Has Netflix Price Inelasticity Finally Snapped?

We don’t like to Monday morning quarterback here at Facteus - if you were long Netflix when they reported 1Q2022 earnings, it doesn’t feel great to hear an analyst, data provider, or your neighbor tell you how they knew this quarter would be the one that cracked Netflix’s stellar history of growth.

What we are interested in, though, is finding whether or not Netflix has enough levers to pull when the story switches from subscriber growth at all costs to ARPU increases and margin expansion.

Historically, Netflix could hit the price increase switch every 2-3 years to offset growing content costs. With increased competition and high market penetration, that price inelasticity seems to have snapped.

Transaction data gives us a chance to track Netflix customers’ responses to pricing changes in real time. Unlike a longer term membership, the option to cancel anytime makes streaming content easy to understand- at some point, the price is too high and a person can cancel immediately. This round of price increases, that seems to have happened:

As Netflix tests the value of password sharing fees, we will be watching that churn versus price chart to see how much of a blip this subscriber number was versus a longer term shift where margin, monetization, and other KPIs will become more important to track.

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