Netflix May Be Preparing to Increase Prices

October 19, 2020
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Streaming company Netflix Inc. (NASDAQ: NFLX) could be preparing to increase its subscription prices in the United States.

Here’s what investors need to know about a potential price increase for Netflix customers.

Recent Price Increase in Canada

Netflix increased monthly prices in Canada earlier this month. Basic membership remained unaffected at $9.99 CAD, but the standard and premium monthly plans increased by $1 and $2 respectively.

Canadian customers were largely receptive to the announcement, with no major negative feedback seen across the internet. Netflix told its customers that the price increases were necessary so that the company could invest in films, shows, and an improved product experience.

The stock dropped slightly after the announcement, but it has since recovered and it’s currently one of the better-performing stocks on the NASDAQ. This could embolden the company to increase its U.S. prices, which is where the majority of its customers reside. Higher U.S. prices could result in a significant revenue boost for the company, helping it to offset its increasing costs for licensing and the development of new movies and episodic content.

Netflix has also eliminated its free trials in the U.S. These trials were once a hallmark of the service, allowing potential customers unlimited access for a period of up to two weeks. Customers will now need to subscribe for at least one month before getting access.

Company leadership warned investors earlier this year that the subscriber gains in recent quarters were likely due to the impact of the Coronavirus Pandemic, and that Q4 gains may now be less than expected. The company expects “less growth for the second half of 2020 compared to the prior year.”

U.S. Price Increase Could Boost Stock

A $1 or $2 price increase on U.S. plans will likely not cause any major backlash from consumers, and it would significantly increase the confidence of shareholders. Netflix hasn’t significantly increased its U.S. prices since January of last year.

With the company now pushing to develop more content to meet the demands of its growing user base, a price hike is almost a certainty. Top analysts expect this to occur before the end of the year.

Netflix stock is up 90.90% in the year to date and it remains one of the best performing streaming stocks. With likely subscriber price hikes, there could be an upside for investors who buy in the fourth quarter.

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