Citi suspects recent price cuts by Netflix are tethered to password sharing enforcement

© Reuters

By Michael Elkins

Citi reiterated a Buy rating on Netflix (NASDAQ:NFLX) and raised the price target on the stock to $400.00 (From $395.00) following the streaming platforms most recent price cuts.

On February 23, 2023, Netflix reduced prices ~50% across ~100 markets (~6% of Netflix’s subs). The market was surprised, prompting a 12% decline in Netflix’s shares over the last month. Citi analysts believe such dramatic price reductions across so many markets confused the Street. They suspect these price cuts are linked to password sharing enforcement and could boost Netflix’s aggregate revenue by 1%.

The analysts wrote in a note, “We suspect these price cuts are tethered to Netflix’s pending global enforcement of password sharing. By lowering prices, Netflix may be aligning the retail price with the utility each user derives from the service (versus the household who pays for the service). We estimate these price cuts will be modestly positive for Netflix’s revenue (helping overall revenue by 1%).”

Netflix is currently enforcing password sharing in just four markets. In Canada and Spain, the ad tier is available. In the other two markets (New Zealand and Portugal) the ad tier is not available, and Netflix has not lowered prices. Citi suspect the performance of these four markets may influence Netflix’s tactics in the 90 ‘status quo’ markets.

Citi updated their model to reflect Netflix’s recent price reductions announced across ~100 markets, as well as updated FX rates. Citi raised their 2023 EPS estimate to $12.09 (From $11.15). EPS estimates for 2024 were cut to $14.69 (from $14.93), while 2025 was raised to $18.48 (from $17.00).

Shares of NFLX are up 0.73% in premarket trading on Thursday.