crackdown than the company saw for an earlier iteration of the initiative in Canada.
“We expect incremental revenue from these initiatives to be accretive to operating margin as a limited amount of additional costs is required to drive performance (we assume some modest contributions to tech and marketing and, to a lesser extent, content rights),” he wrote.
What’s more, as other streaming players cut back on content spending, Netflix will boast “a more compelling relative offering,” even while keeping its own core content spending fairly level.
Morris is upbeat about global opportunities as well, highlighting Netflix’s ability to increase its penetration of broadband-enabled households through 2028 in markets like Latin America and Asia-Pacific.
Read: Netflix’s stock rises toward 16-month high as analyst praises path to make more money on ‘borrowers’
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