Consumers hate price increases but Wall Street loves them, judging by the reaction to Netflix's latest price hikes. Netflix stock jumped Thursday on the pricing news and the video streamer's better-than-expected third-quarter results.
The Los Gatos, Calif.-based company announced late Wednesday that it is raising prices for service plans in the U.S., U.K. and France. In the U.S., it increased the price of its ad-free Premium plan to $22.99 a month from $19.99. Netflix also hiked the price of its ad-free Basic plan to $11.99 a month from $9.99. However, the Basic plan is no longer available to new subscribers.
Meanwhile, Netflix left the pricing unchanged for its ad-free Standard plan at $15.49 a month and Standard with ads at $6.99.
Netflix executives noted that the company has had limited price increases over the past 18 months. Its price increases follow similar hikes by rivals Paramount Global, Walt Disney, Warner Bros. Discovery and others.
Netflix Stock Pops After Report
Late Wednesday, Netflix said it added 8.76 million subscribers in the September quarter, topping views for 6.06 million new subscribers in the period. It ended the third quarter with 247.15 million subscribers worldwide. Netflix delivered better-than-expected earnings per share on in-line sales, but its guidance for the fourth quarter was slightly below Wall Street's targets.
On the stock market today, Netflix stock surged 16.1% to close at 401.77.
Netflix's price hikes show the company's confidence in the attractiveness of its service, Raymond James analyst Andrew Marok said in a client note.
"We see the strong potential for a return to regular price raises following a pause around the ads launch," he said in a client note. Marok rates Netflix stock as market perform.
The price increases occurred earlier than many analysts had expected. The consensus view was that Netflix planned to implement price hikes in early 2024.
NFLX Stock Gets Rating Upgrades
KeyBanc Capital Markets analyst Justin Patterson upgraded Netflix stock to overweight, or buy, from sector weight, or neutral. He set a price target of 510 on Netflix stock.
"Netflix is entering 2024 with solid paid net add (subscriber) growth and pricing initiatives that are about to take hold," Patterson said in a client note. "Coupled with a new share repurchase authorization of $10 billion, we believe Netflix has ample levers to drive EPS (earnings per share) growth."
Investment banks Morgan Stanley and Truist Securities also upgraded Netflix stock to buy from neutral.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
