Here come the price hikes, and there goes Netflix, Inc. (NASDAQ:NFLX) stock. 

NFLX stock is making fresh all-time highs after the streaming service provider announced forthcoming price hikes for its US subscriber base. The standard tier (HD streaming on up to two screens) is getting a $1 price increase from $9.99 to $10.99 per month. The premium tier (UHD streaming on up to four screens) is getting a $2 price increase from $11.99 to $13.99 per month. The basic tier (non-HD streaming on only 1 screen) is unaffected and still costs just $7.99 per month.

So why is NFLX stock up more than 5% on the news? After all, shouldn’t price hikes result in customer churn?

No.

The huge rise in NFLX stock over the past two days says one thing: Netflix is such a dominant player in the streaming-video-on-demand (SVOD) space that they can afford to hikes prices by quite a bit before customers quit the platform.

That implies a huge incremental revenue opportunity for Netflix. And that makes NFLX stock look enticing, even at these all-time highs.

Consumers Will Pay and That Means a Lot More Revenue for Netflix

It’s no secret that Netflix is as dominant as ever in the SVOD space. The streaming service provider continues to pump out quality, original content at a rapid pace, while competitors are struggling to keep up.

It’s also no secret that Netflix is pretty cheap. At $10 a month, its less than HBO Now ($15/month) and commercial-free Hulu ($12/month). In fact, the $10 price point lines up with the price points for short video and music streaming services like Spotify, Pandora, Youtube Red and Apple Music.

Clearly, there is room for Netflix to hike prices. Netflix offers the best and most robust over-the-top content portfolio in the marketplace, yet its price point is still more comparable to music streaming services than peer professional video streaming services.

Consumers will undoubtedly pay up. Another $1 to $2 per month is nothing to maintain access to Netflix content.

The reason NFLX stock is heading so much higher is because, while its just $1 to $2 more per month for each subscriber, if you add that up over 50 million-plus subscribers, it translates into a whole bunch of revenue for Netflix.

Consider this: Netflix has about 50.3 million paying subscribers in the United States. The company doesn’t disclose how that 50.3 million breaks down in terms of basic, standard, and premium packages, but if you take second quarter US streaming revenues of $1.5 billion and divide them by 3 to get monthly revenue, and then divide that by the 50.3-million subscription number, you can see that Netflix is making about $10 per month per sub.

The math works out, then, to affirm that the split is pretty even between basic, standard, and premium. That means that about a third of Netflix’s sub base will be paying $1 more per month to the platform, while another third of Netflix’s sub base will be paying $2 more per month to the platform. Average monthly revenue per sub, then, should go up by a dollar.

A dollar increase in average monthly revenue on a sub base of 50 million implies an incremental revenue opportunity of $600 million a year. That is about 10.6% of trailing twelve month US streaming revenues, and around 5.9% of trailing twelve month total revenues.

Bottom Line on NFLX Stock

We all knew price hikes were coming. The story for Netflix has always been: build a huge, exclusive content base that consumers will be willing to pay up for and, then, gradually turn the price knob up until consumers start pushing back.

At $7 to $13 per month, consumers aren’t pushing back. That is still just too cheap for anyone to really question Netflix’s value proposition.

At the end of the day, this all adds up to another reason to buy NFLX stock.

The stock currently trades around 94 times next year’s consensus earnings. That is a big multiple, but growth over the next 5 years is projected to be almost equally as big at 77.5% per year. The price-to-earnings/growth (PEG) ratio on NFLX stock, then, is something like 1.2.

But the S&P 500 is trading at a PEG ratio of just under 1.7 (17.4 multiple on calendar 2018 earnings with multi-year growth prospects of about 10.5%).

Even at these elevated levels, NFLX stock still offers you more bang for your buck than the market. In this sense, NFLX stock, like the Netflix streaming service, is still cheap.

As of this writing, Luke Lango was long NFLX.