Survey: Netflix Subscribers Willing To Pay More

A primary concern for Netflix, Inc. NFLX investors in recent years: whether the company will eventually be able to translate its massive user base and impressive growth numbers into the type of profits that can justify its lofty share price.

Netflix has plenty of pricing leverage to ramp up its profitability at some future point, according to Piper Jaffray. 

The Analyst

Piper Jaffray analyst Michael Olson reiterated an Overweight rating on Netflix and raised the price target from $281 to $319.

The Thesis

Piper Jaffray surveyed Netflix uses in seven global markets and found that 15 percent fewer Netflix subscribers would cancel their subscriptions if Netflix raised prices by 20 percent than when Piper Jaffray last performed the survey in June 2017. The uptick in international pricing power demonstrates the type of value Netflix has created for customers by beefing up its content library, Olson said in a Wednesday note. (See the analyst's track record here.) 

Based on Piper Jaffray’s current price target earnings multiple, a 20-percent uptick in average revenue per user suggests earnings power of $7.40 by 2020 and a potential long-term price target of $406, the analyst said. 

“This assumes no impact to churn, which is likely unrealistic; however, we would not expect a significant increase in subscriber cancellations if prices moved 20 percent higher over three years,” Olson said.

Netflix is unlikely to approach its 52-percent domestic penetration rate in international markets, but could reach 20 percent international penetration — excluding China — by the end of 2020, according to Piper Jaffray. 

Price Action

Netflix shares were up about 2 percent Wednesday and a staggering 47.6 percent year-to-date.

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