Netflix (NASDAQ: NFLX) stock took an upward turn after the SVOD provider announced it will implement another price hike on Nov. 11, charging new subscribers $9.99 monthly for its popular two-device streaming tier. The boost in revenues will help offset costs related to its increased focus on original content.
Existing Netflix customers won't see their subscription rate go up for several months. According to Re/code, subscribers who already signed up for the "standard" or mid-tier, two-device plan will continue to pay $8.99 per month for at least the next 12 months.
However, customers who signed up prior to May 2014, when Netflix last implemented a rate hike, are already nearing the end of their grandfathered-in rate cycle and will see their rates jump from $7.99 to $9.99 after May 2016.
The move encouraged investors who have been fretting about the cost of original series and its international launches. Netflix shares closed just above $115 on Thursday, a nearly 7 percent bump in the last half of the trading day, but stabilized in after-hours trading and began a slow downward trend on Friday morning.
The small price hike alone likely won't be enough to raise analysts' estimates on how well Netflix stock will do. Subscribers are the provider's sole source of revenue and, while that makes for a predictable financial base to work from, could also prove to be its Achilles heel. Netflix is expected to spend $5 billion in 2016 on all its content, up from $3 billion this year, The Wall Street Journal noted, and the company carries $2.4 billion in long-term debt, of which a significant portion is committed toward original content development.
Further, the last price hike initiated by Netflix caused growth rates to dip slightly in the third quarter of 2014. That could happen again in the first quarter of 2016 once the higher rate takes effect in November. News outlets also fretted about the increase in premium OTT competitors, such as HBO Now, Showtime Anytime and CBS All Access, as well as continuing pressure on the content front from its existing SVOD competitors Amazon (NASDAQ: AMZN) and Hulu.
For more:
- see this Re/code article
- see this Washington Post article
- see this WSJ article (sub. req.)
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