Netflix Analysts Say Price Hike Eases Concerns Over Higher Content Spending
(Bloomberg) -- Netflix Inc. investors are cheering the streaming service’s price increase, as analysts see the move as a sign of confidence from the Reed Hastings-led company that subscribers are willing to pay more for its original content.
Suntrust believes the business move reveals management “confidence in the content slate and subscriber trajectory in 2019.” Increasing plan costs for all U.S. subscribers, Buckingham Research says, will also help shore up the company’s free cash flow, ease concerns over its increased spending for original programming and soften the blow of losing content from Disney and 21st Century Fox at year-end.
Shares of Netflix rose as much as 6.8 percent at 12:10 p.m., to their highest price since October. The streaming service will kick off earnings season for the media sector, and is scheduled to release fourth-quarter results Thursday after the market close.
Here’s what Wall Street is saying:
Buckingham Research, Matthew Harrigan
“We are very optimistic on successful implementation, with this being the fourth increase for U.S. customers in Netflix’s history with the last being the remarkably successful 2018 price increase.”
Harrigan believes increasing prices “improves free cash flow and allays concerns over higher original programming spending to offset the loss of Disney and Fox at year-end.”
“The rate hike is likely off increasing original programming traction and is probably supported by member behavior models that assess perceived value of NFLX programming relative to traditional linear media channels.”
Buy rating, price target $382
Piper Jaffray, Michael Olson
“As consumer content dollars shift from traditional video to streaming and as Netflix commands a larger share of viewing time due to an improving content slate, we believe ongoing periodic price increases make sense and should be expected.”
Based on the increased pricing, Netflix’s ARPU in the U.S. should rise by about 20 percent over the next two years, Olson wrote in a note.
“We believe the primary determinant in the ability to raise price is subscriber perception of content quality.” And Piper Jaffray says the firm’s recent surveys of Netflix subscribers show the perception of content quality on Netflix has improved and subscribers are currently willing to pay, on average, more than $15 per month for the service.
Reiterates overweight rating, price target $430.
SunTrust Robinson, Matthew Thornton
“We view the read-through as positive as it relates to the company’s confidence in the content slate and subscriber trajectory in 2019.”
“Our model is under review, but looking at the 2016 price increases (ungrandfathering) as a proxy, we would expect upward pressure on long-term domestic and total ARPU, revenue (~4% increase to 2019-2020 total revenue all else constant), and profit (expect reinvestment).”
Buy rating, price target $355.
RBC Capital, Mark Mahaney
“This price increase is something that Netflix very recently announced and rolled out in Canada, and our channel checks in Toronto last week suggested essentially no push back on the price increase.”
“We believe this action has a high probability of success, further fueling the Netflix flywheel.”
Mahaney believes the price increase will stick, as recent survey checks suggest very high levels of satisfaction among Netflix users in the U.S.
Outperform, price target $450.
Bloomberg Intelligence, Geetha Ranganathan and Paul Sweeney
“Netflix’s 18 percent price increase for its 58 million U.S. members to $13 for its most popular plan signals strong subscriber momentum ahead of 4Q earnings.”
“The move speaks to the popularity of the service as more of its original programs resonate with viewers, and it suggests pricing power to help support its content investments.”
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