Netflix Raises Prices in U.S. Yet Again

Netflix (NFLX) raised prices across the board in the U.S. and Canada on Jan. 14 as the firm continues to search for methods to grow revenue in the face of slowing subscription growth in its single biggest market. The price of the firm’s standard plan will increase by $1.50 to $14.49 per month, the premium plan by $2 to $20 per month, and the basic plan by $1 to $10 per month. The increase is the sixth for the standard plan that debuted in Nov. 2010 at $8 per month. Netflix waited for three and half years to enact its first price hike on the standard plan but has increased pricing four times since October 2017. The increases should help offset the impact of recently announced lower pricing in India, where Netflix has fallen well behind Amazon and Disney.

We slightly increased our estimate for 2022 monthly average revenue per user in the U.S. region as we previously expected a slightly smaller price hike in 2022, but also lowered our long-term subscriber growth projections. However, we maintain our $275 fair value estimate for Netflix as our long-term pricing assumptions remain intact, based on the multitude of streaming options that have emerged, and as we await further details from management on the Jan. 21 earnings call.

While Netflix did post strong U.S. subscriber growth in the first half of 2020 as the pandemic set in, growth has slowed significantly since then and we estimate that the firm will add less than a million subscribers in 2021. As we have noted before, Netflix has only one real source of revenue (streaming subscriptions) with only two levers to increase revenue: adding subscribers and increasing price. Given the high penetration in the U.S. and high customer awareness, gaining the marginal subscriber is getting tougher, particularly as the streaming competition increases in number and quality. As a result, price increases may be the only real lever left to grow revenue in the U.S. and we expect that further increases will cause churn to spike up sharply.