Netflix Shares Recoup Bulk Of 2022 Losses As Wall Street Analysts Cheer Password Sharing Data And Advertising Potential

Netflix’s resurgent stock rose another 3% through mid-day Tuesday, continuing to recoup losses from a major 2022 correction as several Wall Street analysts upgraded their outlook on the company.

Positive early signs from a new password sharing plan, along with the potential for advertising, have been cited by a number of bulls. Several analysts have increased their 12-month price targets in recent days, including two sizable upticks Tuesday from Guggenheim (from $375 to $500) and Bank of America (from $410 to $490). Last Friday, Pivotal Research increased its target to $535, highest on the Street. “Supported by its world-class brand, leading global subscriber base and position as an innovator,” BofA media vet Jessica Reif Ehrlich wrote in a note to clients, “Netflix is poised to outperform.”

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Shares in Netflix entered the home stretch of Tuesday’s trading day at around $432, the highest they have been since January 2022. When the company reported softer-than-expected results early last year, along with a first-in-a-decade loss of subscribers, its stock plunged 60% and wiped out tens of billions of the company’s market value. Amid a broader streaming shakeout over the past year, with all players tightening their belts and revising their strategies, Netflix remains in pole position with 232.5 million global subscribers. The decision to pursue advertising and charge subscribers for sharing their passwords contradicted the company’s longtime approach but the moves are expected to generate billions in additional annual revenue. The stock has risen more than 40% in 2023 to date.

Guggenheim’s Michael Morris emphasized in a note to clients that data from third-party firms indicates the new password-sharing policy “is not driving a sustained increase in member churn.” Furthermore, he wrote, “The company’s position as the global leader in high-quality, long-form streaming video will drive further financial upside through higher subscription ARPU, advertising revenue, and margin expansion.” Increases in broadband penetration in “most geographies” over the next five years provide an additional tailwind, he added.

Ehrlich, who is known for keeping a close eye on the advertising sector, said the new charge for password sharing is “inextricably linked” with last November’s debut of a cheaper, ad-supported subscription tier. At $7 a month, she observed, “the ad-supported tier provides an attractive, low-priced option for ‘borrowers’ who still wish to access the Netflix service. In our view, the broader crackdown on password sharing will be an accelerant to Netflix’s ad-supported tier.”

Pivotal’s Jeffrey Wlodarczak went a bit further in his client note, implying the company had developed a degree of immunity to macroeconomic conditions. Netflix, he wrote, “represents a unique tech growth story given it remains well positioned to generate solid subscriber and revenue/free cash flow growth even in a potential global recessionary environment via their better monetization of the approximately 100+ million households that currently utilize Netflix outside of paying households via password sharing.”

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