Why Is Netflix, Inc. (NFLX) Rallying Today? Top Analyst Says Higher Sub Prices Mean More Gains

RBC Capital casts limelight on Netflix's price lifts as key revenue growth catalyst.


Netflix, Inc. (NASDAQ:NFLX) shares are on a nice nearly 4% upturn after the video streaming giant’s reveal today that domestic prices are about to get a bump up in Standard and Premium tier subscription plans. Starting November, the Standard plan will be raised a dollar up to $10.99 and the Premier tier price tag will see a $2.00 jump to $13.99.

Top analyst Mark Mahaney at RBC Capital sees this as “an incremental positive,” trumpeting from a bullish bullhorn: “We believe the company does have pricing power and this is likely a long-term revenue and EPS catalyst.”

In reaction, the analyst maintains an Outperform rating on NFLX stock with a price target of $210, which implies a close to 10% increase from where the stock is currently trading.

Noting that already last year saw a price boost, one that at the time elicited a great deal of shareholder apprehension circling prospective subscriber dips, Mahaney offers some context: “Though it may have caused some churn at the time, it was hard to say how much of that was actually due to the price increase or the amount of conversation in the media around the price increase […] Plus, it’s likely that a large number of users who churned off have since returned, as we’ve seen a very strong 1H17 in terms of Domestic Sub Adds.”

From Mahaney’s eyes, this is a clear stride forward for the company, as he suggests, “We believe that Netflix’s pricing power has increased materially over the past few years as their content slate and technology has improved. Therefore, we believe that this price increase will likely be a revenue growth catalyst for the company. Our detailed survey work over the years has indicated the content, not price, is the leading churn/churn-back factor amongst Netflix subs.”

Plain and simple, “Higher prices = higher revenue growth… THIS is what is causing Netflix’s stock to rise ~4% on the news,” asserts the analyst.

Mark Mahaney has a very good TipRanks score with a 76% success rate and a high ranking of #16 out of 4,699 analysts. Mahaney garners 25.6% in his yearly returns. When recommending NFLX, Mahaney realizes 46.0% in average profits on the stock.

Wall Street seems to agree with this top analyst’s bullish perspective on the video streaming platform’s prospects, as TipRanks analytics exhibit NFLX as a Buy. Out of 35 analysts polled by TipRanks in the last 3 months, 24 are bullish on Netflix stock, 10 remain sidelined, and 1 is bearish on the stock. With a return potential of 2%, the stock’s consensus target price stands at $196.82.