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Netflix, Inc. Stock Will Survive the Price Hike, Subs Are Going Nowhere

Subscriber growth has never hit reverse gear at any point

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Netflix (NASDAQ:NFLX) bears have been harping relentlessly about the way NFLX stock has continued running riot even on the back of not-so-great news. The latest price hike by the company is a good case in point. Under ordinary circumstances, the latest price hike by the streaming giant should at least have slowed down the red-hot stock some. After all, history proves that NFLX subscriber growth does slow down following price hikes. Instead, NFLX stock has frequently been taking out new highs, and is currently sitting just below its all-time high watermark.

NFLX stock obviously does not fit into the classic four-walled paradigm of your average growth company, and maybe the sooner the bears acknowledge this the better. Nevertheless, the bears might finally have a narrow window to pounce. A sale signal developed from a pivot top point a couple of days ago, and a break below the $189.29 support could trigger a substantial correction.

Grumpy NFLX Customers

The fundamentals are not on the side of the bears, though. The positive reaction by NFLX stock is a clear vote of confidence by investors that the price hikes will not trigger a mass exodus of subscribers this time around. Netflix hiked the the price of the standard service by a buck to $10.99 and also rolled the billing of the premium service to $13.99 from $11.99. That’s nothing out of the ordinary going by the company’s recent increases.

NFLX subs have been notoriously price sensitive in the past though, with only small increases leading to a substantial slowdown in growth. A good case in point was back in 2015 when the company fell short of its Q3 customer additions target by 700,000 after raising the price of the standard plan by a buck. Consequently, NFLX stock was badly hammered, tanking nearly 20% overnight.

So why have investors decided to turn a blind eye to the growth-dampening effects of price increases? Is price elasticity no longer a risk factor for NFLX stock? After all, Netflix subscribers on a standard plan will now pay $2 more than a standalone Amazon (NASDAQ:AMZN) Prime video user. With nearly 80 million subscribers to Netflix’s 104 million, Prime video has emerged as a credible Netflix challenger and has been growing like a weed.

Hulu is not too shabby either. The company’s average daily sign-ups had increased 98% since March, thanks to a series of scintillating shows like The Handmaid’s Tale. Adapted from a classic novel by Margaret Atwood, The Handmaid’s Tale beat Netflix to the punch by becoming the first streaming series to clinch a Best Drama Emmy in September. Hulu’s original programming budget of $2.5 billion might not be in the league of Netflix’s $6 billion, but it certainly looks like money well spent.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/10/nflx-stock-survive-price/.

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