In The Case Of The Netflix Price Increases, There Are More Pros Than Cons

Since Netflix, Inc. NFLX announced it will increase prices on its U.S. members for the first time since 2015, investors have legitimate reasons to be concerned that subscriber losses could outweigh any revenue benefit. But these concerns may be overblown, at least according to Bernstein's Todd Juenger.

Juenger maintains an Outperform rating on Netflix's stock with a price target boosted from $203 to $230 amid a view that the recent price increase will result in only a "slight decrease" in subscriber growth, but as a whole the price increase boosts Netflix's valuation.

Stronger Than Ever

Netflix's price power remains as strong today as it ever has, the analyst explained. Since 2014, the price of a standard U.S. membership has increased at a 10 percent compounded annual growth rate (CAGR) for new subscribers. During the same time period, Netflix managed to grow its subscriber base at a larger 12 percent CAGR rate from 34 million to 50 million.

There are nevertheless a few cons from the price increase, Juenger added. Perhaps most notably, Netflix may have opened the door for competitive services to undercut on price. After all, Netflix has kept its prices "so low" for such a long time period it's difficult for a competitor to offer a cheaper price, but this is exactly what has happened as Hulu announced a price decrease from $7.99 to $5.99 for new subscribers.

The pros, particularly an increase in Netflix's stock valuation, outweigh the cons and investors should have confidence that Netflix's price increase "demonstrates confidence in sub trajectory."

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