Streaming giant Netflix raising its subscription prices means good things for other large companies that offer subscription services, CNBC’s Jim Cramer said Tuesday.
“Netflix serves as a powerful reminder that the subscriber business model is incredibly strong here,” the “Mad Money” host said. “A recurring service revenue stream is very, very lucrative.”
Better yet, Wall Street loved the move, with Netflix’s 6.52 percent rise taking the broader market higher. That’s a signal that other service providers that charge customers on a recurring basis can follow in Netflix’s footsteps, Cramer said.
In fact, the company’s move highlighted “two other bargains, two companies with service revenue streams that could easily get away with raising their prices: Amazon and Apple, ” Cramer said.
Calling Amazon Prime “the single greatest bargain on earth,” the “Mad Money” host said he “wouldn’t even blink” if Amazon raised its $119-a-year offering to $150.
He also noted that when Amazon increased the cost of Prime by 20 percent in 2018, it was met with little to no resistance.
“That’s one of many reasons why I think Amazon’s stock is a lot less expensive than it seems,” he said. “On top of Prime, they’ve also got the red-hot Web Services division and a rapidly growing advertising biz. Put it all together and I’m a big fan of Amazon[’s stock] here in the $1,600s.”
The only stock that might be an even bigger bargain is Apple, Cramer said, adding that shares are trading at a “measly” 11 times next year’s earnings estimates.
The “Mad Money” host said Apple’s stock could “explode higher” if it raised prices for its increasingly sticky services, particularly given the pressure it has endured amid weakening iPhone sales.
“Every month I pay Apple to back up my photos and insure my phones. Don’t you? Every month I pay [for] Apple Music,” Cramer said. “They are automatically charged to my AmEx account. If Apple were to put through a price increase on any of these services, I’d feel compelled to keep paying for it.”
That longevity, coupled with Wall Street’s embrace of Netflix’s price bump, means these companies are essentially in the clear when it comes to raising prices, he concluded.
“The bottom line? What matters right now are the expectations, and so far, they’re being exceeded both by the companies reporting earnings and the likes of Netflix that are raising their prices because there’s no resistance to doing so,” Cramer said. “That is all positive in a market where people are still negative, so negative that it staggers the mind.”
