Netflix gives its toughest audience what it wants

BY DAN GALLAGHER | UPDATED JAN 18, 2022 09:20 AM EST

Price increases come as stock slumps on subscriber-growth worries ahead of fourth-quarter results

In a way, Netflix might soon find out just how critic-proof it really is.

The streaming giant is raising its prices for the U.S. and Canadian markets. The new ones—announced Friday—amount to an 11% increase across the board for its three subscription plans. That is notably more than the company’s last round of increases in October 2020, which raised the price on only two plans and amounted to an average raise of about 8%.

Netflix has raised prices in other geographies since, but the U.S./Canada market is the company’s largest and most lucrative, accounting for 44% of total revenue with only 35% of the subscriber base. The recent increases also create even more distance between Netflix and its competitors. The company’s most expensive plan costs 33% more than the most premium offering from HBO Max. And that streamer, owned by AT&T, is currently offering a 20% discount to that price for the first year.

Such moves are rarely endearing to customers, but Wall Street cheered the development—at least initially. Netflix shares jumped more than 1% in the final hour of trading on Friday after the new prices were announced. Netflix has long shown an ability to keep new subscribers flowing in even with occasional price ratchets. Its first-mover advantage in streaming, preceded by its popular DVD subscription service launched in 1999, means Netflix has spent the better part of two decades as a part of many household’s monthly budgets.

But the price increases still aren’t enough to lift what has been a downright sour mood over the stock heading into the company’s fourth-quarter report scheduled for Thursday afternoon.

Netflix shares were pointing back down in early trading on Tuesday morning, and the stock has lost nearly 13% since the start of the new year—the worst performance among tech companies valued at $200 billion or more. That follows a relatively subpar performance that saw the stock gain only 11% in 2021, lagging both the Nasdaq Composite Index and the S&P 500. It was the stock’s worst annual performance since 2016.

Netflix spent most of last year snapping back from the “pull-forward” effect of the early days of the pandemic when subscriber numbers surged. Lately, though, analysts have been worried that its coming results won’t show the kind of recovery in subscriber growth that Netflix itself expects.

The company projected 8.5 million net new subscribers for the period—similar to the fourth-quarter growth pace seen in the previous three years. But several analysts have trimmed their estimates, citing data such as weak app downloads for the period. In a report issued before the price changes on Friday, alternative data firm M Science cut its projection for Netflix’s net subscriber additions to 6.3 million from a previous estimate of 8.4 million for the quarter.

A shortfall like that would suggest Netflix is reaching some kind of ceiling on growth since the quarter also included a record-sized release of original and exclusive content by the company. Wedbush Securities counts 157 movies, new TV series and new seasons of existing series released by Netflix during the quarter. That is up 20% from the number of original-content releases in last year’s fourth quarter, during which Netflix added 8.5 million new subscribers.

The latest quarter included “Red Notice” and “Don’t Look Up,” which have become the two most-viewed movies of all time on the service. But for Netflix, giving the viewers what they want might no longer be enough to draw in millions of new ones.