Netflix Password Cracking Expands: What to Expect

Netflix Inc beat Wall Street’s first-quarter profit estimates but offered a lighter-than-expected forecast on Tuesday, underscoring the challenges the mature streaming service faces in its pursuit of growth.

Netflix said it postponed a broader plan to combat unauthorized password sharing to the second quarter to make improvements, delaying some financial benefits, but said it was pleased with the results so far.

As the streaming video pioneer faces signs of market saturation, it’s looking for new ways to make money, including anti-passwords and a new ad-supported service.

The net sales and profit for the first quarter were roughly in line with Refinitiv’s average analyst estimates. Earnings per share were $2.88 and revenue was $8.162 billion.

Netflix shares fell as much as 11% in after-hours trading after the report, but rose 1.4%.

Between January and March, Netflix added 1.75 million streaming subscribers, but analysts missed the 2.06 million increase expected.

PP Foresight’s analyst Paolo Pescatore described the first quarter result as contradictory.

“Netflix is a mature business that reinforces less dependence on subscriber growth. However, this metric continues to move the needle for key stakeholders,” he said.

The company began rolling out its password sharing solution — which offers a paid sharing option — in 12 countries in February, but is delaying expansion.

“We believe it will lead to a better outcome for our members and our business,” the company said. Netflix also said it was “on track to meet our full-year 2023 financial goals.”

Netflix said it will begin restricting password sharing in the U.S. this quarter.

In April-June, the company forecast 8.242 billion dollars in revenue and 2.86 dollars in diluted EPS. Wall Street had forecast $8.476 billion in revenue and $3.05 in diluted EPS.

Netflix serves as the bellwether of the streaming industry, whose growth has slowed as competition has intensified.

A year ago, Netflix lost 200,000 subscribers — its first subscriber decline in more than a decade, sending the stock tumbling and resetting Wall Street expectations for the industry.

Netflix added nearly 9 million subscribers in 2022, half as many as the previous year’s 18 million, with most of the growth coming from Asia, according to research firm MoffettNathanson. Its gains in Asia and Latin America have impacted average revenue per user, prompting Netflix to change its business model, the company said.

The company introduced a cheaper version of its service that includes ads in 12 countries last quarter.

UBS media analyst John Hodulik wrote that cracking down on password sharing could well fuel Netflix’s nascent ad business as it drives these “sharers” to a cheaper version of the service.

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