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In July, Netflix said it added 1.7 million subscribers during the second quarter, below its own expectations of 2.5 million. The company said it missed its guidance because there was more membership churn following the last phase of a price increase Netflix announced two years ago.
Mark Mahaney, lead internet analyst at RBC Capital Markets, explained that while Netflix reported slower-than-expected subscriber growth, the company was still able to expand those numbers despite higher-than-expected membership churn.
While it's difficult for companies to predict the impact of a price increase, it's generally known that "people don't like price increases," he said.
"When all is said and done, they did implement a 25 percent price increase. They did get a little bit of turbulence, but they did grow subs. Not too many companies can do a 25 percent price increase and still grow subs. Netflix did," Mahaney said in an interview on CNBC's "Squawk on the Street. "
He also said that the headwinds from membership churn are possibly abating for Netflix. In a survey of 1,184 people, RBC found that fewer respondents said they were "extremely likely" to cancel their subscription than they did previously. Mahaney said it's likely that "the worst of the pricing pressures" are now behind Netflix.
Some analysts had not been convinced that international subscriber growth would be a sufficient driver for the stock, but RBC's analysis indicates that Netflix's international markets are "scaling as profitably as the U.S. did in the earlier days," Mahaney said. He said his firm believes "the financial markets underappreciate the profit potential for Netflix outside the U.S."
Another finding from RBC's survey is that Amazon Prime members, who have access to Amazon's rival video streaming services, are more likely to be Netflix subscribers than regular Amazon customers. The firm, which has one of the highest price targets on the stock at $130 and maintains that Netflix is its "#1 buy," said that one reason this may be true is that Prime subscribers are likely to have higher incomes and less sensitive to the cost of a Netflix subscription.
Mahaney said this finding slightly lowers the firms perception of Amazon as a threat to Netflix.
He said going forward, the most important thing for Netflix to do is to keep building out its library of original content. The more originals the streaming giant produces, the "more compelling" the service is for its users, Mahaney said. He also pointed out that the company currently only spends a fraction of its content costs on original programming.
"This company is spending $5 billion to $6 billion this year, maybe only $1 billion or a little bit more than that is actually on original content, things like 'Stranger Things,' 'House of Cards,' season two of 'Narcos,' a big international, Latin America hit," Mahaney said.
Disclosure: RBC Capital Markets makes a market in the securities of Netflix.