More app and entertainment businesses are transitioning from user or payer growth stories to pricing stories.
That’s according to KeyBanc analyst Justin Patterson, citing the history of Netflix Inc (NASDAQ:NFLX). This goes smoothly when engagement metrics are improving (often due to product and content quality).
Patterson feels most confident about Overweight-rated Netflix (raised price target to $525 from $510) and Spotify Technology SA (NYSE:SPOT) (maintained price target of $255), given proven pricing power and product leadership.
Spotify can sustain at least mid-teens annual revenue growth through pricing (new plans and price increases), subscriber growth, ad monetization, and new verticals.
With Netflix improving its licensed content mix, scaling its ad-supported tier, and competition rationalizing, he expects future price increases could be less disruptive to the business.
Sector Weight-rated Duolingo, Inc (NASDAQ:DUOL) has the conditions for eventual price increases, but can be patient due to current product momentum, Patterson added.
The analyst is more cautious about Overweight rated Match Group, Inc’s (NASDAQ:MTCH) growth algorithm and lowered his price target to $48 from $56.
2023 has been a year of pricing optimization at Tinder. As Patterson reviewed the actions taken, he struggled to see why pricing on Plus, Gold, and Platinum increased by >30% in most cases (and considerably more on Plus)
Patterson reiterated his Overweight rating and $20 price target on Bumble Inc (NASDAQ:BMBL), encouraged by its focus on the user experience and experimentation across various product types.
Patterson now expects a low-teens revenue growth profile for Netflix and raised his 2024 and 2025 EPS by 2% and 3% to $16.71 and $21.01.
The analyst lowered his Match estimates for 2024 and 2025 revenue by <1% and 3% and EBITDA by <1% and 4%.
He left his estimates unchanged for Bumble.
Spotify remains his top pick among his apps and entertainment coverage, and he left his estimates unchanged.
Patterson left his estimates on Duolingo unchanged.
Now Read: Why Bumble’s Founder And CEO Whitney Wolfe Herd Is Stepping Down After Nearly 10 Years
