A price increase at Netflix is “probable in the near- to mid-term," according to analyst firm Jefferies.
Netflix last raised prices in early 2019. The price for Netflix’s most basic tier climbed from $8 per month to $9; the price for the Netflix’s most popular tier, which allows viewing on two screens at a time and includes HD video, jumped from $11 per month to $13; and the company’s highest tier, which allows up to four screens at once and include Ultra HD video, increased from $14 per month to $16.
Jefferies analyst Brent Thill estimated that if Netflix again raised pricing on its plans by $1 or $2 per month, the company could rake in an additional $500 million to $1 billion in revenue during 2021. He said the price hike could lead to some customer churn in price-sensitive markets but seemed confident that Netflix could pass off an increase due to its "deepening content library and outsized consumer value proposition."
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“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),” wrote Thill in a research note.
Netflix forecast 2.5 million paid net additions for the third quarter (down from the 6.8 million in the same quarter last year). The company said its strong first half growth likely pulled forward some demand from the second half of the year. Netflix will also have to go up against the positive impact of new seasons of both “Stranger Things” and “La Casa de Papel (aka Money Heist)” that debuted last year.
“We continue to view the quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long run adoption of internet entertainment which we believe provides us with many years of strong growth ahead,” the company wrote in a letter to shareholders.
Netflix said its second-quarter revenue grew 25% year over year and its quarterly operating income exceeded $1 billion. Average streaming paid memberships in the quarter rose 25% year over year and streaming ARPU increased 0.4% year over year.