Netflix said Monday that customers who learned in April that the price was about to increase...

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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

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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