Netflix said Monday that customers who learned in April that the price was about to increase...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Netflix said Monday that customers who learned in April that the price was about to increase had begun canceling their subscriptions, leading to unexpected "churn." Netflix did not flat-out say in its letter to investors that the price increase led to higher churn among subscribers, however, instead saying it coincided with "press coverage" of the rate hike and that subscribers misunderstood "the news as an impending new price increase rather than the completion of two years of grandfathering." The stock market reacted to news of Netflix price increase as well. The stock closed at $102.23 as of March 31, 2016. After the release of second quarter earnings in July, the stock price had fallen to $85.84 per share, a decline of 16%. This decline wiped out almost $7 billion of shareholder value during this period. Most of this decline was immediately following the release of the second quarter numbers. With competition increasing in for streaming services, especially with the growth of Amazon Prime Video and Hulu, the decline in membership growth could be a troubling sign. Based on the above case, answer the following questions: 1. Is it possible to estimate price elasticity of demand for Netflix subscription services? If yes, estimate and comment on your results. 2. What do you expect to happen to Netflix's revenue due to price increase? 3. What do you expect to happen to Netflix's profit? 4. Why did Netflix stock got hammered after releasing the results? 5. Comment on your analysis and suggest what additional information would you require for more accurate analysis Netflix said Monday that customers who learned in April that the price was about to increase had begun canceling their subscriptions, leading to unexpected "churn." Netflix did not flat-out say in its letter to investors that the price increase led to higher churn among subscribers, however, instead saying it coincided with "press coverage" of the rate hike and that subscribers misunderstood "the news as an impending new price increase rather than the completion of two years of grandfathering." The stock market reacted to news of Netflix price increase as well. The stock closed at $102.23 as of March 31, 2016. After the release of second quarter earnings in July, the stock price had fallen to $85.84 per share, a decline of 16%. This decline wiped out almost $7 billion of shareholder value during this period. Most of this decline was immediately following the release of the second quarter numbers. With competition increasing in for streaming services, especially with the growth of Amazon Prime Video and Hulu, the decline in membership growth could be a troubling sign. Based on the above case, answer the following questions: 1. Is it possible to estimate price elasticity of demand for Netflix subscription services? If yes, estimate and comment on your results. 2. What do you expect to happen to Netflix's revenue due to price increase? 3. What do you expect to happen to Netflix's profit? 4. Why did Netflix stock got hammered after releasing the results? 5. Comment on your analysis and suggest what additional information would you require for more accurate analysis
Expert Answer:
Answer rating: 100% (QA)
The image contains a text case study about Netflix describing a situation where an announced price increase led to an unexpected increase in subscription cancellations churn a subsequent stock price d... View the full answer
Related Book For
Auditing a risk based approach to conducting a quality audit
ISBN: 978-1133939153
9th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg
Posted Date:
Students also viewed these general management questions
-
Netflix is a company that provides online video streaming and a DVD- by- mail service for members since 1997. The following table shows the number of U. S. subscribers, in millions, each quarter from...
-
Netflix is a subscription service that provides streaming video over the Internet or delivers DVDs via mail. Netflix changed the way people rent movies and TV shows by cutting out the shop front. For...
-
Netflix was launched about twelve years ago. Netflix was originally nothing more than an online version of a traditional video rental store. Customers could visit the Netflix website and choose which...
-
1. Two football fans are listening to the Grey Cup game on the radio, one in Montreal, where the game is being played, the other in Vancouver, 3692 km away. How much sooner does the Montreal fan hear...
-
A film-processing shop charges its customers 18 cents per print, but customers may refuse to accept one or more of the prints for various reasons. Assume that this shop does not charge its customers...
-
(a) What is the Return on Investment (ROI) for AirSeal for 1985? (b) How is the AirSeal product line doing, using the DuPont formula?
-
In the corporate social responsibility highlight regarding Starbucks on page 528 in this chapter, it was stated that Starbucks believes in measuring and monitoring the company's CSR progress. The...
-
Consider the following partially completed cost of goods manufactured statements. Requirement 1. Complete the missingamounts. Boswell, Inc. (a) Laura's Bakery Rustic Gear 40,500 Beginning work in...
-
Richard is a landscaper who is planning to break away from his employer and start his own landscaping company. In his first year, Richard expects to make $20,000 in profit from his business after he...
-
FIT ($1,200.58 - $221.15 = $979.43 taxable)...................... (86.00)* how did you get the answer 86
-
How has Vanguard used a passive index investing strategy to gain competitive advantage as the investment market?
-
How will knowledge of sexual identities help you in your nursing profession? Give a couple of real-life or hypothetical situations to support your discussion.
-
5. Write a main function that does the following: a) Request a full name of your favorite US president from the console input. b) Use string functions to print the first name and last name...
-
you went through the source selection process and recommended a vendor for the contract award. In this project, we will explore legal and ethical considerations in contracting as your team finalizes...
-
3. Given below are the production data for Department No. 1 for the first month of operation: Costs charged to Department 1: Direct Materials $12,000 Labor 2,600 Overhead 15,900 During this first...
-
A patient is admitted to your unit after undergoing trans sphenoidal surgery for a brain tumor. Describe the major complications to assess for, along with the signs and symptoms of each. Describe the...
-
A stock, priced at 30, pays a dividend of 1. If the financing rate is 1%, its net carry equals:
-
Selected condensed data taken from a recent statement of financial position of Morino Ltd. are as follows. MORINO LTD. Statement of Financial Position (partial) Other current assets...
-
Locate and read the article listed below and answer the following questions. Bierstaker, J. L., J. E. Hunton, and J. C. Thibodeau. 2009. Do client-prepared internal control documentation and business...
-
The auditor often examines some expense accounts, such as legal expenses, in detail even if the account balance is not material. Explain why. Discuss.
-
The following are independent audit situations for which you are to recommend an appropriate audit report. For each situation listed as 1. through 6. below identify the appropriate type of audit...
-
Describe and explain the production possibilities curve.
-
In A Bend in the River, Nobel Prize winner V. S. Naipaul describes a developing country in which the governments constantly changing tax policies and vague laws regarding property ownership cause...
-
Which of the following demonstrates marginal thinking? a. Deciding to never eat meat b. Deciding to spend one more hour studying economics tonight because you think the improvement on your next test...
Study smarter with the SolutionInn App