Tags: Netflix | Prices | Quarterly | Results

Netflix to Raise Prices as Subscriber Numbers, Results Soar

Monday, 21 Apr 2014 05:13 PM

Watching “House of Cards” on Netflix is about to get more expensive, and investors are cheering.

The company that popularized binge-watching said Monday it plans to charge new customers $1 to $2 a month more for its online video service, starting later this quarter. Netflix Inc. also reported first-quarter sales, profit and subscriber growth that beat analysts’ forecasts. The shares rallied on the news.

The price increase reflects growing confidence that original shows like the political thriller “House of Cards” and exclusive movies will continue to attract new subscribers, even with soccer’s World Cup starting in mid-June, a distraction the company said will temporarily slow user growth. Netflix previously offered unlimited Web viewing for $7.99 a month.

“My guess is they take that money and reinvest it in the business,” said Daniel Ernst, an analyst at Hudson Square Researche in New York who recommends buying the stock. “It’s a good approach to expanding the business.”

Netflix shares rose 5.7 percent to $368.20 in extended trading after the announcement. The stock gained 0.8 percent to $348.49 at the close in New York and has retreated almost 20 percent from its closing high of $454.98 set on March 4.

Netflix, which now has 48.4 million streaming subscribers worldwide, announced the new prices, along with quarterly results, on its website Monday. The company predicts it will sign up 1.46 million new subscribers this quarter, including about 520,000 in the U.S.

Current Customers

The price change won’t affect current customers “for a generous time period,” the Los Gatos, California-based company said, meaning fans of the women’s prison series “Orange is the New Black” won’t face higher prices when that show returns June 6. Netflix predicts “slight headwinds” when the FIFA World Cup starts June 12 in Brazil and siphons viewers away.

The company ran afoul of customers three years ago when it split its DVD-by-mail business from streaming and increased prices by 60 percent for people who wanted both. Adding $2 to the current price amounts to a 25 percent increase.

“I thought for a long time they could raise prices but they’ve always been really disciplined by that,” Ernst said. “They’ve learned their lessons.”

Chief Executive Officer Reed Hastings is acting to address the rising cost of licensing movies and TV programs from Hollywood, whether it’s exclusive films from Walt Disney Co. or original shows. At year end, the company had $7.25 billion in licensing commitments over the next five years.

‘Huge Audience’

“‘House of Cards,’ for which season 2 debuted in February, attracted a huge audience that would make any cable or broadcast network happy,” Hastings said in a statement. “The on-demand nature of Netflix means that as we promote season 2, we can still see significant new enjoyment of Season 1.”

Netflix added 2.25 million new domestic streaming customers during the quarter, in line with the company’s January forecast. International subscribers increased by 1.75 million, about 100,000 more than predicted earlier this year.

First-quarter net income soared to $53.1 million, or 86 cents a share, from $2.7 million, or 5 cents, a year earlier, beating the average 81-cent estimate of 31 analysts. Sales advanced 24 percent to $1.27 billion, matching projections.

For the current, second quarter, the company forecasts net income of $69 million, or $1.12 a share. Worldwide streaming revenue will total $1.14 billion, the company said.

Hastings in a letter to shareholders Monday announced his opposition to the Comcast-Time Warner Cable merger. Hastings in March criticized Comcast, Verizon Communications Inc. and others for trying to charge online TV providers to deliver shows over their networks.

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Watching "House of Cards" on Netflix is about to get more expensive, and investors are cheering.
Netflix, Prices, Quarterly, Results
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2014-13-21
Monday, 21 Apr 2014 05:13 PM
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