UBS: Netflix perfectly timed its price increase to ensure you won't leave
On Thursday, it emerged that Netflix would be increasing the prices for its subscription services, and investors seemed to love it.
The company's stock shot up 5.36% on Thursday after reports on the price increase. Investors were happy to see an estimated $623 million in new revenue for the company.
But the new revenue will only come if Netflix doesn't lose a ton of subscribers because of the price increase. In order to limit its losses, Netflix timed its price hike perfectly to coincide with a flood of new content.
"This timing coincides with what we expect will be a strong fourth quarter of 2017 content slate, which could help minimize churn," Doug Mitchelson, an analyst at UBS, said in a note to clients.
Analysts, and even Netflix itself, regularly point to popular original content as the best way to attract and retain customers. In the fourth quarter of 2017, Netflix has set up some potential hits. The company is releasing the second season of "Stranger Things", its Will Smith-led original movie "Bright," the first season of "Marvel's The Punisher" and a revival of Emmy winning "Queer Eye," to name a few.
Netflix said it learned a lot of lessons about how to best roll out price increases after an unpopular increase was carried out in 2016. Mitchelson added that "[Netflix] management would be unlikely to implement such a price increase if U.S. subscriber trends were disappointing, bolstering our confidence further."
Mitchelson rates Netflix a buy with a price target of $225.
Netflix has grown 55.72% this year and jumped another 2.2% on Friday.
