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The change follows news last week that Netflix would start its U.S. effort to reshape password sharing. Analysts are positive about these changes and are also less worried about competition.
Equity analysts explained the bank’s increased confidence, saying, “The new rules and pricing was right in-line with our model ($7.99 for paid sharing plan). We are now more confident in our thesis: the meaningful % of borrowers will shift into new plans following the updated pricing, and we worry less about competition (competitors are in the midst of removing content, lowering budgets, and raising prices).”
Overall, Jefferies continues to believe subscriber growth will be driven by password sharing changes.
“These changes will push non-payers into a new subscription tier vs. churning out or up-pricing. With about 100M ‘borrowers’ potentially becoming subscribers, we expect the most popular tier to vary by country. Our model is predicated on ~35% converting to subs over the next 24 months. Another benefit of the ad tier is we believe the turn-off-turn-on-ers (consumers focused on value) will become regular subscribers via the ad tier.”
While Jefferies remains positive on Netflix shares, analysts expect a lot of noise about the password sharing changes, and they are cautious on how the stock could perform during the next 30 to 45 days.
“In the past, when services raise prices, there is typically a 30-45 day temporary increase in churn. We would expect the same as subscribers and password sharers get the news of the upcoming changes. Because the June quarterly earnings falls in the window, mgmt may take a conservative view on guidance. We would be paying attention to churn rates in late July,” analysts said.
