Netflix (NFLX) Stock: What a Price Increase Could Do

Netflix, Inc. (NASDAQ: NFLX)

There’s quite a bit of uncertainty revolving around NFLX at the moment, and for good reason. The company recently announced that it intends on increasing its price for its monthly subscribers. While some analysts believe that this is going to be a big mistake, others don’t think that it will be much of an issue. Today, we’ll explain what the company is doing and its justification for its move as well as take a look at the picture from both the bullish and bearish views. In the end, I’ll let you know what I think about the price hike. So, let’s get right to it…

NFLX Plans On Increasing Its Prices

As mentioned above, Netflix is making an incredibly big step over the next week or so. The company is planning on increasing its price by $2 per month for subscribers that have been grandfathered into a lower price point. According to recent reports, this means that about 37% of its domestic customer base will have to agree to paying $2 more for services from NFLX. While $2 doesn’t seem like much, when we look at it in the grand scheme of things, NFLX will increase its revenue drastically with this small price increase. The company announced a clear justification for the price increase. Netflix now offers a wide range of unique content that you can’t get anywhere else. With more and more quality content, some of which is exclusive, the cost of running the business is headed upward, and as any business would, they need to pass the increased cost down to the consumer. While some investors and analysts are welcoming the change with open arms, others are incredibly concerned with what this might turn into.

The Bears Aren’t Happy About the $2 Price Increase

Those that are bearish on the idea are growing increasingly concerned with what a price hike will do to Netflix. Many of them are pointing to a recent survey offered by UBS. The survey showed that 41% of respondents said that they would ditch the service if the price of the service actually increased. If this really is the case, NFLX could be risking a large portion of their domestic customers through the price hike.

The Bulls Really Aren’t Concerned

While the bears are overwhelmingly concerned about what a price hike could do to the user base at NFLX, the bulls don’t seem to be concerned at all. In fact, they argue that some surveys suggest that the churn (Or cancellation rate) will likely be lower than 4%. If this is the case, NFLX will still come out well ahead of where it is now, even considering the cancellations that may come of the increase in price.

What I Think Might Happen

The reality is that no one likes to see price increases on any service they’re involved in. However, inflation is a real thing, and in order to continue offering the top notch services that NFLX is known to offer, the price is going to have to go up. It’s my opinion that the majority of consumers will understand this. As a result, I’m not expecting to see much drop off on users as a result of the increase in price.

What Do You Think?

How do you think the price hike will affect NFLX? Let us know your opinion in the comments below!