Shares in Netflix are trading around half a percent higher pre-market on Wednesday with the US streaming giant having enjoyed a string of better demand over recent days. The current rally is in anticipation of a fee increase for customers which would generate an increase in revenues for Netflix.
$1 – $2 Price Hike Expected
Wall Street is anticipating a price increase of $1 – $2 across all four operating regions. According to estimates based on current subscriber levels, such an increase would generate an extra $500 million – $1 billion in extra sales over next year.
The key question to determining the real benefit from such an increase will be how many subscribers the company loses if it follows through with the anticipated price hike. However, given that Netflix has been working recently on bolstering its content library and with a global shift towards a more “at-home” style of living, the loss of subscribers would likely be minimal within the context of the price hike being discussed.
Weak Q3 Guidance
Q3 has been a little disappointing for Netflix bulls. Following a strong rally from the year to date lows, Netflix stock price has corrected firmly lower following a worse than expected set of Q2 earnings and weak Q3 guidance.
Netflix posted Q2 earnings per share of $1.59 vs estimates of a $1.89 result. While the company missed earnings estimates, revenues were higher than expected. The figure came in at $6.15 billion versus the $6.08 forecast.
The company also posted strong growth in global subscriber additions. These rose to 10.09 million, above the expected 8.26 million Wall street was looking for. Despite the strong increase in subscribers over the quarter, guidance for Q3 was weak. Netflix forecasted a 2.5 million increase in subscribers, below analyst estimates of a 5.27 million guidance figure.
Explaining the weaker guidance over Q3, Netflix said
“Growth is slowing as consumers get through the initial shock of COVID and social restrictions. Our paid net additions for the month of June also included the subscriptions we canceled for the small percentage of members who had not used the service recently.”
However, given the use of local lockdowns seen over the quarter in many of the company’s key markets such as the US and Europe, it will be interesting to see if this guidance proved to be a little on the low side when Netflix reports next on October 20th.
Netflix Bounces off Key Support Level
Netflix shares recently found support once again at the 475.17 level. This has been a key price pivot over recent months. While price holds above here, further rotations higher could be seen. 510.70 is the next resistance to note.
To the downside, if prices slip back below the 475.17 level, the next big support is down at 397.39.