Netflix’s new test to verify subscription credentials of users — and convert password freeloaders into paying customers — could help the global streamer grow its subscriber count, according to a Wall Street analyst.
“We view any potential password crackdowns as tailwind and Netflix is in a strong position to continue price increases in 2021,” Bank of America Securities analyst Nat Schindler wrote in a research note Friday.
To date, Netflix hasn’t taken any proactive steps to stop password sharing. But it appears to be gearing up to more aggressively enforce its restrictions on this front: In the past week, the company launched a new global test that displays a warning to some users on connected TVs that says, “If you don’t live with the owner of this account, you need your own account to keep watching.” Users who see the prompt have the option of receiving an email or text verification code to authenticate the account, or they can click on a button that says “Verify Later.”
“This test is designed to help ensure that people using Netflix accounts are authorized to do so,” a Netflix spokesperson said in a statement to Variety.
Netflix might take a two-pronged approach toward ramping up its subscriber base: by “clamping down on password sharing” while also introducing new plan tiers “to cater to price-sensitive consumers,” Schindler suggested. The analyst noted that Netflix has introduced a mobile-only tier in India and other international markets.
Schindler didn’t estimate how much of a potential subscriber lift Netflix could see by clamping down in unauthorized password sharing. But he cited a Bank of America survey of 1,000 U.S. adults found that 26% of respondents shared passwords with another household — which technically is a violation of Netflix’s terms of service.
“We continue to see Netflix’s ability to grow despite competition and to strengthen their value propositions to consumers with a significant 1H  pull forward [of subscriber additions],” Schindler wrote. The BofA analyst maintains a “buy” rating on Netflix stock with 12-month target of $680 per share based on its “peak penetration” valuation model.
Netflix ended 2020 with 203.7 million subscribers globally, an increase of 22% year over year. The company’s Q1 2021 guidance is for paid net adds of 6.0 million compared with the record 15.8 million it racked up in the year-earlier quarter driven by initial COVID-19 lockdowns.
Netflix’s continued double-digit subscriber growth is a big reason why it hasn’t cracked down on illicit password sharing so far. But as that pace slows, it could lean harder to get users who are piggybacking off their friends and family to sign up for their own accounts.
Netflix shares closed down about 1% Friday. Other so-called “stay at home” stocks like Zoom Communications and Peloton also saw declines, after President Biden on Thursday announced a May 1 target to make vaccines available to all U.S. adults.
In a research note Friday, Needham & Co. analyst Laura Martin said she expects churn for subscription VOD services to “accelerate as the economy reopens in 2021.” Netflix’s churn rates specifically will increase, she opined, because the streamer doesn’t have “a cheaper, ad-driven tier” and does not offer its service as part of a bigger bundle.