Once the people’s streaming service for encouraging password sharing, Netflix (NASDAQ:NFLX) eventually succumbed to business realities. Among its high-profile decisions, management decided to perform an about-face on its shared access policy. However, the password crackdown has so far proven successful, leading to increased daily U.S. signups. As a result, one analyst broadcasted an aggressively bullish price target of $535 for NFLX stock.
According to Reuters, Netflix estimated that more than 100 million households offered their log-in credentials to people outside their homes. Though this stat may seem staggering, the streaming company fueled the practice. At one point, Netflix tweeted that “Love is sharing a password.” To be sure, U.S.-based users can still add outside-household members to their accounts for an additional $8 per month.
While the abrupt pivot from a consumer-friendly stance aroused controversy, days after the May 23 password crackdown policy went into effect, new user signups accelerated. Per data from research firm Antenna, Netflix recorded nearly 100,000 daily sign-ups on both May 26 and May 27.
Notably, Netflix enjoyed its four largest days of U.S. user acquisition after the new policy went into effect in the four-and-a-half years that Antenna covered the streaming giant.
Further, Reuters reports that “[t]he recent spike also exceeded levels seen during the initial U.S. COVID-19 lockdowns in March and April 2020.”
Renewed Analyst Focus on NFLX Stock
Although NFLX stock enjoys broad support among Wall Street analysts, one voice stood out among the rest. Pivotal Research Group analyst Jeffrey Wlodarczak maintained a “buy” rating on Netflix shares. However, he raised his price target to $535 from $425, representing the highest call among analysts surveyed by FactSet.
Unsurprisingly, Wlodarczak applauded management’s decision to crack down on its prior password-sharing-friendly policy. This way, the company is ideally positioned for subscriber, revenue and free cash flow (FCF) growth despite broader economic challenges.
“This should be enhanced by the subscriber and subscriber monetization benefits from their ad-supported tier,” Wlodarczak said. In November, Netflix incorporated an advertisement-supported subscription tier.
Notably, Wlodarczak also believes that Netflix distinguished itself from the competition thanks to enormous economies of scale. As evidence, the analyst pointed to a surge in FCF over 2022 and 2023, expecting more of the same in 2024.
Raising eyebrows, should Netflix prove successful this year and the next, Wlodarczak believes management may sell the business. He pointed to Microsoft (NASDAQ:MSFT) as “the most logical acquirer in our view.”
Why It Matters
Overall, data from TipRanks reveals that NFLX stock carries a moderate buy consensus view among covering analysts over the past three months. Below Wlodarczak’s price target sits Wells Fargo’s Steven Cahall, who forecasts a $500 call. Still, on average, the experts’ price target lands at $380.68, which now implies almost 10% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
