Netflix’s (NFLX) new price increases on subscribers could fatten up its sales, analysts think.
The streaming beast announced late Thursday it would hike the fee for its standard membership by $1 to $14. Its premium tier will see a $2 increase to $18. The changes will phase in over the next two months.
Jefferies analyst Alex Giaimo estimates the price increases could lift Netflix’s sales by $500 million to $1 billion in 2021. Given Netflix’s strong content slate, Giaimo doesn’t believe the company is at risk of losing a material amount of subscribers because of the price increase.
“Bears will argue that the environment is more competitive now than it was during prior price hikes, but we continue to believe the near-term content slate is underrated and considerably stronger than network peers. History shows short-term churn but continued long-term growth. Hike will help with the difficult 2020 comp,” said Giaimo, who reiterated his Buy rating with a $585 price target.
The bullishness on the price increase was echoed at Piper Sandler.
Analyst Yung Kim lifted his 2021 sales and EPS estimates on Netflix by $500 million and 19 cents, respectively. He reiterated his Overweight rating on Netflix shares and raised the price target to $643 from $630.
Netflix shares currently trade at $504.
Netflix last raised prices in January 2019, but executives hinted strongly in recent earnings calls that an increase loomed. So this week’s news is hardly a surprise to the Street. In January 2019, Netflix’s service that offers two streaming devices saw a price increase to $13 from $11. A cheap plan of $8 a month went to $9 and a high-end version went to $16 from $14.
Netflix shares are up 55% year-to-date, outperforming the Nasdaq Composite’s 25% gain as investors plowed into the stock as a COVID-19 play and ahead of the price hikes. But with the price increases now known and Netflix reporting a disappointing third quarter this month, the stock could be poised for a near-term breather.
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