Netflix is likely to raise subscription prices in North America or Europe soon, but it won’t likely suffer major backlash, in the view of one Wall Street analyst.
Alex Giaimo of Jefferies pointed to a shift in tone between remarks from management on the first-quarter earnings call in April to the second-quarter call in July.
“After a change in language regarding pricing on the (second-quarter) call, we believe a potential hike is probable in the near to midterm,” Giaimo wrote in a note to clients. “In Q1, Netflix said that they were ‘not even thinking about price increases,’ while the Q2 language was more open-ended.”
An increase of $1 to $2 a month in North America or Europe could generate $500 million to $1 billion in fiscal 2021 revenue, Giaimo said. Giaimo sees an increase of $1 to $2 a month in EMEA (Europe, Middle East and Africa) as “most likely,” estimating that it would add “an incremental $700 million to 2021 revenue.”
Giaimo reiterated his “overweight” rating on Netflix shares, boosting his 12-month price target to $570 from $550. While shares have risen almost 50% in 2020 to date, they have drifted down over the past month. On Monday, they were down about 1% at around $479, on light trading volume.
Netflix will report third-quarter earnings on October 20. The company has thrived during COVID-19, adding about 26 million global subscribers in the first half of the year to reach a total of 193 million. The streaming giant has fended off competition from a handful of multi-billion-dollar services coming to market over the past year, including Disney+, Apple TV+ and HBO Max.
Prices in the 200-plus countries where Netflix operates are constantly in flux. U.S. subscribers saw their last increase in May 2019, the fourth price hike since 2010, when the most popular plan went from $11 a month to $13. While the hikes invariably cause some subscribers to bail, the company’s momentum has continued in terms of subscriber trends and the company’s stock price.
Subscriber growth has flattened in the U.S. but is still on a growth curve elsewhere. “We have confidence that Netflix can raise prices in international markets given its deepening content library and outsized consumer value proposition,” Giaimo wrote.
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