Netflix needs the highest prices, even if it makes you cancel | Business

Netflix once again raised its prices on the 22nd of July: the values ​​are now between R$25.90 and R$55.90. If you thought about canceling your subscription, you probably weren’t the only one — and that’s probably not going to be a big problem for the company. According to market analysts heard by Techblog, investors will shift to looking more at revenue and profit metrics and less at subscription growth numbers.

TV with Netflix logo (Image: David Balev/Unsplash)

A report by Wells Fargo analyst Steven Cahall echoed by the site The Hollywood Reporter says Netflix’s revenue growth going forward will depend more on more expensive plans than on subscriber growth. According to the economist’s projections, price increases accounted for 12.5% ​​of revenue growth in 2020, a proportion that should reach 37.1% in 2024. .5% to 62.9% in the same period.

Cahall says the company’s numbers should shift from massive growth in subscriber base to something more predictable and suited to investors in the so-called GARP profile.

What Matters to Netflix Shareholders

GARP stands for “growth at a reasonable price” or, loosely translated, “growth at a reasonable price”. This is the name given to an investment strategy that consists of finding companies with a lot of growth potential, but with shares being traded at a not very high price.

That’s important because Netflix used to focus precisely on rapid growth — and that’s where very low subscription prices came in. Guilherme Zanin, analyst at brokerage Avenue Securities, explains to Techblog that this is the typical path for startups: burn money at first to get more users and consolidate a customer base, then raise the price and make a profit.

Netflix (Image: Stock Catalog/Flickr)

Netflix (Image: Stock Catalog/Flickr)

The economist compares Netflix with Nubank, which first arrived with a basic, free credit card and now offers other types of services, like life insurance and loans — and charges for them. Netflix, by the way, should also diversify its areas of activity in the coming years: the company has hired executive Mike Verdu, who has worked for Facebook Gaming and Electronic Arts, and promises to invest in the games area.

For Vinicius Araujo, a global analyst at brokerage XP, another path for Netflix is ​​the scalability of the platform itself. he tells the Techblog that the company’s productions will remain in the catalog today and may be useful when it comes to winning (and keeping) new customers. The economist also comments that raising prices to compensate for a slower pace of growth is a way to calm investors’ spirits.

The Netflix War Board

To understand Netflix’s strategy, it is necessary to separate the different geographic regions where the company operates. On the one hand, the streaming service already has a lot of penetration in developed countries in North America and Europe. On the other hand, there is still plenty of room to grow in developing regions such as Latin America, Africa and Asia.

This is largely because of the technological gap in these regions. As there are still many people who are buying their first smartphone or smart TV, these people are only now getting to know the advantages and facilities of streaming. Araujo says that Netflix considers that there is an addressable audience (that is, that can still subscribe to the service) of around 800 million to 900 million. Currently, the company has 207 million subscribers worldwide.

Netflix app on Android (Image: Bruno Gall De Blasi/Tecnoblog)

Netflix app on Android (Image: Bruno Gall De Blasi/Tecnoblog)

Despite this, emerging markets have lower purchasing power and weaker currencies. Therefore, the revenue per user in these regions is usually lower, as it is not possible to charge very high amounts. By way of comparison, prices in Brazil are between R$25.90 and R$55.90, which, with the dollar just above the R$5 mark, gives something between US$5 and US$11. US, plans are between $9 and $18.

Rafael Nobre, global analyst at XP brokerage, explains to Techblog that the company looks a lot at the average revenue per user. So, raising prices in some countries is a way to offset growth in areas where subscription fees are lower. The economist recalls that, last year, Netflix made available a low-cost plan that only works on cell phones.

Disney+ and HBO Max: Strong competition

Netflix was one of the main responsible for popularizing the streaming of series and videos. However, it is no longer alone in this market: giants like Amazon, Disney and AT&T (owner of HBO Max) entered the game with their own platforms. And you might have compared Netflix’s new prices to the lowest prices from the competition yourself.

Zanin, from Avenue, adds that, in markets like Brazil, Netflix also has competition from telecommunications companies, which offer their pay-TV services, and from local platforms, such as Globo and Globoplay.

For Nobre, one of the consequences of this increased competition is precisely to force Netflix not to increase the price so much.

Still, this shouldn’t be a problem for the company. Araujo says he believes that the streaming market is not “winner takes it all” (“winner takes it all”, in free translation). This expression is used for industries where a single company ends up dominating — think Facebook in social networks or Google in search. He says that, in developed countries, many people will subscribe to Netflix and other services. In developing markets, however, the bill is a little tighter because the average income of the population is lower and it is not possible to pay for everything.

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