Internet television network Netflix (NFLX) on Thursday raised prices for the standard and premium tiers of its subscription video-on-demand service in the U.S. Investors cheered the news, sending Netflix stock surging.
Wall Street bulls believe Netflix will be able to raise prices without suffering major subscriber losses. They claim Netflix’s service has been underpriced relative to its value to consumers. The price hikes should drive higher revenue and improve the company’s free cash flow and profitability, analysts say.
On Thursday, Netflix raised its standard price in the U.S. by $1 to $14 a month. It hiked its premium tier price by $2 to $18 a month. Netflix is keeping its basic plan at $9 a month. New subscribers will have to pay the updated monthly fees immediately, while current subscribers will see the new prices rolled out in their next billing cycles, the Verge reported.
The basic Netflix plan allows for one video stream at a time in basic digital resolution. The standard Netflix plan allows for two streams at a time in high-definition video. And the premium plan allows for four streams at a time in ultra-high definition video.
Netflix Stock Surges On Price-Hike News
“We had expected this news and had already been modeling in a U.S. price increase though the details are slightly different than our prior assumptions,” Evercore ISI analyst Lee Horowitz said in a note to clients. “We had been modeling in a 50-cent increase in Basic pricing and a $1.50 increase in Premium pricing.”
Netflix last increased its U.S. prices in January 2019.
On the stock market today, Netflix stock jumped 3.7% to 504.21. Earlier in the session, it climbed as high as 513.82.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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