Netflix Raising Subscription Prices By Double Digits; Stock Soars

Jaap Arriens/Associated Press

Netflix is raising subscription prices by 13% to 18%, the steepest increases since the company began streaming video more than a decade ago.

The price hikes will take effect immediately for new subscribers and will be phased in over three months for existing subscribers. They comes two days before the company releases quarterly earnings — always a closely watched event on Wall Street and beyond — and during a period of momentum for its stock, which has gone up nearly 40% in 2018 to date.

Investors reacted positively to the news, sending shares up 6.5% for the day, closing at $354.64. The stock has generally shrugged off any customer blowback from past price hikes. The new round of increases is the fourth for Netflix and its first since late 2017.


The least expensive Netflix plan, Basic, will now cost $9, up from $8. The company’s most popular option, HD Standard, will now cost $13, up from $11, while 4K Premium plan will cost $16, up from $14. The increase will also hit customers in about 40 Latin America countries where Netflix bills in U.S. currency, except for high-profile markets such as Mexico and Brazil.

As of its last quarterly report, Netflix had 137 million subscribers worldwide, including 58 million in the U.S. It has recently seen positive results from programming like the film Bird Box, its most viewed original movie yet.

“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience,” the company said in a statement to the Associated Press.

The hike comes during a period when streaming options are continuing to multiply. NBCUniversal said yesterday it is entering the fray, though with an emphasis on ad-supported, free streaming. Disney and WarnerMedia are prepping major subscription launches for the end of this year. Apple is also expected to join the battle, but has kept its plans ultra-secretive to this point.

Netflix’s strategy has been to aggressively spend on content. Its annual spend is now north of $12 billion, but it is not yet being offset by subscription and other revenue, leaving the company in debt. Last October, it borrowed another $2 billion in a bond offering.

While many observers and competitors see a potential meltdown for Netflix coming, there are a lot of bullish investors propping up the stock. Eric Sheridan of UBS upgraded the stock to “buy” from “neutral” last week. He¬†wrote in a research note that he sees “the moat widening” around Netflix’s massive tower of programming, given that rivals are spending only a fraction of the streaming giant’s budget and are constrained by linear timeslots and traditional media norms.

After today’s news, most analysts were upbeat about the decision long-term, even if there is initial unhappiness expressed by U.S. subscribers.

“We are bullish on the company’s ability to execute the pricing increase, though note in the near-term, domestic subscribers churn may tick up as the company introduces the new pricing levels to existing members,” Stifel analyst Scott Devitt wrote, adding the move could put a lid on domestic subscription forecasts for the first quarter. Devitt expects Netflix to continue raising prices every year and a half or so, especially given it remains below the $15 a month charged by HBO.

Michael Olson, an analyst with¬†Piper Jaffray, noted that subscriber churn has remained at manageable levels despite multiple price increases. “From a churn standpoint, in late 2017 Netflix raised U.S pricing by $1 a month and there was no change in net sub growth,” he wrote.

Todd Juenger of Sanford Bernstein views the news as a positive. “Today we got a broad-based and significant increase in [average revenue per user],” he wrote in a research note. “We think we also got a strong signal that subs are growing at/above management expectations as well.”

He added, “We believe Netflix is simply ‘not leaving money on the table.’ Collecting easily earned revenue from a service whose consumer perceived value far exceeds its price. With minimal expected impact on subs and net adds.”

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