Netflix’s Password Sharing Crackdown Likely to Affect It’s Q1 Profit

Netflix, listed as NFLX on NASDAQ, is slated to report its Q1 2023 results on April 18th. With its subscriber base, Netflix is the largest streaming platform. Amid the crackdown on password sharing, Netflix’s first-quarter net income is likely to drop by almost a fifth from a year ago. According to estimates from Visible Alpha, the net income of the streaming giant probably fell about 19% to $1.3 billion, or $2.88 per share, from $3.53 a share. This quarter’s profit might come to about $8.2 billion, marginally ahead of the consensus estimate of about $8.17 billion. The reduced profit underscores the challenges Netflix faces when multiple households share the same login information without paying for additional subscriptions.

In February, Netflix said that 100 million households shared accounts, representing about 43% of its global paid memberships that month. In selected markets, the streaming giant has issued guidelines prohibiting certain types of subscription sharing. As a counter, it is offering to add users to an existing plan for an added fee. This quarter marked the first-period of completion of the Netflix’s new subscription plans in which the company launched its reduced-price, ad-supported subscription plan in November. This model was available in the U.S., U.K., Canada, Japan, Germany, and several other markets throughout the world. This ‘Basic With Ads’ plan helped it to reach out to a new set of more price-sensitive customers, without seeing customers switch to the ad-supported plan from other subscription tiers. With this initiative, Netflix added 3.2 million ad-supported global subscribers in the quarter, offsetting the 1.9 million global subscribers it lost for its higher-priced ad-free.

To grow its revenue, Netflix should work upon expanding its presence in the large markets that have historically low penetration rates. Its penetration of the U.S. and Canadian market has hovered in the low 60% range for more than four years. In areas of Latin America, Netflix has a rate of mid-40%, and it’s been stuck at about 30% for more than a year in Western Europe, and it’s even lower in Japan, at no higher than 17%. So, if the company works on such focus points, it would be able to improve its finances in the long run.

Some other factors which may impact Netflix’s quarter results are the timing of the company’s content spending and potentially some foreign currency impacts. Around mid-2022, the stock fell to five-year lows. Since then, the stock has recovered itself to much extent and the market is quite bullish on the Netflix stock. At the current market price of about $339 per share, Netflix trades at about 30x forward earnings. This is not very attractive considering the company’s slowing subscriber growth and concerns about an economic downturn.