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Netflix stock jumps as company hikes subscription prices

Reuters logo Reuters 1/15/2019 Vibhuti Sharma
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Netflix is raising monthly fees for its U.S. subscribers by between 13 percent and 18 percent, the video streaming pioneer's first price increase since 2017 as it spends heavily on original content and international expansion.

Prices for its popular standard plan, which allows streaming on two devices at the same time, will be increased to $12.99 per month from $10.99, the company said in a statement.

Netflix shares closed 6.5 percent higher, adding to a 30 percent rise so far this year.

The company's top-tier plan, which allows streaming on four screens in high definition, will be raised to $15.99 from $13.99 per month, while the fee for its basic plan will rise to $8.99 from $7.99.

In comparison, Time Warner Inc's HBO Now streaming service charges $14.99 per month, while Hulu's no-advertisements plan is priced at $11.99 per month.

"It highlights that Netflix has pricing power and even after the increase it remains a very cheap entertainment alternative," Pivotal Research Group analyst Jeff Wlodarczak said.

Netflix has been pouring money to bolster its original content, which boasts award-winning shows such as "The Crown", "Black Mirror" and "Wild Wild Country", to fend off intensifying competition from players such as Amazon.com's Prime Video service and Hulu.

The price hikes are expected to fetch Netflix hundreds of millions of dollars, ahead of the launch of streaming services from AT&T and Walt Disney.

While aggressive spending - a planned $8 billion in 2018 - has led to a surge in subscriber growth, its debt doubled to $6.50 billion in 2017 from $3.36 billion in 2016.

The company is expected to have a debt level of $8.33 billion in 2018, according to Daniel Morgan, senior portfolio manager at Synovus Trust Co, which owns 15,019 shares of Netflix.

Netflix is scheduled to report its fourth-quarter results after market close on Thursday.

"With Netflix frequently tapping the debt markets on several recent occasions, the price hike could help ease concerns with a growing deficit on free cash flow to fund a likely continued escalation in Netflix's content spending, which likely topped $13 billion in 2018," CFRA analyst Tuna Amobi said.

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