Netflix subscribers grow after password-sharing crackdown

Netflix subscriptions in the U.S. are reportedly rising despite the streaming service's new password crackdown. Yahoo Finance entertainment reporter Allie Canal joins the Live show to discuss how investor sentiment and Netflix's new ad-tier service are impacting the stock.

Video transcript

SEANA SMITH: Netflix shares seeing a boost today after new data shows that its crackdown on password sharing seems to be paying off. Yahoo Finance's Alexandra Canal is here with the details on that. Allie, how big of a win is it here for Netflix?

ALLIE CANAL: I think it's a really big win. And there's continued positive data that we've been getting on the ad-supported tier. And now we have new data about the crackdown on password sharing. Antenna is an analytics platform, and they said that US signups for Netflix jumped by the most in at least 4 and 1/2 years following the rollout of that password sharing crackdown in the US and over 100 other countries and territories on May 23rd. According to the data, Netflix saw nearly 100,000 daily sign-ups on both May 26th and May 27th, so just a few days after that US implementation.

Now, I'm sure, with that, has come some churn, but I know anecdotally, I've become so used to freeloading on my parents' Netflix account that I can't imagine a world where I don't have Netflix. So I'll be one of those users signing up for my own account. I know there's others that say they won't, but I do think the numbers and the data we get surrounding this, it's going to be very interesting, especially in the next few weeks and the next few quarters.

JPMorgan estimating that roughly 100 million users are currently sharing passwords. That's something that Netflix has said as well. But out of those users, the company will monetize 14 million by the end of 2023, 26 million by the end of 2024, and 33 million by the end of 2025. And as you can see, that's leading to a lot of bullish sentiment on Wall Street. JPM boosted its price target on the stock earlier this week, along with Wells Fargo.

We also got a new note from Pivotal Research, again, increasing that price target to the highest that we've seen on Wall Street, 535 bucks a share, up from its previous $425 target. And if you take a look at where Netflix shares are trading right now, roughly at $420, that represents more than 25% upside. So there's a lot of reasons to be bullish here, at least from this analyst perspective, and a large part of that is this crackdown on password sharing, along with the ad-supported tier, which rolled out in November.

SEANA SMITH: Yeah, certainly. Well, we're seeing a lot of excitement reflected in shares today. I think also the question here is what exactly these new users or users that are finally having their own accounts, what they're signing up for. Do we have any idea just in terms of whether or not they're opting for that ad tier versus paying the higher prices and not viewing ads?

ALLIE CANAL: Yeah, this data didn't specifically say whether it's for a premium tier or the ad-supported. I'm hoping that's something that Netflix can dive into a little more when we get their earnings call because I do think it's important to get a little bit more color around the ad tier since we haven't heard too much specifically from the company. We know that there's been third party data out there that shows positive momentum. But I do think investors need a little more clarity on the exact numbers.

AKIKO FUJITA: You also wonder how much of these gains are a one-off. I mean, if you had an account with eight people on it, sure, you're going to get those to sign up right now.

ALLIE CANAL: Exactly. Is it a singular family? Is it people just wanting to explore it? So I think that's something-- you've got to take the data with a grain of salt. And in the context of everything, I think it's a good thing, at least that we're getting some preliminary results from this.

SEANA SMITH: Hopefully we'll hear more from Netflix on its next earnings call in just a few months. All right, Allie Canal, thanks.