Netflix poised to raise prices after strong 1Q
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.
Watching “House of Cards” on Netflix is about to get more expensive, and investors are cheering.
The company that popularized binge-watching said Monday that it plans to charge new customers $1 to $2 a month more for its online video service, starting later this quarter.
Netflix also reported first-quarter sales, profit and subscriber growth that beat analysts’ forecasts. The shares soared.
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 Research in New York. “It’s a good approach to expanding the business.”
Netflix 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 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.
The price change won’t affect current customers “for a generous time period,” the 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.
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 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.
“ ‘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.