Netflix Plans Price Raise as Streaming Subscribers Grow

Netflix plans to increase prices as it gains more and more popularity.

Netflix Inc's unveiled its plans on prices hiking, a move that is expected to allow the company to increase spending on original content. Photo: AngeIn_956/Flickr

Netflix Inc’s unveiled its plans on prices hiking, a move that is expected to allow the company to increase spending on original content. Photo: AngeIn_956/Flickr

Netflix, extremely popular video streaming company, intends to increase spending on original content that will attract more viewers, analysts said, as many of them raised their price targets on the stock.

As it became known today, the company’s shares rose more than 9 percent after the network announced its decision to raise prices for new subscribers and promised a better-than-expected quarterly profit.

“At least nine brokerages raised their price targets on the stock. Raymond James and Cantor Fitzgerald upgraded the stock to their equivalent of a “buy” rating, citing strong growth prospects from international markets,” reports Reuters.

Analysts are sure that the company has all the possibilities to raise monthly subscriptions for new subscribers by $1-$2 in some countries.

“This dramatically increases our revenue and profit estimates from current markets over the next three years,” Pacific Crest Securities analyst Andy Hargreaves wrote in a note.

“Further, it seems highly likely that Netflix will accelerate international expansion beginning in the second half of 2014, which should expand the company’s TAM (total addressable market) and allow it to drive meaningful upside to long-term profit expectations.”

Evercore Partners company insists that Netflix will face little price resistance up to $9.99. Subscribers in the United States now pay $7.99 per month. Analysts say that the company is approaching 50 million global subscribers, and a $1-2 price increase would raise $600 million to $1.2 billion.

Current subscribers would stay at the $7.99 price for a “generous time period,” the company wrote in a statement to investors.

“Our current view is to do a one or two dollar increase, depending on the country, later this quarter for new members only,” the company added.

By the way, the company officials had previously noticed that Netflix’s international unit would help to gain much profit this year and that they expect international revenue to eventually surpass revenue from its U.S. market.

Netflix, which operates in 41 countries, gets about a quarter of its revenue from international operations.

“This is the year of Internet Pricing Power – Amazon, Pandora and Netflix – their value propositions are strong enough to command higher prices,” RBC Capital Markets analyst Mark Mahaney said in a research report.

The news came as the company announced in the first quarter of 2014 there’s a boom for new users, as Netflix beat revenue and profit expectations. The company now counts 48.4 million paid subscribers. Netflix said that it is focusing on international markets as U.S. growth slows.

“We intend to continue our international expansion over the coming years, so our near term profits will be quite modest as we invest in this large global opportunity,” the company wrote in its earnings report.

Netflix also stated its position against the acquisition of Time Warner Cable by Comcast, warning about the power of Comcast if the deal gained regulator approval.

“Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix,” Netflix wrote. “The combined company would possess even more anti- competitive leverage to charge arbitrary interconnection tolls for access to their customers. For this reason, Netflix opposes this merge.”

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