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Analyst: Netflix Subscribers Still Price-Sensitive

16 Oct, 2013 By: Chris Tribbey

A positive response to its original series “Orange Is the New Black” should see Netflix report better-than-expected third-quarter fiscal results Oct. 21, an analyst said.

In a note to investors, Wedbush Securities analyst Michael Pachter forecasted third-quarter earnings per share of 55 cents — higher than the consensus of 49 cents —on revenue of $1.10 billion, with an estimated 1 million net subscriber additions.

Yet if Netflix wants to continue to both add and keep subscribers, the company should stay far away from the idea of raising its subscription rates. An October survey of 1,000 domestic Netflix subscribers conducted by Wedbush found 79% would oppose any price increase.

“We believe that the central thesis of the bull case is that Netflix has significant pricing leverage, and we continue to believe that any price increase will slow growth to a crawl while driving profits much higher,” Pachter wrote. “In our view, Netflix cannot maintain high growth and high profits at the same time.”

Pachter also called into question Netflix’s decision to discuss its earnings at 2 p.m. Pacific, an hour earlier than last quarter.

“We think that shortening the window for question submission to one hour from two hours will likely result in fewer complex or well-informed questions as participants will be forced to quickly read through Netflix’s customarily lengthy investor letter with little time provided for in-depth analysis before the discussion begins,” he wrote.

As for the all-important fourth quarter, Pachter wrote that Netflix will be hard pressed to match the 2.05 million domestic net streaming subscribers from Q4 2012, with a weaker original programing slate this end-of-year period.

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