Can you put a price tag on BoJack Horseman?
Of horse you can. (OK, yes, I’m probably fired for that.)
As for what that question means to Netflix (NFLX) subscribers: New data, reported in a Tuesday note from PiperJaffray, suggests that U.S. customers are increasingly willing to absorb price increases. That could give the company, which last increased prices in the fall, more leverage as it works toward profitability.
PiperJaffray, which surveyed 1,100 U.S. customers, said 64% of respondents said they wouldn’t cancel before the price topped $15 a month. (The current premium deal is $14, with two tiers below that.) Another 23% said their cutoff was $20.
The percentage of customers who said they would cancel if prices rose fell to just below 36% from more than 44% in a previous survey in mid-2016. (Consumers can be less price-averse than they say on surveys, PiperJaffray said.)
“This leaves Netflix with significant room for domestic price increases in the coming 3-5 years,” the analysts wrote. They estimate that the average subscriber is now willing to pay $15.50, up from $13.50 in mid-2016.
An average selling price at that level could substantially increase PiperJaffray’s profit estimates.
“If we apply that level of average selling price in 2020, our modeled EPS would increase from $6.58 to ~$9.50, implying a Netflix share price of >$500 (~60% above current levels) when applying our existing price target methodology,” they wrote. “The primary caveat to this analysis would be that we haven’t included any impact from potentially elevated churn due to any price increases.”
Companies that collect subscriptions would naturally love to be able to charge more while both gaining and keeping customers, striking a balance between perceived value and price—as anyone who subscribes to Amazon.com (AMZN) Prime knows following the company’s recent pricing pop.