The biggest story in entertainment for the past five years hasn’t been the Oscars or the Emmys. It’s been who’s winning the streaming wars. Last week, one major player in this space made an announcement that could affect its relationship with the cord-cutting generation. In today’s blog, we’ll examine what that announcement is and how it might affect this quarter’s earnings season…
Last week, Netflix (NFLX) announced it’s increasing prices for its HD and ultra-HD streaming services.
The company now plans to charge $11 per month, rather than $10, for HD streaming, which also allows subscribers to watch programs on two devices. That’s an increase of 10%. Netflix is also raising its price for its ultra-high definition plan by 17%. No changes, however, are being made to the non-HD plan. That plan will still cost $8 per month. The new prices will go into effect on Thursday, October 19, and no one is being grandfathered into their old pricing.
This is a smart move from Netflix as it should only affect subscribers who are already willing to pay a premium for their streaming services.
Netflix revealed the plan price increases as the company takes more steps to compete with Amazon (AMZN) and HBO, which is owned by Time Warner (TWX).
Netflix wants cash on hand to finance more original programming for its service, especially given its existing success with "House of Cards," "The Crown," "Stranger Things" and "Orange Is The New Black."
With “Game of Thrones” leading its own lineup, some might consider HBO to be the 800 pound gorilla in this room. Netflix, however, is already set to spend $6 billion in 2017 on programming alone. So, the new price increases will give the company much-needed cash to better compete with the competition.
Investors liked this decision by Netflix. Following the company’s announcement, NFLX shares jumped to new highs and are still up nearly 6% over the past week.
In fact, Netflix will report earnings and sales results from the latest quarter next Monday, October 16. The analyst community is looking for earnings of $0.32 per share on $2.97 billion in sales, which represents 166.7% annual earnings growth and 29.8% annual sales growth. Analysts have also revised their earnings per share estimates 39% higher in the past three months. So, another quarterly earnings surprise is likely.
In addition, Netflix continues to maintain an A-rating in Portfolio Grader. This isn’t surprising given the success of their announcement last week with the investing community. As earnings season heats up, I urge you to stay tuned into this blog where I’ll continue revealing my insights on the most important financial news and events.