Netflix's Price Hike Is A Risky Move During Economic Uncertainty, Analyst Says

Benchmark analyst Matthew Harrigan reiterated Netflix Inc NFLX with a Sell and a $325 price target.

A Tuesday report indicated that Netflix will increase prices starting in North America for its SVOD offerings – an indicator of both mirroring pricing actions from its near peers and that lower price point to consumer AVOD economics can be significantly accretive relative to SVOD. 

It provides a positive cross-read for competing services like Peacock and Max, emphasizing AVOD and featuring high CPM live sports, as a Netflix executive indicated in May that its ad tier had nearly 5 million monthly active users – moderate to other services. 

The price bump will be effective after a few months, pending a resolution on the SAG strike and U.S. production restarts. 

Harrigan believes further new price increases in the U.S. and elsewhere may be untimely as the global economy seemingly decelerates and equity markets weaken. 

Netflix’s last price increase occurred in January 2022, when its ad-free standard plan went from $14 to $15.49 and 4K from $18 to $20. 

The new action complements Netflix’s elimination of its mid-tier/ad-free basic plan, raising the entry-level price from just $9.99 to $15.49 while addressing password sharing with a $7.99 surcharge for each user outside the main household. 

Although Warner Bros. Discovery, Inc WBD Discovery+ announced yesterday that it is immediately increasing its ad-free price from $6.99 to $8.99, this is off a lower base and may be ahead of any recession and holds AVOD pricing constant at $4.99 monthly. 

Walt Disney Co DIS is also increasing prices next week for Disney+, Hulu, and ESPN, with the increases announced last summer. 

The WGA estimates that its new contract implies compensation increases amounting to just 0.2% or $68 million of Netflix’s annual revenues, less than we had anticipated, suggesting the new deal is favorable to the studios. 

However, any SAG settlement will almost certainly be more burdensome. 

Harrigan continues to view Netflix as much more of a media than a tech name, although the company is seemingly executing well on its password-sharing and AVOD initiatives. 

Continued U.S. dollar strength could challenge expectations for double-digit 4Q23 top-line growth, although this is no reflection on Netflix’s credible initiatives to complement its still #1 global video streaming position.

The analyst estimates Q3 revenue of $8.52 billion vs. consensus $8.53 billion and EPS of $3.52 vs. consensus $3.51.

Price Action: NFLX shares traded lower by 0.08% at $376.44 on the last check Wednesday.