Netflix announced a price increase on Thursday, which caused the shares to rise higher.
Netflix admitted that the price increase comes at a time of increased competition.
Multipl experts expect further price increases over the years.
The streaming video giant Netflix Inc. (NASDAQ: NFLX) announced on Thursday that it would increase prices for U.S. customers, and investors cheered the announcement.
Details of the price increase
Netflix’s standard subscription plan increases by $1 per month to $14, and Netflix’s premium subscription plan increases by $2 to $18 per month. However, the base plan remains unchanged at $9 per month.
Netflix said in a statement received from CNN Bussines that it recognizes that the price increase comes at a time when consumers have “more entertainment options than ever before. But the streaming video giant is striving to offer its subscriber base an “even better experience.
The statement added that the price increase will lead to a greater variety of TV shows and movies for consumers. As the basic membership price remains unchanged, consumers will still have several options at different price points.
Analyst: It must be
Rosenblatt Securities’ analyst Bernie McTernan told CNN Business that a price increase was virtually certain. The only unknown factor is when it will occur.
Netflix may operate under the assumption that its price increase will add value to the service and content library at a time when the COVID 19 pandemic has disrupted content production, the analyst also said.
The company itself admitted during its earnings conference call a week ago that it would “occasionally decline” and ask customers to “pay a little more” to ensure consistent addition of new content.
Further price increases are imminent
According to CNBC, Netflix customers should expect annual price increases. Investors should not find this a cause for concern, as the company’s pricing power means that the stock can command a strong premium.
Most remarkably, Netflix shares have a market capitalization of $218 billion, but generated only $2.8 billion in net proceeds last year.
Netflix also drives its share price up from a position of strength, as its turnover is close to 2%, which is significantly lower than that of many of its competitors. Over the years, the company has succeeded in convincing customers that they are receiving great value, and it should be able to continue to do so in the future.
In comparison, Netflix’s high-end price of $17.99 is well below an average TV bill of about $100 per month, according to CNBC. Netflix’s library is identical to that of television except for live events, news and sports.
As a result, Netflix has a clear path to continuously increase its price, and even at $25 per month, it is still a fraction of the cost of a TV bundle. Netflix has consistently fought against the idea of including live events, although this could change over the years.