Netflix raised prices – Bullish or bearish?

If you live in the U.S and are planning to subscribe to Netflix, get ready to pay more. The company announced a few days ago that all plans for audience in the U.S would see a price bump with immediate effect. The basic plan will increase from $8 to $9 per month. The standard and the 4K package will cost new subscribers $15.5 and $20 per month respectively. The Verge has a handy table showing all the hike prices that Netflix rolled out so far:

After the news broke, I saw a lot of people on Twitter bullish about Netflix’s outlook. The rationale is simple: if your customers are sticking with you AFTER you raise prices, it means you have a great business. The key underlying assumption is that Netflix viewers won’t churn or, in other words, leave. To back up this assumption, these bulls provided a chart from Antenna which allegedly shows Netflix has the lowest churn among premium streamers.

The problem is that when your entire thesis is based on a chart, you have to make sure the data is trustworthy. Unfortunately, I find Antenna’s data confusing and ambiguous for three reasons. The first reason is that there is no methodology or explanation of how they acquired this data. Take the churn chart above as an example. What does weighted average churn rate mean? What is churn weighted against? What does passive churn mean? Did they survey users or did they base this chart on credit card usage data? If it’s survey-based, how big is the survey pool and is it representative of the U.S? Plenty of questions with zero answer.

Furthermore, Antenna’s charts seem to contradict one another. While they indicate that Netflix has the most loyalty among streamers, somehow Netflix’s market share in terms of subscribers has been declining for the past few quarters. How does that happen? If Netflix’s churn was lower than that of its competitors, the company’s market share should stay the same at the very least or go up. Some may argue that Antenna may favor other streamers in a sense that if one person subscribes to both Netflix and another service, the other service will claim this subscription. Well, this argument brings us back to my first issue mentioned above: no methodology! How do we know if this argument is true?

The last issue I have with Antenna is the inconsistency of the reported data. In Q2 2021, Antenna claimed that Netflix has a market share of 29% (Figure 4). However, in their latest report for Q3 2021, Netflix’s share declined to 30% from 32% in Q2 2021 (Figure 5) . The two reports seemingly have the same methodology and feature the same number of streamers as well as the composition. My question is: what changed? How did Netflix’s Q2 2021 share go to 29% in one report to 32% in another?

These issues really call into question the assumption that Netflix’s churn is lower than its competitors.

But for the sake of argument, let’s assume that Antenna data is correct. That also means Netflix’s market share has been declining gradually. The 4-quarter rolling average net adds for US and Canada has gone down significantly since Q4 2020. Yes, Covid-19 pulled forward subscribers, but that also signals as many in the U.S are vaccinated, the macro environment is no longer favorable to Netflix as it was at the onset of the pandemic. When the number of new adds decreased despite all new releases in 2021, why does management think it’s a good idea to raise prices? Do they have any tricks up their sleeve? Or is the new price hike aimed at increasing revenue with the hope that subscribers will stay regardless?

I don’t know at this point whether this is a good strategic move for Netflix. I guess we’ll have more information this Thursday when they hold their earnings call. What I do know is that I don’t share the bullishness that many fans of Netflix stocks quickly showed after the price hike was announced. We just don’t have enough reliable information.