Costco Stock In Focus After Morgan Stanley Says Card Scanner Roll-out Could Deliver ‘A Netflix Moment’

Shares of Costco Wholesale Corporation ($COST) were in focus on Wednesday after Morgan Stanley analysts said the firm’s ongoing roll-out of membership card scanners at its U.S. clubs “could soon deliver a Netflix moment.”

The analysts were referring to Netflix’s crackdown on password sharing following which it is expected to have converted 20-25 million of the 100 million plus opportunity into net adds in 2023 and the first half of 2024.

Morgan Stanley analysts highlighted that according to their channel checks, membership counts at select Costco locations are rising by double-digits following the implementation of the scanners.

“…we believe faster membership growth should be an upside lever, even with 'typical' reinvestment,” the analysts wrote.

The brokerage stated that Costco North America’s warehouse clubs service an estimated
52 million members, or nearly two-thirds of Costco’s members worldwide.

According to the analysts’ base scenario, Costco could capture an additional 4 million members through conversion of non-fee paying customers in North America, which could lead to a 5% discrete 'lift effect' to its worldwide total subscriber count of about 76 million.

On Wednesday noon, Costco shares were trading nearly 1% higher. Meanwhile, retail sentiment on Stocktwits continued to trend in the ‘neutral’ territory (51/100), accompanied by ‘high’ message volume.

Stocktwits users took note of the Morgan Stanley analysts’ comments. One user with a bullish view on the firm believes the stock is worth $1000.

Earlier this month, Costco announced its fourth-quarter results that saw earnings per share (EPS) beat analyst estimates but revenue falling short of expectations. Costco reported diluted EPS at $5.29 compared to an estimate of $5.08. Revenue, however, came in at $79.69 billion versus an estimate of $79.93 billion.

Net income for the quarter came in at $2.35 billion compared to $2.16 billion in the same quarter a year ago.

Costco shares have gained over 38% since the beginning of the year, significantly outperforming the benchmark U.S. indices.

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