Netflix, Inc. (NASDAQ:NFLX) causes me concern. I’ve made no bones about this in the past. Thus far, NFLX stock has been perpetually strong. Sooner or later, however, Netflix’s growing debt and other liabilities aren’t going to overshadowed by the revenue being brought to the table by the flow of new subscribers.
I’m fair though, and I will gladly point out a company’s strong suits. To that end, owners of Netflix stock can at least modestly celebrate the fact that this streaming service has demonstrated some impressive pricing power.
That may be half the battle in the over-the-top television arena.
Subscribers Stick Around
One of the criticisms of Netflix’s quarterly reports is their lack of clarity as to the impact that free-trial memberships may have on the top and bottom line. Each report plainly lays out “paid memberships” and “total memberships” as of the end of the period — with the difference being non-paying subscribers. But the all-important average revenue-per-user (ARPU) isn’t served up in black and white.
It’s not a tough thing to figure out though, so I did.
The graphic below plots the ARPU total for all members going back to 2015, and also details the revenue per user just for revenue-bearing subscribers. It’s cross-referenced with the total number of subscribers, and how that too has changed over time. (Bear in mind that the metrics are per quarter, and not per month.(
Click to Enlarge
So what?
The biggest “so what” is that the data demonstrates that — despite the outcry at the time they’re unveiled — Netflix is able to impose higher monthly fees without alienating many (if any) subscribers.
This speaks more highly of the company, and bolsters the bullish case for NFLX stock, more than you might think.
For starters, it points to the quality of the Netflix platform. Netflix is comparably-priced to rival services like Hulu and less-direct rival services like Amazon.com, Inc. (NASDAQ:AMZN). (Though with the base package starting at $11 per month, it does cost slightly more.) Yet, Netflix still claims about half of all the streaming TV memberships in the United States as its own.
It’s just as impressive in overseas markets, where PiperJaffray says members are even less likely to abandon the service than they are in the United States even against a backdrop of rising prices.
Quality Builds Loyalty
It’s not just a relative immunity to price increases, though, that makes Netflix a curious competitor. It’s holding its own (and then some) against a different kind of competitor.
Take SlingTV for example. Kudos to SlingTV for actually delivering a true, low-cost “skinny bundle” of cable television channels to the streaming TV market. Its service offers most of what local-feeds consumers want, but also allows subscribers to pick and choose their own channel lineup. It even offers access to a ton of on-demand content, like Netflix. At a starting price of $20, it’s close enough to Netflix’s $11 that many consumers could be comfortable taking a leap and opting for a more cable-like option than Netflix is.
By and large though, people are sticking with their Netflix. Consumers are even sticking with Netflix over Hulu (though many households have access to both) and the access to current-season programming it offers, for a lower price.
Quality of programming? That’s likely a big part of it. Being able to access Orange is the New Black, Stranger Things, The Queen and a whole slew of other popular originals is a bargain at just $11 a month. Indeed, Netflix might be able to scoot the monthly fee up just a bit more before pricing itself out of contention, just on the strength of its assortment of programs.
That said, there’s also a lot to be said for Netflix being first to the market. Some subscribers have been on board for years, and can’t imagine life without Netflix. The longer Netflix is around, the more likely subscribers are to ignore the occasional price increase.
Bottom Line for NFLX Stock
Don’t read too much into the congratulatory remark. No company is immune from competition, and Netflix does have a debt/spending challenge that will have to be dealt with sometime.
As far as maintaining its pricing power though, owners of NFLX stock at least don’t have to worry about that.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
