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Shouldn't Netflix, Inc. Be Talking About This Risk?

Source: .

Source: Atenga .

"You can see that they can increase prices all the way up to $14.99 with no material loss in subscribers," said Atenga CEO Per Sjofors, who noted an attendant revenue increase shown in the analysis. " ... You can also see that it is increased competition, not price, that is the reason for the lower subscriber growth. This means that for next earnings call, it will be a repeat of the prior call.

"So, Netflix should increase their price to $14.99 and use the added revenue to license more content and develop more of their own content. This is the only way they can sustain growth and increase shareholder value."

If Atenga's analysis holds water, that would indeed be the best conclusion. The price sensitivity in this survey held steady from $7 per month, all the way up to $15. Leaving service prices in the middle of that range, where they are today, seems almost irresponsible -- Netflix might be leaving a lot of money on the table.

The same survey also showed very similar pricing curves for Netflix rivals HBO Go from Time Warner and Amazon Instant Video, with table-shaped sweet spots between $7 and $16 per month. Hulu Plus, on the other hand, dropped off dramatically at the $10 mark.

In this view, competition from the streaming services at Amazon and HBO pose much larger risks than a piddly pricing change. And against that backdrop, maybe price elasticity isn't such a huge risk after all. The service may be more immune to price-boost damage than the third-quarter results imply.

Still, I would prefer to see Netflix including its own pricing decisions in the SEC-mandated list of significant risks. If nothing else, that risk belongs there until David Wells has enough data to be sure that it doesn't.

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The article Shouldn't Netflix, Inc. Be Talking About This Risk? originally appeared on Fool.com.

Anders Bylund owns shares of Netflix. Anders Bylund has the following options: short January 2016 $320 puts on Amazon.com and long January 2016 $320 calls on Amazon.com. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days .We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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