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Netflix has cracked down on password sharing in Canada and New Zealand, among other places.
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Netflix
‘s crackdown on sharing passwords puts additional subscribers at risk for the near term, according to one JP Morgan analyst, but he is still upbeat about the effects of the streaming company’s new rules.
Netflix (ticker: NFLX) is scheduled to report its first-quarter earnings on April 18. JP Morgan analyst Doug Anmuth said he is confident that the results for the first quarter will be strong, but he cited concerns about the second quarter as limits on password sharing continue to roll out.
Netflix said in February that it was beginning a crackdown on password sharing in Canada, New Zealand, Portugal, and Spain. People with Netflix accounts in those countries must set a primary location: An account can only be used by people living in that household. Members who pay extra for a premium plan have the option to add another account for up to two people who live elsewhere.
The company said at the time that more than 100 million households were sharing accounts, affecting its ability to invest in programming.
“Just as there was initial subscriber pushback and bumpiness in recently launched markets such as Canada, we would expect similar friction across a larger set of markets, likely to include the US, Brazil, those in Western Europe, and many others,” wrote Anmuth. in a research note Tuesday. He raised his estimate of net subscriber additions for the first quarter to 3.25 million from 1.5 million, but lowered his second-quarter estimate to one million from 3.25 million.
Anmuth believes that some pain in the early stages of the password crackdown will pay off over the long run. He maintained his Overweight rating and $390 price target on the stock.
“Ultimately we expect NFLX to generate more revenue through the combination of Extra Members and new standalone accounts, especially as paid sharing is paired with the low-priced Basic With Ads tier,” Anmuth said. “We like NFLX more for 12 plus months out than we do over the next 3 to 4 months, and we would buy pullbacks that may result from paid sharing of noise.”
Shares of Netflix were up 0.7% at $341.50 in premarket trading Tuesday. Coming into Tuesday trading, the stock had gained 15% this year.
Write to Angela Palumbo at [email protected]