Netflix Password Sharing Exercise, Results In Share Tank
Netflix who moved to cut off access to shared passwords, has seen their shares fall,after the Company revealed “average” revenue growth from the bold move, however it did deliver subscriber growth which the business is banking on to deliver future growth.
The business was punting on the crackdown on password sharing and a new advertising strategy, to deliver immediate growth, and while the numbers are “just okay at 2.7%” claim analysts it has not delivered the boost that Netflix was tipping.
The company said revenue from advertising and add-on memberships to people who share passwords were not material enough to offset other factors, such as a lack of price increases.
“It not enough to move the stock higher given their marketing moves past three months,” LightShed Partners analyst Rich Greenfield said after the earnings release.
The shares declined as much as 6% within minutes of the results being announced.
Netflix who are facing new pressures due to the Hollywood writers and actors strike delivered third-quarter revenue of $8.52 billion, this was down on the forecast $8.67 billion.
“While we’ve made steady progress this year, we have more work to do to reaccelerate our growth,” the company said.
On the bright side the streaming Company delivered 5.89 million customers in the second period after cracking down on people who share their passwords.
The results marked the company’s best second quarter since the depths of the pandemic three years ago and far surpassed Wall Street forecasts of 2.07 million new subscribers. Management expects similar growth this period.
The US business has also eliminated its lowest-priced ad-free plan, pushing consumers toward a lower-priced, ad-backed service or a costlier commercial-free plan.
The password sharing block was initially tested in Australia saw the Company charge people in more than 100 countries to continue sharing their passwords, a key part of its plan to accelerate growth after a sluggish 2022.
Viewers using someone else’s subscription can now either pay to keep sharing or set up their own account.
The Wall Street Journal said that the plan has been controversial with users, and analysts weren’t sure how it would impact the company’s growth.
Netflix had warned that it would see an uptick in cancellations at the start of the crackdown and that it would see more growth in the back half of this year.
But in recent weeks, third-party data indicated that Netflix was seeing a surge in customers.
The company said new sign-ups are already exceeding cancellations and that sales growth will accelerate in the months ahead, with third-quarter growth projected at 7.5%.
Netflix finished the quarter with 238.4 million members, up 8% from a year ago.
The Company is also benefitting from people who are staying home due to inflation pressures on family budgets.
While analysts have raised concerns about losses from streaming at many of Netflix’s competitors, Netflix is delivering higher profit quarter after quarter.
The company raised its 2023 forecast for free cash flow to $5 billion, from at least $3.5 billion previously, as a result of a strike by writers and actors, which has shuttered production and cut spending.
Netflix had long said it didn’t care if people used someone else’s account. But that was when it was adding more than 25 million customers a year. Netflix lost customers in the first half of 2022, prompting a steep drop in the shares and leading to a selloff in other media stocks.