Netflix: Stock of the Week

The great password crackdown is upon us. What does that mean for investors?

Andrew Willis 6 February, 2023 | 4:28AM
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Andrew Willis: Netflix (NFLX) sure knows how to keep the investor spotlight, and not only because of the recent leadership changes but because of something likely to affect investors at home – and the homes of the family and friends they’ve been sharing their passwords with…

By the end of this quarter, Netflix may no longer be turning a blind eye to account holders that have been generous with their account access. The company expects the crackdown in the coming months but didn’t specify what it will look like.

Senior equity analyst Neil Macker is watching for something like the pilot programs conducted in Latin America, where additional users cost around 20% of the current plan or about 3 U.S. dollars per month, per user. Now, will every family member and friend cough up a few bucks, every month, to stay on the account? Who will pay? And who will create their own account instead?

We don’t think this move is going to significantly increase new subscriber growth globally, but we can see it increasing revenue overall. Going forward, we forecast around 6% average annual revenue growth and price increases every 18 months. For subscribers, it sounds a bit expensive. But what about investors?

We are raising our fair value estimate on Netflix to US$315 from US$290 to account for these new price hikes, but we’re skeptical that it won’t come at the cost of subscribers. Competitors like Disney+ are already undercutting Netflix’s prices… although they probably don’t want password sharing either.

For Morningstar, I’m Andrew Willis.

 

Editor's Note: All images are courtesy of Unsplash.com and AP Images. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Netflix Inc685.67 USD1.46Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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