Analysts cheer Netflix price-hike plans; stock rises

Kevin Spacey as Francis Underwood, left, and Robin Wright as Clair Underwood in a scene from Netflix's original drama "House of Cards."
(Nathaniel E. Bell / Associated Press)

Here’s one group that’s happy about Netflix’s planned price hikes: Wall Street.

The video giant said Monday it will soon raise prices for new customers of its streaming service by $1 or $2 a month as it bets its growing slate of original content will continue to draw subscribers. Existing customers will continue to pay current prices for a time.

Wall Street analysts praised the coming hikes as a way to drive profitability as Netflix continues to spend on new content -- including originals such as “Orange Is the New Black” and “House of Cards” -- and deals to ensure video quality.

“Price increases over time should allow Netflix to add content and keep its subscriber base satisfied,” said Michael Pachter of Wedbush Securities, in a note to clients. “Netflix management has done a masterful job of driving subscriber growth and managing content spending in recent years, resulting in sustained subscriber gains and improving profitability.”


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However, Pachter added, even a modest price increase could slow subscriber growth.

The Los Gatos, Calif.-based company’s stock rose Tuesday. In midday trading, shares were up by $18.45, or more than 5%, to $366.94 a share.

Access to the company’s streaming library currently costs $7.99 a month for subscribers in the United States. Netflix has been experimenting with pricing models as it spends to improve its selection of movies and television shows and builds out its slate of original content.

Netflix’s profit increased in the first quarter of the year as it added 2.25 million subscribers in the United States, bringing its total to 35.7 million. The company also added 1.75 million subscribers overseas, bringing its international total to 12.7 million.

The company reported profit of $53.1 million, or 86 cents a share, up from last year’s first quarter when it earned $2.7 million, or 5 cents. Revenue grew 24% to $1.27 billion.

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Cowen & Co. analyst John Blackledge said the first-quarter subscriber numbers exceeded his expectations, partly because of the popularity of Netflix’s own shows. The Kevin Spacey Beltway drama “House of Cards” launched its second season in February.

“The strong subscriber number were mostly attributed to high user satisfaction driving better word of mouth, partially driven by strong original content like Season 2 of ‘House of Cards,’ ” Blackledge wrote.

Analysts for Jefferies, who rate Netflix with the equivalent of a “sell,” said they are “warming up” to the company in light of the coming price increases. Jefferies called the announcement a “meaningful positive.”


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