Netflix Investors: Subscriber Growth Is Overrated, Pay Attention To Price Elasticity Instead!
Netflix, Inc. (NASDAQ: NFLX) are flirting with $100 a day after the company beat Wall Street's earnings and revenue expectations. The company also trounced consensus subscriber numbers 5.59 million to 5.15 million.
On Wednesday morning, Drexel Hamilton's Tony Wible maintained a Buy rating on Netflix after the results, adding that 2016 full year subscriber growth is on pace to beat his expectations. "While often overlooked, the DVD business beat on subs, ARPU, and margin, which provides capital for the streaming operation," he reminded readers.
Of note, Wible warned some investors may "put too much weight" behind subscriber growth when, in reality, price elasticity is more important. " A $1 increase in pricing across 170 million future subs is a far bigger driver of revenue than one million extra US subs," he explained. The company can -- theoretically -- increase average revenue per user without affecting subscriber growth.
What Risks Remain?
Wible outlined two main risks facing Netflix: re-pricing from studios that could increase OTT competition and make it harder for Netflix to scale content spending, along with stricter government scrutiny.
Netflix is down 6 percent on Wednesday thus far.
Latest Ratings for NFLX
|Apr 2017||Cantor Fitzgerald||Maintains||Overweight||Overweight|
|Apr 2017||Rosenblatt||Initiates Coverage On||Neutral|
|Mar 2017||Deutsche Bank||Maintains||Hold|
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