One of the biggest bargains in consumer entertainment just got a little more expensive.
(ticker: NFLX) on Thursday announced a price increase for U.S. subscribers. The price of a standard Netflix plan climbs by $1 a month to $13.99, from $12.99. The price for premium plans jumps by $2 a month to $17.99 from $15.99. The single-stream, non-HD basic plan remains $8.99.
Do not expect a stampede to the exits — from the service or the stock. Analysts weren’t surprised that the streaming video service is increasing prices, but the timing was sooner than most had imagined. Most seem to think the price increase was already baked into the company’s subscriber guidance for the December quarter, which calls for 6 million net new subscribers.
“The U.S. price hike announcement is a bit earlier than we expected, but not surprising given recent international hikes and Netflix’s typical two-year guidance,” Jefferies analyst Alex Giaimo writes in a research note. “Bears will argue that the environment is more competitive now than it was during prior price hikes, but we continue to believe the near-term content slate is underrated and considerably stronger than network peers. History shows short-term churn but continued long-term growth.”
The analyst says the price could generate an incremental $500 million to $1 billion in revenue in 2021. He keeps his Buy rating and $585 target.
Piper Sandler analyst Yung Kim has responded to the news by repeating his Overweight rating and raising his price target to $643, from $600. Kim thinks Netfix actually had room for a larger price increase, given HBO Max is a dollar more. He lifts his revenue forecast for 2021 by $500 million, and says recent surveys show most subscribers had no problem with a price increase.
Raymond James analyst Andrew Marok writes that the price increase demonstrates that Netflix is “secure in its competitive positioning, and its value proposition, despite any potential economic uncertainty.” He adds that pricing power has been a key tenet of the bull thesis on the stock. “Thursday’s move demonstrates that the company has more room to pull the pricing lever,” he writes. That said, Marok maintains his Market Perform rating on the stock on a valuation basis.
KeyBanc’s Justin Patterson contends the price increase is about six months ahead of expectations. “Netflix already was going to experience a tough first half 2021 in [the U.S. and Canada] from tough comps, and we believe the price increase will likely accentuate that,” he writes. “The positive is that the churn effect rolls off ahead of what should be a very strong 2021 second half content slate and easier comps.”
He keeps his Overweight rating and $634 target.
Amid a sharp, broad market selloff, Netflix shares on Friday were down 4.2%, to $482.95.
Write to Eric J. Savitz at email@example.com