Netflix, Inc. NFLX is about to implement its already announced price increases. So how will it impact subscribers, and therefore, the stock?
In a note out Thursday, Baird said it's "recent survey suggests solid Q1 U.S. subscriber results, though investors are increasingly focused on guidance, due to previously announced price increases that could begin rolling through the legacy base in May."
Analyst William Power said the firm doesn't "expect a significant increase in churn given the overall strong value proposition, but note that each 10 bps increase in monthly churn could negatively impact U.S. net additions by roughly 125,000 per quarter."
The analyst believes the prices increases should benefit Netflix's revenue and help cover its ever-growing content costs, its churn impact is crucial:
- Reasons why churn might increase: Price elasticity and growing competitive alternatives, though we would be surprised by a significant increase.
- Reasons why churn won't be impacted: Strong value proposition, driven by the growing breadth of content.
"Due in part to the potential for higher churn, Q2 guidance could be under an even greater microscope than normal," Power said. Baird is forecasting 663,000 total U.S. net additions, which appears to be in line with published consensus. However, while "Q2 could feel some impact, the first full-quarter impact will be Q3, with Q4 also impacted by the planned October price increase."
Shares of Netflix last closed at $104.45.
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