Can Netflix Chill Despite the Trump Tariffs?

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Will streaming platforms like Netflix face challenges due to a potential ‘Squid Game’-style tariffs conflict initiated by Donald Trump, or will they largely avoid the economic turbulence sweeping across the global market? This is a question that has been on the minds of several financial analysts recently.

In simple terms, Laurent Yoon, Netflix’s analyst at Bernstein, wrote in a report around mid-March, discussing the negative effects of tariffs, viewer churn following the NFL games over Christmas, and decreasing audience engagement. This could be a reference to a prolonged drop in Netflix’s stock value after another analyst speculated that the potential gain from converting password-sharers into paying customers might have reached its peak.

On Wednesday, following what Trump referred to as “Liberation Day,” the financial expert resumed discussing the topic. Yoon expressed his continued interest in the subject by saying: “Once again, some thoughts on tariffs, but it’s challenging to avoid this topic lately.

Yoon pointed out that Netflix has been accustomed to digital service taxes, as it has been paying these taxes in European markets like the U.K., France, and Spain since 2019. Yet, the broad talk about tariffs and potential countermeasures from European nations has sparked concerns about whether Netflix (alongside other digital service providers) might be subject to additional taxes and if this could potentially slow down Netflix’s growth in crucial markets.

The Bernstein analyst presented three points to justify why Netflix might escape penalty fees. He suggested that Netflix could argue it’s beneficial for Europe, given its substantial employment in the EMEA region (Europe, Middle East, and Africa), significant investments in European content to bolster the media industry, and adherence to local regulations across different countries. However, if Europe were to impose broad tariffs on U.S. digital services, it seems unlikely that this would make a difference in avoiding such penalties according to Yoon’s assessment. In summary, he believes Netflix is not likely to be exempt from penalty fees under these circumstances.

The analyst noted that Netflix is generally the leading Subscription Video On Demand (SVOD) service in five major European countries – Germany, U.K., France, Italy, Spain. They are usually followed by Amazon Prime Video and Disney+ in various markets. He suggested that if tariffs are imposed on American services, this could lead to price hikes for the top three SVODs in these markets. Such tariffs might end up affecting local consumers more than the service providers themselves.

The analyst pointed out that Netflix is often the most popular streaming service in Germany, U.K., France, Italy, and Spain, with Amazon Prime Video and Disney+ close behind in many other places. If taxes are added to American services, this could mean higher prices for these top three streaming services in those countries. These taxes might cause more harm to consumers than the companies providing the service.

To date, no European nations have implemented counter-tariffs on American corporations. If, however, significant retaliatory taxes are enforced on U.S. digital services, we will reassess our Netflix financial model to account for any potential impact. This is the statement made by Yoon.

In accordance with this, he continues to recommend buying Netflix stocks, predicting they’ll reach around $1,200 each.

The Bernstein analyst continued to evaluate the potential monetary consequences of prospective tariff adjustments. In other words, they understand that a negative overall opinion could potentially pose challenges for Netflix and similar companies in Europe, and an increased expense on consumers might worsen this situation. If there’s slower growth in what may be Netflix’s most significant expansion market, there’s a risk of short-term earnings per share decrease.

However, he additionally stated: “Despite the presence of some headwinds, there’s still room for growth. Even if the growth of Netflix subsidiaries in Europe, Middle East, and Africa (EMEA) slows by 30% and their average revenue per member remains constant, we estimate that Netflix is worth significantly more than $1,000 in a stable market.

Yoon’s predictions for Netflix’s subscriber expansion in European markets through local content investments suggest a rise from 101 million in 2024 to 120 million by 2026, implying a 9% annual growth rate. The analyst cautions that the introduction of a tariff and subsequent price hike might cause an increase in subscriber cancellations, slowing down the growth even more. Additionally, such a tariff could potentially affect Netflix’s average revenue per user (ARPU) in this region. Moreover, with the tariff raising the monthly cost of Netflix, it may restrict their capacity to further increase prices in these markets.

According to Yoon’s latest predictions, the growth rate for average subscription revenue per member in Europe, the Middle East, and Africa is expected to increase by 5% annually. However, if a tariff remains constant throughout 2026, this overall growth rate could potentially shift from an increase to a decrease of 2.7 percent, as Yoon proposed.

As a gamer, I’d put it like this: “Based on the combined impact on our subscribers and growth, I predict a possible 10% decrease in my estimated 2026 earnings per share (currently at $36). But considering Netflix’s strong hold in European streaming market, I think the effects on both subscriber and growth won’t be as drastic. Instead, the reduction in my 2026 earnings per share estimate might fall within the mid-to-high single digits.

Following long-standing custom, Netflix is scheduled to commence the earnings reporting period for Hollywood on the evening of April 17. Investors will be attentively listening and watching for any potential comments from management regarding the influence of tariffs.

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2025-04-03 18:24