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Shares of video streaming giant Netflix (NFLX - Free Report) fell over 3% on Tuesday due to growing concerns about the company’s ability to retain its subscribers. According to one Wall Street analyst, Netflix could lose nearly half a million subscribers after its most recent price hike.
Today’s price movement for Netflix was originally sparked by a note released by Anthony DiClemente, an analyst at Nomura, on Monday. Although Nomura reaffirmed its “buy” rating for the stock, the firm cut its price target from $125 to $115 and DiClemente warned that the streaming service could lose up to 480,000 subscribers in the US.
Netflix recently raised the price of its standard subscription to $9.99 per month from $8.99 per month for new members. There is still a solid chunk of Netflix’s subscription base that has been grandfathered in to the company’s old $7.99 per month price, but as those subscribers lose that offer they will have to choose whether or not they want to pay the extra $2 per month.
Netflix trading typically relies heavily on news about the company’s subscriber growth, so it’s no surprise that DiClemente’s warning would send shares spiking. However, the analyst was careful to point out that the additional revenue from the price hike should generate about $520 million a year in new revenue, regardless of subscriber loss.
From a business standpoint, a price hike was probably necessary for Netflix at this point. The company has been rapidly expanding throughout the world, and it certainly costs a lot of money to break into emerging markets. Furthermore, rising licensing costs and production expenses on its originals have seen Netflix’s operating costs skyrocket.
The video streamer was also forced to deal with a significant outage on Monday afternoon. The service failure affected millions, primarily on the East Coast of the United States, and lasted for several hours before it was resolved.
Netflix currently has a Zacks Rank #2 (Buy). Small blips like today are common in the stock market, but investors will soon realize that Netflix’s price hike should end up bringing in a net gain in revenue. Let’s all take a deep breath and calm down for now.
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Here's Why Netflix (NFLX) Stock Is Falling Today
Shares of video streaming giant Netflix (NFLX - Free Report) fell over 3% on Tuesday due to growing concerns about the company’s ability to retain its subscribers. According to one Wall Street analyst, Netflix could lose nearly half a million subscribers after its most recent price hike.
Today’s price movement for Netflix was originally sparked by a note released by Anthony DiClemente, an analyst at Nomura, on Monday. Although Nomura reaffirmed its “buy” rating for the stock, the firm cut its price target from $125 to $115 and DiClemente warned that the streaming service could lose up to 480,000 subscribers in the US.
Netflix recently raised the price of its standard subscription to $9.99 per month from $8.99 per month for new members. There is still a solid chunk of Netflix’s subscription base that has been grandfathered in to the company’s old $7.99 per month price, but as those subscribers lose that offer they will have to choose whether or not they want to pay the extra $2 per month.
Netflix trading typically relies heavily on news about the company’s subscriber growth, so it’s no surprise that DiClemente’s warning would send shares spiking. However, the analyst was careful to point out that the additional revenue from the price hike should generate about $520 million a year in new revenue, regardless of subscriber loss.
From a business standpoint, a price hike was probably necessary for Netflix at this point. The company has been rapidly expanding throughout the world, and it certainly costs a lot of money to break into emerging markets. Furthermore, rising licensing costs and production expenses on its originals have seen Netflix’s operating costs skyrocket.
The video streamer was also forced to deal with a significant outage on Monday afternoon. The service failure affected millions, primarily on the East Coast of the United States, and lasted for several hours before it was resolved.
Netflix currently has a Zacks Rank #2 (Buy). Small blips like today are common in the stock market, but investors will soon realize that Netflix’s price hike should end up bringing in a net gain in revenue. Let’s all take a deep breath and calm down for now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>