Netflix is expected to hike prices on its streaming plans in 2024, a move that should accelerate its revenue and earnings growth, as it continues to take a bigger bite out of overall TV viewing, according to analysts at UBS Securities.
Netflix to raise its subscription price
UBS analysts led by John Hodulik wrote in a February 27 research note that, “We expect to see rate increases this year by Netflix.” Analysts predict a 15% growth in the company’s total revenue in 2024, driven by increased revenue from its ad-supported tier and healthy subscriber gains, compared to 7% in 2023.
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Netflix co-CEO Greg Peters stated during Q4 2023 earnings call that the company had largely put price increases on hold last year due to the rollout of its paid-sharing program. However, now, the company can resume its standard approach towards price increases, as seen in the U.S., U.K., and France, which went better than expected.
Peters continued, “We will continue to monitor other countries and try and assess… when we’ve delivered enough additional entertainment value” to “ask [customers] to pay a bit more to keep that positive flywheel going and we can invest in more great films, series and games for those members. So, you know, the summary statement might be, ‘Back to business as usual.’”
UBS raised Netflix’s 12-month price target from $570 to $685 per share, maintaining a “buy” rating, and shares rose 1.5% to over $596 per share in midmorning trading. UBS reports that Netflix’s share of U.S. TV viewing increased to 7.9% in January 2024, up from 7.7% in December. The streaming service also has strong pricing power due to its lower per-hour prices compared to competitors.
Netflix’s ad-free consumption price is estimated at 30 cents per hour, compared to other platforms like Hulu, Peacock, Disney+, and Max and Paramount+. The company is a major beneficiary of structural changes in media, as traditional media companies focus on profitability in streaming as their linear TV businesses decline.
As the UBS team wrote, “The new playbook includes 1) price increases, 2) platform consolidation, 3) library curation (with attendant asset write-downs), 4) cuts to content spending (adjusting for strike-related declines in 2023) and 5) a renewed focus on content licensing.”
“As the objective in streaming shifts from subscriber growth to profitability for the traditional media companies, we see Netflix as the ultimate beneficiary of this industry rationalization,” the UBS analysts wrote.
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Netflix had previously increased the basic plan
Last October, Netflix increased the price of the Basic plan from $9.99 to $11.99 per month in the U.S., and also hiked prices of the tier in the U.K. and France. Netflix hasn’t announced specific plans to hike subscription prices in 2024, but execs have said rate increases are on the table.
“While we mostly paused price increases as we rolled out paid sharing, our overall approach remains the same, a range of prices and plans to meet a wide range of needs, and as we deliver more value to our members, we occasionally ask them to pay a bit more,” Netflix said in a letter to shareholders, which accompanied its Q3 financial results.
Netflix increased the price of its basic plan, which does not include ads, but is no longer available to new subscribers, to $11.99/month and premium which offers streaming in Ultra HD and the ability to watch on up to four devices at once, to $22.99/month, up from $9.99 and $19.99, respectively.
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