Investors Concerned About Netflix Price Hike

Investors are concerned about user growth and revenues amidst price hikes

Last week it was speculated that Netflix Inc. is looking to raise its standard streaming plan prices by $2 to $9.99. Its previous price hike was two years ago in March when it raised for the new streaming subscribers who had to pay $8.99 for the standard streaming plan. The company exempted the existing subscribers from paying the new subscription fees.

Now Netflix is taking a bold step of raising prices for the long time subscribers. This step is making the investors and the Wall Street concerned. Wall Street said that it is prepared for customers to ditch the streaming platform for better and cheaper alternative.

Investors believe that the price hike result in losing many customers; hence, the growth in the United States will be suffered. The subscribers in the US who are still paying $7.99 will have to be $2 more to the same streaming plan from next month onwards. These are the same longtime subscribers, which previously were exempted from paying the new prices by grandfathering them at a lower rate; but now, the golden days are gone.

Netflix is struggling for the past year in terms of user growth rate in the United States. This is one of the main reasons of as to why Netflix chose a global expansion plan so that it may not lose its position in the streaming industry. Analysts believe that the user growth was stalled in the US during the last months of 2015 and analysts are now concerned if it would lose more amid the price hike. On the other hand, investors are raising questions if the company has reached its peak in the US television industry.

In a letter written to the shareholders by CEO Reed Hastings and CFO David Wells, the company said, “Our high penetration in the US seems to be making net additions harder than in the past.”

The streaming service provider expanded in the international markets so that the stalled US growth on a larger scale does not hurt it. It is now available in almost every country but China. Netflix has almost 75 million subscribers and two thirds of its total customer base belongs in the United States i.e. 45 million streaming subscribers. JP Morgan Chase believes that this new price hike will affect 70% of the US subscribers.

Many of the customers are not fine with Netflix raising its prices for the standard streaming plan while others do not like the way it is doing. Reports suggest that there will be customers who would seek alternatives once their subscription expires at the end of the month while other might stick around because of the original content it provides. Investors wait for April 18 when the streaming giant will announce its quarterly earnings in order to find out about the impact of this price hike on user growth and revenues. William Power, an analyst at Baird, said, “Due in part to the potential for higher church, Q2 guidance could be under an even greater microscope than normal.”