Stick With Companies Cracking Down on Member Sharing

Markets were skeptical when Netflix (NFLX) started to crack down on users who shared their account information. The company even tried the policy last year and failed. But this time around, it’s clear that more users will sign up for the service.

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  • Other companies with a membership model are taking note. Only those who pay should get to use the service, rather than acting as a guest for a paying member.

    One membership club cracking down is Costco (COST). The retailer will be checking IDs to ensure only those paying members are getting into stores. That could lead to an increase in membership.

    Even if it doesn’t, the retailer’s business model ensures it makes a profit, even as it works to keep a lid on costs for consumers.

    Shares are up slightly less than the S&P 500 over the past year. And they’re a bit pricey at nearly 40 times earnings and 35 times forward estimates. But Costco is a retail leader, and manages to earn a decent profit, as well as periodically surprise shareholders with extra dividend payments.

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  • Action to take: Investors may want to start a small stake, and use a market selloff to buy more shares. While the current yield is a scant 0.8 percent, Costco does make extra payments every few years.

    For traders, shares have been somewhat rangebound over the past year, and seem to be heading to the higher end. The October $575 calls, last going for about $7.15, could see mid-double-digit gains.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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