Netflix price hikes seen boosting global expansion

Tue Apr 22, 2014 10:50am EDT
 
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(Reuters) - Netflix Inc's planned price hikes will allow the video streaming company to increase spending on original content that will help attract more customers globally, analysts said, as many of them raised their price targets on the stock.

Netflix's shares rose more than 9 percent in early trading on Tuesday after the company said it planned to increase prices for new subscribers and reported a better-than-expected quarterly profit.

At least nine brokerages raised their price targets on the stock. Raymond James and Cantor Fitzgerald upgraded the stock to their equivalent of a "buy" rating, citing strong growth prospects from international markets.

Analysts said Netflix has sufficient room to raise monthly subscriptions for new subscribers by $1-$2 in some countries.

"This dramatically increases our revenue and profit estimates from current markets over the next three years," Pacific Crest Securities analyst Andy Hargreaves wrote in a note.

"Further, it seems highly likely that Netflix will accelerate international expansion beginning in the second half of 2014, which should expand the company's TAM (total addressable market) and allow it to drive meaningful upside to long-term profit expectations."

Evercore Partners analyst Alan Gould said he expects Netflix to face little price resistance up to $9.99. Subscribers in the United States now pay $7.99 per month.

Gould said the company is approaching 50 million global subscribers, and a $1-2 price increase would raise $600 million to $1.2 billion.

Gould estimates the company — home to shows such as the critically acclaimed Kevin Spacey thriller "House of Cards" and "Orange is the New Black" — will spend about $3 billion on content in 2014 and $5 billion by 2016.   Continued...

 
A Netflix App icon is shown on an iPad in Encinitas, California, April 19,2013. REUTERS/Mike Blake