Though deeply embattled this year, at least one prominent voice on Wall Street believes streaming giant Netflix (NASDAQ:NFLX) can make a comeback. Indeed, NFLX stock popped up 5% on Thursday morning, later gaining around 7% in the afternoon session. Sentiment increased as the company received an analyst upgrade and price target bump.
Specifically, Evercore ISI Group analyst Mark Mahaney rated NFLX stock as “outperform.” Previously, Mahaney had the company rated as “in-line,” according to Benzinga. Further, the analyst raised the price target on NFLX to $300 from $245. Bolstering the refreshed optimistic take is new revenue opportunities from the company’s decision to include an advertisement-supported streaming tier.
In part, the move reflects broader changes in the streaming industry. For instance, entertainment king Disney (NYSE:DIS) announced it will launch an ad-supported tier on its Disney Plus platform. With competition intensifying between these two brands, Netflix can’t afford to lag.
As Barron’s describes it, “a lot of Netflix’s current subscriber turnover stems from increased price sensitivity, Mahaney wrote. A lower-priced, ad-supported offering, could help those users return, as well as drive margin growth and up to $2 billion in incremental revenue by 2024, the analyst estimated.”
Interestingly, the subsequent pop higher in NFLX stock occurred amid softness in the broader equities sector. At time of writing, the benchmark S&P 500 was down nearly 1%.
NFLX Stock and the Password Dilemma
Another factor Mahaney mentioned as a revenue booster for NFLX stock was the underlying firm’s intention to crack down on password sharing. Per the analyst, the move could add an incremental $500 million to $1 billion in revenue.
However, at least two glaring challenges exist regarding this framework. First, Netflix appeared to encourage password sharing prior to the announcement about preventing the practice. According to a 2016 article by TechCrunch, Netflix CEO Reed Hastings stated account sharing on the platform represented “a positive thing.”
The justification at the time was that password sharing later evolves into increases in paying subscriber counts. However, that narrative may be questionable.
It segues into the second challenge. According to retail behavioral analytics, price promotions may lead to negative results for companies because such strategies condition consumers to buy only during sales. By logical deduction, it may be a tough hurdle for consumers receiving something for free to now pay up.
To be fair, Netflix reports that it’s encouraged by trial data regarding its new password initiative. Further, the company will allow users who wish to share their passwords to do so for a fee. Nevertheless, it’s one factor to watch amid an otherwise positive day for NFLX stock.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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