While one firm warned recently that Netflix could lose nearly 500,000 subscribers as a result of the end of grandfathering for some subscribers, another now says that it isn’t worried. Also a new survey indicates that Netflix subscribers would still rather pay more for the service than watch commercials, which seems to back up this second view.
Analyst not concerned about near-term headwinds
Cantor Fitzgerald analyst Youssef Squali and team said in a report dated June 23 that their long-term thesis on Netflix remains intact even though there are potential headwinds coming in the second half of this year. For example, subscribers who had been grandfathered in with their previous monthly subscription price will see their price go up in the coming months. Additionally, Squali warned that the August Olympics could be a headwind for Netflix, which also faces tough comparisons with last year because of the strong launches in Japan and southern Europe in the second half of last year.
However, he adds that the beginning of the much-anticipated deal with Disney in September plus a strong slate of original content should help balance these headwinds.
Trouble for Netflix during the Olympics
The Cantor Fitzgerald team reminded investors that the Rio Olympics might dampen engagement for Netflix during the third quarter just as the London Olympics did in 2012. At that time, the streaming service experienced a slowdown in engagement and user growth because viewers were spending more time watching the Olympics and less time on Netflix. The event is set for August 5-21.
They also noted that management scaled back their expectations for full-year domestic subscriber adds in 2012 due to the Olympics. However, in the fourth quarter, the streaming service provider beat estimates and then accelerated subscriber growth in the years following that. Management has emphasized that strong original content should be credited with much of the strong growth the company has experienced in recent years.
Squali and team have a Buy rating and $140 per share price target on Netflix stock
Netflix subscribers hate commercials
The Cantor team believes that Netflix is handling the price increase for long-time subscribers wisely and don’t seem concerned that the increase will have long-term implications for the streaming platform.
Indeed, a new survey of Reddit users suggests that the company may not have nothing to worry about because subscribers may be willing to pay even more for the service since it has prioritized keeping commercials out of the formula. Digital Music News reported on the survey today and said that 90% of the over 1,200 participants said they would rather pay more for Netflix’s service than be forced to watch commercials to keep the price lower.
The same survey found that 57% of participants would be willing to pay $1 to $2 more per month to keep Netflix commercial-free, while 22% said they would pay $2 to $3 more. The other 21% of participants would be willing to pay more than $3 extra per month to avoid commercials. This seems to suggest that Nomura analysts may be over-estimating the churn that will be caused by the price increase. They estimated that the company could lose nearly 500,000 subscribers when the price increase goes into effect for the subscribers who had been grandfathered in previously.
This Reddit survey backs up past surveys which also indicated just how much hatred Netflix subscribers have for commercials. This new survey also highlighted just how much the company has to lose if it ever does decide to add commercials, however, as 74% of those who participated in it said they would cancel their subscriptions if the company added commercials.
Netflix shares climbed 1.83% to close at $91.66 on Thursday.
