Brace yourself Netflix (NFLX) and chillers, your favorite activity may be about to cost a few dollars more — to the delight of the streaming beast’s shareholder base.
Netflix stands to haul in a whopping $500 million to $1 billion in extra sales in 2021 should it decide to raise prices (as many on the Street believe will happen soon) by $1 to $2 in all four of its geographies, as Jefferies analyst Brent Thill estimates via a new note to clients. While Thill believes a price hike may cause Netflix to lose some subscribers in more price sensitive international markets, the company’s deep content library and shift to more at home living due to the pandemic suggests the majority of subscribers will shrug at the extra costs.
Thill reiterated his Outperform rating on Netflix shares and lifted the price target to $570 from $500.
“While the stock has hit a bit of a lull post earnings given soft 3Q guidance and a somewhat light summer content slate, we continue to believe Netflix will deliver normalized high double-digit top line growth with sizable margin expansion over time. Valuation remains the biggest hurdle, but we see significant long-term upside (bull case of ~46% stock appreciation by 2022) and sustainable high-quality fundamentals (competitive moat, top management team, industry shift to OTT),” Thill writes.
Netflix hasn’t raised prices since January 2019, but executives hinted strongly on a second quarter call back in July an increase loomed large. 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. Thill correctly points out that Netflix’s revenue accelerated materially in 2019 as a result of the price increase
Netflix shares are up 49% year-to-date, outperforming the Nasdaq Composite’s 22% gain. Noteworthy is that Netflix shares have been the best-performing among the FAANG cohort over the last month of intense pressure on the sector, according to Yahoo Finance Premium data, likely as investors position ahead of a price hike by Netflix.