Netflix's (NFLX - Get Report) move to broadly increase subscription prices seems to be working, according to Stifel analysts, who say the hikes will bring the streaming giant closer to free-cash-flow positive.
Netflix reports earnings on July 17 after the closing bell, and the stock has run up 8.8% in the past month, beating the Nasdaq's gain of 5.4% in that span.
"Continue to look for second-half revenue acceleration on flow-through of price increases plus easing FX plus record subscriber growth," Stifel's Scott Devitt wrote in a note on Thursday.
Devitt did note that Netflix may see some second quarter subscriber churn, or subscribers moving to other streaming services, but "a strong second half content slate, including the widely-streamed recent release of Stranger Things S3, should support paid net adds in the back half of the year. We continue to see a path for Netflix shares to move higher supported by accelerating year-over-year revenue growth to 30%+ in second half 2019."
Netflix announced in a tweet earlier this week that the third season of its hit original show, Stranger Things, was watched by more members in its four four days than any other show or movie on Netflix in its history.
Many Netflix bears are wary that coming streaming competition from Disney (DIS - Get Report) , Apple (AAPL - Get Report) , and others will spoil Netflix's price-hiking party. Still, analysts are looking for 27.9% year-over-year revenue growth in 2019 for Netflix according to FactSet. Wall Street is looking for international subscriber growth of 37% for all of 2019 and U.S. subs growth of 20%.
The latest price hike, which was announced in January and has been rolled out over time this year, lifted the cost of Netflix's most popular U.S. plan to $13 from $11 per month.
Given Netflix's increased prices, operating margin expansion may very well be in the cards. Devitt wrote that he is looking for "sequential operating margin expansion to the mid-teens in fourth quarter 2019." Netflix's operating margin in the first quarter was 10.1%. Devitt sees that expanding to 14.7% in the fourth quarter, above the consensus estimate of 14%.
Most importantly for Netflix investors, "looking into 2020 we expect free cash flow burn to improve to -$2.18B versus consensus of -$2.41B," said Devitt. "We forecast FCF burn improvement in 2020 of over +$1B year-over-year as the company leverages its content base and one-time impacts in 2019 (tax charges related to corporate restructuring, real estate acquisitions) fall out of the equation."