Netflix is scheduled to report fourth-quarter earnings on Monday, Jan. 22, and its recent price hikes could be cause for concern. But UBS analyst Eric Sheridan says new prices likely won’t raise subscriber churn.
“Our Nov '17 UBS Evidence Lab US consumer survey (2k sample size) would indicate no signs of materially increased churn—Netflix's household penetration saw a strong uptick from our last survey (Apr '17) and consumer satisfaction & perception of value remain relatively stable vs. historical periods. Additionally, we saw no discernible change with respect to the competitive landscape in examining data of competing platforms (Amazon & Hulu),” wrote Sheridan in a research note.
UBS sees potential upside to Netflix's fourth-quarter subscriber guidance based on its Evidence Lab data and analysis, which it said demonstrate that the year-over-year improvements Netflix saw through 2017 have sustained into the fourth quarter.
“On a QoQ basis, growth in older markets appears to be plateauing albeit sustaining at a very high level. With NFLX price increase going into effect in Q4, sub momentum (in the form of both gross adds & any resulting impact on churn) can be viewed as supportive of the platform's pricing power. Our Q4 total sub ests sit at 54.04m for domestic & 61.54m for Int'l (roughly inline with mgmt forecast),” wrote Sheridan.
For the fourth quarter, Netflix estimated it would add 1.25 million new U.S. subscribers and 5.05 million new international subscribers.
UBS said that Netflix’s original content slate was strong during the fourth quarter and that the company enters 2018 with good momentum for newer series.
“As expected, Stranger Things season 2 was very strong (garnering even higher search interest than every season of Game of Thrones in the U.S.). Our tracker indicates that Stranger Things and 13 Reasons Why are two of the most popular Netflix Original Series in 2017. Newer Series such as Ozark & Mindhunter also have much forward potential, already generating similar interest as House of Cards & Narcos,” wrote Sheridan.
Netflix intends to spend up to $8 billion in 2018 on original content and, as a result, the company’s competitors are rising up to meet Netflix in terms of programming spend.
“In total, we expect programming costs for JEF Media coverage to increase to $80B this year, up from $43B in '13. To put that into context, NFLX will represent ~10% of industry programming spend (all digital players 24% of spend), up from ~4% in 2013,” wrote Jefferies John Janedis in a research note.