What Netflix (NFLX) Could Learn From Apple’s (AAPL) iPhone X

- September 13, 2017

Apple Inc (NASDAQ:AAPL) and Netflix Inc (NASDAQ:NFLX) have built their respective businesses around two completely different concepts. Apple puts the best processors; the best cameras; the best software; and the best hardware into its devices. For Apple, it is all about quality. Meanwhile, Netflix is more about quantity. It wants as much content and as many subscribers as possible.

While both business models are successful, and celebrated on Wall Street, Apple’s strategy gives it the freedom to charge whatever it wishes. It is the quintessential face of premium. On the other hand, Netflix offers its services at a massive discount to Pay-TV providers, and might as well use the slogan “more bang for your buck”.

The problem with Netflix’s business model is that once subscriber growth starts to slow, it becomes difficult to find growth. Many Netflix stock owners believe the company can eventually raise its prices to match that of Pay-TV providers. However, I’d argue that there’s a reason McDonald’s can’t hardly get away from its dollar menu. Fact is once you establish yourself as a value service, it is really hard to go premium.

Netflix should envy Apple

The days of Apple finding robust unit sales growth are over. The smartphone market is mature, especially the high end market. Still, Apple Inc (NASDAQ:AAPL) continues to grow, and that’s because of consistent increases to the average selling price of new iPhones.

How does Apple do it? By continuously packing more pixels, better cameras, faster processors, and more services into each new phone. The new iPhone X will start at $999 and $1,150 depending on your storage choice.

The HADE Platform is the first to provide a long-term outlook for both Apple revenue and iPhone revenue following the launch of its iPhone X. The HADE Platform uses machine learning algorithms to predict quarterly and long-term annual revenue with surprisingly high accuracy, 63% more accurate than Wall Street consensus.

By incorporating the ASP of the new iPhone X into their algorithms, HADE predicts that Apple will reach a $712 ASP next year with near 25% iPhone revenue growth. In total, HADE is predicting Apple revenue of $275.5 billion next year, greater than the $261.6 billion it previously forecasted before the iPhone  unveil.

Altogether, HADE’s prediction amounts to total growth of 20% next year for the world’s most valuable company. And that comes just from an increase in the iPhone’s average sell price. HADE acknowledges that the actual results could be far greater if the launch of three devices simultaneously is similar to Apple’s experience a few years back when it first launched a Plus model.

Nevertheless, Netflix continues to grow its memberships by an impressive mid-single digit clip sequentially, and 25% year-over-year during its most recent quarter. Still, the growth is going to slow as Netflix penetrates more households, and it gets harder to find people without the service who actually want it.

As seen below, HADE Platform’s machine learning technology predicts an impressive 127.6 million streaming members by the end of 2018. However, growth is also expected to slow, and will likely continue to decelerate beyond 2018.

Netflix has a lot of positives in its favor, which include strong presence in the U.S. where customers pay higher prices for TV and a genuinely great service. However, content costs are outrageous and Netflix isn’t generating a lot of profit.

What Netflix (NASDAQ:NFLX) must do is take notice of what Apple Inc (NASDAQ:AAPL) has done, and realize its strengths and ability to hike prices significantly. While consumers all around the world appreciate the company’s generosity to offer great value, Netflix stock owners had better hope that CEO Reed Hastings is learning from Tim Cook and will see just how quickly he can accelerate revenue and profits by pricing the service appropriately. If not, Netflix stock owners should be concerned, as it is very difficult to imagine NFLX stock supporting a valuation much greater than $80 billion.

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