Netflix stock soared to a new record high on Thursday after the company announced that it is raising its subscription prices again. For the most popular plan, the Netflix price in US is going up 10% starting next month, so subscribers who were paying $9.99 for the standard plan will start paying $10.99 a month next month. The premium plan is going up by $2 to $13.99 per month, while the price for the basic plan is staying the same $7.99 a month.
You may recall that the last time the Netflix price in US went up, the company grandfathered in longtime subscribers and held their monthly prices the same for quite a long time. Even though grandfathered subscribers kept their previous prices long after new subscribers were paying higher prices, some still cancelled their subscriptions when they did go up. Nonetheless, the subscriber losses didn’t appear to be as bad as perma-bars expected them to be.
This time around, the streaming TV company does not plan to grandfather in subscribers, so everyone will see the price increase at about the same time. The price increases will begin in November and run through December, so subscribers will see the increase either next month or the following month, depending on what day their subscription renews each month. Only the Netflix price in the US is increasing right now, which means that international subscribers are safe—at least for now.
The company will start notifying subscribers on Oct. 19, which is 30 days or more before the increase will hit their accounts. It’s been about two years since the last price increase, and since then, Netflix has added some new features and continues to shell out money on original content—more money than what bears are comfortable with.
Netflix stock soared by more than 5% on Thursday on the news of the price hike, touching a new record high of $194.49 before closing at $194.39. Perhaps one reason the stock soared on the news of the increased Netflix price in US is because of those content costs. Investors who may have been on the fence before because of those costs may now see Netflix in a better light because it will be squeezing more money out of subscribers.
Before Thursday’s announcement about the price increase, UBS analyst Doug Mitchelson advised investors to buy Netflix stock before earnings because he believes third-quarter subscriber growth beat expectations. Mitchelson said that based on his analysis of subscriber growth momentum, Netflix probably even beat its own guidance for subscribers.
The analyst also increased his price target for Netflix stock to $225 from $190 previously. His third-quarter US net subscriber adds moves to 100,000, while his international subscriber ads moves to 300,000. His total estimate for subscriber adds during the second half of the year is now about a million higher than the consensus. He cited “very strong” new content as one of the biggest reasons for the beats he’s expecting in subscriber adds.
The UBS note was released on Wednesday, the day before Netflix announced that it’s raising its US price. Netflix undoubtedly knows how popular its third-quarter content is, so it probably figured that this would be a good time to hit domestic subscribers up for more money. It’s also probably a good idea that Netflix isn’t going to mess around with that word “un-grandfathered” again because it certainly spooked investors.
