Netflix stock moves higher following password crackdown, plans to move into gaming

Yahoo Finance’s Allie Canal joins the Live show to discuss Netflix’s recent stock moves, the streaming giant’s plans to move into gaming, and the FTC’s “click to cancel” proposal.

Video transcript

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RACHELLE AKUFFO: Netflix shares higher after upbeat news surrounding the streaming giant's various revenue initiatives. Yahoo Finance's Allie Canal joins us for more. Hey, Allie.

ALEXANDRA CANAL: Hi, Rachelle. And that's right, Netflix leading the S&P 500 on Thursday, with shares closing more than 9% higher after a big rally that we saw in the stock. Shares leveling out a bit today, up about 1.4%, but still trading to the upside following those huge gains.

It was not immediately clear what was driving this rally yesterday. But it all seems to stem back to positive data surrounding the company's password sharing crackdown in Canada. And according to [INAUDIBLE] Data, that crackdown did not have a material impact on churn. In fact, gross additions in Canada actually improved.

Wells Fargo out with some new estimates following that report, saying if Netflix added 10 million extra Canadian members at an additional $8 a month plus 5 million additions at $15 a month, that would lead to a $2 billion upside in revenue at the high margin, which is what Netflix wanted. They really wanted to improve that top line number, improve profitability.

In addition to that password sharing crackdown, we've also seen recent reports that their ad-supported tier is doing really well. Bloomberg reporting earlier this week that the ad tier reached roughly 1 million monthly active users in the US in those first two months, bucking earlier reports that the ad tier was actually struggling. So that's been positive.

The fact that we've seen a lot of analysts on Wall Street reiterating their buy ratings or outperform ratings, encouraging investors to jump into the stock, has also led to some momentum, in addition to the fact that Netflix seems to really be doubling down on its gaming strategy.

So once again, just multiple revenue initiatives here. And all of that really helping sentiment heading into the next earnings season. Netflix will report Q1 earnings on April 18. So hopefully some more details surrounding all of these strategy plays and more specifics on how Netflix thinks all of this could play out and help the stock in the future.

RACHELLE AKUFFO: It's interesting to see how low that churn is because social media was sort of all ablaze as to what would happen, people saying they would quit Netflix. It doesn't seem to be the case, at least for Canada for right now.

And Allie, there's also some news from the FTC that they've proposed a rule that would make it easier for consumers to cancel free subscriptions. What more can you tell us about that?

ALEXANDRA CANAL: Yeah, so the FTC proposing this new regulation which essentially would ban companies which use deceptive, lengthy, cumbersome measures to have users cancel a subscription. We all have been there. I know personally for me, I've been offered three months of free Apple TV+ with my phone subscription. But I know in the back of my head, I'm going to forget that's there. And then they will keep charging me for that.

So essentially with this new ruling, customers will be able to cancel the same way that they signed up for a particular service. And look, streaming obviously affected by that, with all of the major companies that we have, so many options on the market. We know this has been a frustrating point for consumers, a pain point for consumers moving forward.

So perhaps this is one way that customers can really address this head-on and not have to deal with lots and lots of fees over time because we know that the industry is heading in a place where we're going to see some consolidation. Consumers are already being more picky, more choosy in the services and the platforms that they choose to subscribe to. So I think this is another development in that process and how we're going to see a more picky consumer moving forward.

RACHELLE AKUFFO: It certainly does keep evolving, this space. I usually just do the calendar reminder. But I've been caught out plenty of times with those free subscriptions as well.

ALEXANDRA CANAL: Yes.

RACHELLE AKUFFO: A big thank-you there, Allie Canal. Thanks so much.