Netflix (NFLX -0.83%) has been all over the stock charts in the last couple of years.
After soaring through the pandemic, shares collapsed in the first half of 2022 as the company lost subscribers two quarters in a row. However, since then Netflix has regrouped, and the stock has more than doubled as the company launched a new ad-based subscription tier, returned to subscriber growth, and delivered strong profitability.
With its third-quarter earnings report coming up Wednesday after hours, Netflix stock could be poised to pop again. Here are three reasons why.
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1. Paid sharing could be a big win
For years, Netflix casually looked the other way while its members shared their accounts with friends and family. But with the business maturing, the company has finally begun cracking down on password sharing.
The streamer implemented a system it calls paid sharing, prompting viewers who are using an account from another household to sign up for their own account or have the host account add them as an extra member for $7.99/month.
Paid sharing began to roll out in the second quarter, with the company launching the program in May in more than 100 countries, and the impact has been noticeable. Netflix added 5.9 million subscribers in the second quarter, an unusually high number for the seasonally slow period.
Looking ahead to the third quarter, the company expected revenue growth to accelerate from paid sharing, and it said in July it sees similar subscriber additions in the third quarter. It also forecast even faster subscriber growth in the fourth quarter.
At a conference in September, CFO Spence Neumann said that the company has a pool of more than 100 million borrowers that aren't paying for Netflix, and it's rolling out the paid sharing crackdown over multiple quarters. Neumann also said the company has seen fewer cancellations than it expected, an encouraging sign that it could convert a significant portion of those borrowers into paying users.
Investors will get an update on the impact of the paid sharing program in the earnings release. If it continues to top expectations, it could seriously juice the bottom line down the road.
2. Price hikes could be coming
Netflix isn't shy about raising subscription prices, and it hasn't gotten much pushback so far.
Meanwhile, a number of its peers recently raised prices in an effort to turn profitable, which gives Netflix more cover to do so itself. Rumors have been circulating this month that Netflix is preparing to raise prices once the actors' strike is over, building on momentum from its paid-sharing program.
Additionally, Netflix wants to drive more subscribers to its ad-based tier, which costs just $6.99/month in the U.S. Raising the prices on ad-free plans, which currently start at $15.49/month, could help it do just that.
The company could announce a price hike in the earnings report -- or at least hint at one. Such a move would likely earn cheers from investors and further boost earnings.
3. International diversification
Hollywood has been frozen for several months now as it dealt with the writers' strike, which is now over, and it continues to negotiate over the actors' strike. Between the two strikes, most movie and TV production in the U.S. has been halted in some form since May.
Netflix has an advantage over its streaming rivals here. First off, it is already profitable, so it can better weather any disruption in the content pipeline. More importantly, most of Netflix's revenue actually comes from outside of the U.S., so it is much more insulated from the strike than its peers.
If production continues to be disrupted, Netflix would have an even wider advantage over its peers, as it would have more money to reinvest in the business and spend on content when production picks up, since it's profitable while its peers are losing money.
Netflix still has plenty of growth potential, especially on the bottom line, thanks to the tactics above and new ideas like launching immersive experiences in venues to be called Netflix Houses.
If the company can deliver strong results and impress with its guidance on Wednesday, the streaming stock could soar after the report on Thursday.
