Analyst: Netflix Should Grow Subs Despite Price Increase
Canaccord Genuity media and technology analyst Michael Graham expects Netflix to beat its third quarter subscriber growth expectations, adding that growth should continue into the fourth quarter despite plans for a November price increase.
Netflix said earlier this month it would increase the monthly price of its premium tier to $13.99 from $11.99 and for its standard plan to $10.99 from $9.99 beginning in November. Pricing for its $7.99 basic plan will remain the same.
In the past, price increases have spurred a flurry of hand wringing from analysts who predicted it would result in slower subscriber growth. And in Q2 2016, after it had decided to “un-grandfather” earlier subscribers who had been paying between $7.99 and $8.99 monthly for standard service to the current $9.99 rate – subscriber growth was impacted. Netflix added 1.7 million subscribers in Q2 2016, short of the 2.5 million it expected.
But Wall Street and investors applauded the latest increase – Netflix stock rose about 5% on the day it said it would implement the new rate card. And analysts are encouraged that a strong content pipeline will offset any churn.
In a research report, Graham noted that a slate of fairly strong original releases in the quarter like Narcos and high profile returns in the latter part of Q2, like Orange is the New Black, should carry additions into Q3.
Graham estimates that Netflix will add 850,000 domestic subscribers in the quarter, 50,000 more than analysts’ consensus of 796,000 additions and 100,000 above the company’s own expectations of 749,000 additions. He believes that with the second season of 2016 surprise hit Stranger Things slated for the fourth quarter, should help push that growth ahead.
“We still believe there are enough draws this quarter to drive a domestic sub beat,” Graham wrote.
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