Netflix, adding customers and profits, will raise prices
Bolstered by a burgeoning roster of paying customers and profits that exceeded expectations, Netflix says it plans to increase prices for new subscribers.
The company on Monday announced that its subscriber base grew more than expected — adding 4 million — to 48 million members worldwide. Its net profit of $53 million, or 86 cents per share, beat analysts' estimates of 83 cents a share. It also beat the company's own forecast of $48 million and earnings per share of 78 cents.
Some time in the next three months, the company plans to raise prices $1 or $2 for new members globally — a move that could also temper subscriber churn. That's because existing member monthly fees would remain at current pricing (such as $7.99 or $11.99 in the U.S., for two-stream or four-stream tier subscriptions) for a "generous time period," the company said. The lower fee could counteract the tendency for some users to cancel after binge-watching a season of House of Cards and sign up later for no penalty.
Netflix, which currently has 35.7 million U.S. subscribers, continues its drive toward a domestic base of 60 million to 90 million.
The company is acting from a position of strength, says Mark Mahaney, managing director of Internet for investment banking firm RBC Capital Markets. "Across the Internet, we're seeing companies like Amazon, Pandora and Netflix ... raising prices one way or another," he says. "I don't think too many consumers are going to be put off by spending a dollar or two a month for the quality, the quantity of content that Netflix has."
Shares of Netflix rose in after-hours trading, up more than 6% to $369.50, having closed at $348.49 before the Los Gatos, Calif.-based company released its earnings at the market's close.
Netflix stock has been volatile. It climbed to nearly $455 after the streaming service in February announced a deal with Comcast to ensure high-quality streaming of Netflix content for Comcast Net customers. Since then, the stock has taken a hit in the wake of last month's reports that Apple and Comcast were teaming up for an as-yet unannounced streaming TV service.
Among Netflix's good first-quarter signs was an increased rate of growth in new U.S. streaming subscribers, an additional 2.3 million, compared with 2 million in the same quarter last year. Signs were bright for such initiatives as the DVD mail service and international business. Netflix's international base grew to by 1.75 million during the quarter to 12.7 million and accounted for about 25% of total revenue.
In his letter to shareholders Monday, Netflix CEO Reed Hastings expressed his opposition to Comcast's proposal to buy Time Warner Cable, notwithstanding his own recent deal with Comcast. "Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix," he said.
Contributing: Roger Yu