Analysts say Netflix investors should 'buy the pullback,' as password sharing 'supercharges' subscriber growth

Published Thu, Jul 20 20238:28 AM EDTUpdated Thu, Jul 20 202312:34 PM EDT

Wall Street analysts were positive on Netflix after its latest subscriber additions and largely dismissed concerns that the monetization of paid sharing is too slow. Netflix posted a solid earnings report even as the broader media industry cuts down on content for its streaming services and contends with actors and writers being on strike. The company added 5.9 million subscribers in the quarter in a sign that its password-sharing crackdown and advertising tier is generating new subscribers. However, shares fell about 6% in Thursday premarket trading following concerns paid sharing hasn't added more to revenue yet. For JPMorgan's Doug Anmuth, the earnings results were a signal that investors should "buy the pullback in shares" as the company grows its subscriber base. He maintained a buy rating and also raised his price target to $505 from $495. That suggests shares can rise 5% from Wednesday's close. NFLX 1D mountain Netflix shares 1-day "Yes, the company is monetizing Paid Sharing a bit slower than we expected w/only slight revenue acceleration in 3Q to ~7%. But we continue to believe Paid Sharing will be highly accretive to revenue over time based on: 1) solid conversion of the ~100M global borrowers; & 2) ARM accretion on a per user basis as borrowers pivot to becoming Extra Members or new subscribers," Anmuth said to clients Thursday. "Paid sharing monetization will build more in 4Q & into 2024." Bank of America's Jessica Reif Ehrlich reiterated a buy rating and also hiked her price target to $525 from $490, citing the success of its efforts around password sharing. That represents 9% upside for the streaming stock. "2Q review: Password sharing supercharges subs Netflix (NFLX) reported healthy 2Q results, which reflected strong net adds of 5.9mn (vs. guidance of ~1.75mn and our 2.95mn est.), indicating the initial rollout of password sharing has been very positive," the analyst wrote Thursday. Still, not everyone was positive on the stock. Wells Fargo's Steven Cahall said investors are "over-exuberant on paid sharing," though he reiterated an overweight rating on the stock. Meanwhile, Needham's Laura Martin said Netflix is a "single-digit rev grower" that is currently "far too expensive" for its growth rate. "We believe deep libraries have more value in the long-term and now, with 2 guilds on strike, are mission-critical to drive viewing in the near term. NFLX's owned library is very small compared with DIS, WBD, CMCSA, and PARA — each of which competes directly against NFLX for OTT viewing and subscriber growth," she said. — CNBC's Michael Bloom and Alex Sherman contributed to this report.