Does Netflix Have a Price Umbrella?

The much lower U.S. net adds (versus 0.90 million a year ago) and the low guidance for the third quarter (versus 0.88 million a year ago) tells a story of a faster-than-expected decline in subscriber growth. While we projected subscriber net add growth to gradually decrease, the current results and guidance are surprising, given the 2.23 million adds in the U.S. in the first quarter. While management attempted to blame the media for reporting the end of the grandfathering period as a price hike, we believe that an increase from $7.99 per month to $9.99 feels like a price hike to some subscribers, even if it took two years to occur. The increase in churn could also possibly signal the end of the widely held belief that Netflix has a pricing umbrella under $15 in the U.S.

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