Netflix Inc.’s crackdown on password sharing has gotten a lot of attention recently, but it’s turning out to be more of a long-term gamble than many on Wall Street thought.
While the streaming giant added many more subscribers than expected in the last quarter and announced the early success of the password-sharing initiative, Netflix
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fell short of revenue expectations and admitted that its decision to push profiteers to their own paid accounts limited the ability to deploy price increases, a former driver of revenue growth.
“Patience is a virtue,” Wells Fargo analyst Steven Cahall said in a note released Wednesday. “We think investors were too exuberant on paid sharing, and while the (revenue) acceleration will take longer, we think it creates an entry point for patient (long-term) investors.”
The momentum is causing some short-term pressure, however, with Netflix shares up over 7% in Thursday morning action.
Related: Netflix earnings bring big boon to subscribers, but stocks hurt by weak revenue forecast
Still, paid sharing may ultimately help Netflix gain market share in the global streaming industry, wrote Cahall, who gave the title an overweight rating with a price target of $500. “We are happy to be patient on a stock gain.”
The “slow roll” of paid sharing in the second quarter surprised investors, Oppenheimer analyst Jason Helfstein said in a note released Thursday, adding that Netflix
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has an eye on the long term. “We believe (management) is deliberately timing the impact on premium subs based on seasonal usage, content launch and impact of the linear TV strike” in September, he wrote, while keeping an overweight rating on the stock and raising its target price to $515 from $500.
No less than 21 analysts polled by FactSet raised price targets following the results, while none decided to lower them.
Related: Crackdown on Netflix password sharing seems to be working
Paolo Pescatore, technology analyst at PP Foresight, told MarketWatch that while Netflix’s password-sharing crackdown could cause short-term problems in the form of backlash from users, the company is “laying in all the building blocks for future revenue growth.”
Additionally, Netflix has new revenue opportunities through the removal of the basic service tier in its core markets.
“The company is still in a much stronger position compared to its competitors and remains the benchmark,” Pescatore said.
Related: Crackdown on Netflix password sharing seems to be working
Benchmark’s Matthew Harrigan, however, remained pessimistic, reiterating his sell rating on the stock and his price target of $293.
He said the company is favorably positioned in scripted programming if the current writer and actor on strike stretch, though the company’s lack of live sports and news content is hurting it. Overall, he views Netflix stocks as overvalued.
Related: Actors, writers, hotel cleaners and graduate students are all on strike for the same reason
The stock has gained 49.8% since the start of the year, while the S&P 500 SPX gained 18.8%.
