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Netflix’s new test to verify users’ subscription credentials and turn password users into paying customers could help the global streamer increase its number of subscribers, according to a Wall Street analyst.
“We view any potential password cracking as a tailwind and Netflix is in a strong position to continue price increases in 2021,” Bank of America Securities analyst Nat Schindler wrote in a research note Friday. .
To date, Netflix has not taken any proactive steps to stop password sharing. But it appears to be preparing to more aggressively enforce its restrictions on this front: Last week, the company launched a new global test showing a warning to some users on connected TVs that says, “If you don’t live with the owner of this account, you need your own account to continue watching. ” Users who view the message have the option of receiving an email or text verification code to authenticate the account, or they can click a button that says “Verify later.”
“This test is designed to help ensure that people who use Netflix accounts are authorized to do so,” a Netflix spokesperson said in a statement to Variety.
Netflix could take a two-pronged approach to growing its subscriber base: “restricting password sharing” while introducing new tiers of plans “to serve price-sensitive consumers,” suggested Schindler. The analyst noted that Netflix has introduced a mobile-only tier in India and other international markets.
Schindler did not estimate how much potential subscriber growth Netflix could see by cracking down on unauthorized password sharing. But he cited a Bank of America survey of 1,000 American adults and found that 26% of those surveyed shared passwords with another household, which is technically a violation of Netflix’s terms of service.
“We continue to see Netflix’s ability to grow despite competition and to strengthen its value propositions for consumers with a significant 1H [2021] pull forward [of subscriber additions]”Schindler wrote. The BofA analyst maintains a “buy” rating on Netflix shares with a 12-month target of $ 680 per share based on its “maximum penetration” pricing model.
Netflix ended 2020 with 203.7 million subscribers worldwide, an increase of 22% year-on-year. The company’s guidance for the first quarter of 2021 is for net paid additions of 6.0 million compared to the record 15.8 million it accumulated in the prior year quarter driven by initial COVID-19 crashes.
Netflix’s continued double-digit subscriber growth is a big reason why it hasn’t cracked down on illicit password sharing until now. But as that pace slows, it could be more difficult to get users who take advantage of your friends and family to sign up for their own accounts.
Netflix shares closed about 1% on Friday. Other so-called “stay-at-home” stocks such as Zoom Communications and Peloton also saw declines, after President Biden announced a May 1 goal Thursday to make vaccines available to all American adults.
In a research note on Friday, Needham & Co. analyst Laura Martin said she expects the turnover of subscription VOD services “to accelerate as the economy reopens in 2021.” Netflix’s churn rates will specifically increase, he opined, because the streamer does not have “a cheaper ad-driven tier” and does not offer its service as part of a larger package.
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