Netflix (NASDAQ: NFLX) on Tuesday announced it is postponing the broad rollout of its password-sharing crackdown in the United States, predicting that its subscriber growth will benefit in the later half of the year.
The announcement comes as the streaming giant posted mixed first-quarter results, with revenue totalling a less-than-expected $8.16 billion at a more-than-expected $2.88 earnings per share. Netflix had originally planned for the password-sharing rules to launch in the first-quarter, and is now pushing the release to sometime in Q2.
"While this means that some of the expected membership growth and revenue benefit will fall in Q3 rather than Q2, we believe this will result in a better outcome from both our members and our business," the company said in its earnings release.
Netflix estimates that more than 100 million people watch the platform from an account they do not pay for, which is about 43% of its global user base, and sees paid sharing a new source of potential customers and sales growth in the future. The company said in Q1 its subscriber growth was impacted in international markets where it already rolled out the new rules, but Netflix still added 1.75 million subscribers during the quarter -- which was near analyst estimates for about 2 million additions.
UBS (NYSE: UBS) analyst John C. Hodulik upgraded the stock to buy from neutral rating in a note to clients on Wednesday, arguing that Netflix's password-sharing crackdown will improve its competitive backdrop compared to other streaming platforms.
Netflix began restricting password sharing in multiple countries in Latin America, and outlined guidance for New Zealand, Canada, Portugal and Spain in February. Under the rules, users will set a primary locations for their accounts, and allows users to establish up to two sharing accounts for viewers in other households for extra fees.
Canada, for example, hasbeen its paid member customer base grow in response to the new rules, and its revenue growth "is growing faster than the U.S.," according to Netflix.
"The launch in Q2 will be broad, including the U.S. and the bulk of our countries when we think about it from a revenue perspective," said co-CEO Greg Peters on Tuesday's earnings call. Peters said that the new rules transition is expected to be similar to effects on subscribers seen when raising prices, with some cancelling their accounts to only return later when missing out on content.
Netflix has also recently added an ad-supported subscription tier at $6.99 per month, which is also meant to boost profits and subscriber growth. That plan now has an average of 95% of the same content as the premium ad-free Netflix plans have, the company said Tuesday.
Much of this recent push into new avenues of profit growth followed Netflix's first subscriber loss in a decade last year. On Tuesday, Netflix also sunsetted its original DVD mailing business, which saw more than 5.2 billion DVDs shipped over the course of its 25 year run.