With its streaming video revenue topping $1 billion for the first time, Netflix said that it plans to increase prices for new subscribers.
The company Monday announced that its subscriber base grew more than expected -- adding 4 million -- to 48 million members worldwide. Its net profit of $53 million, or 86 cents per share, beat analysts' estimates of 83 cents a share. It also beat the company's own forecast of $48 million and earnings per share of 78 cents.
Some time in the next three months, the company plans to raise prices $1 or $2 for new members globally -- a move that could also temper subscriber churn based on availability of content such as a new season of House of Cards. Existing member monthly fees would remain at current pricing (such as $7.99 or $11.99 in the U.S., for two-stream or four-stream tier subscriptions) for a "generous time period," the company said.
Netflix, which currently has 35.7 million U.S. subscribers, continues its drive to a domestic base of 60 million to 90 million. "Every year we add another five or six million members and that makes us a little more confident," said CEO Reed Hastings in a conference call after the company's earnings release. "With that we are able to add more content and make the service better."
Netflix is acting from a position of strength, says Mark S. Mahaney, managing director of Internet for RBC Capital Markets. "Across the Internet we're seeing companies like Amazon, Pandora and Netflix all of them are raising prices one way or another," he says. "I don't think too many consumers are going to be put off by spending a dollar or two a month for the quality the quantity of content that Netflix has. I think they are coming from a position of strength."
Shares of Netflix rose in after-hours trading, up more than 6% to $369.50, having closed at $348.49 before the Los Gatos, Calif.-based company released its earnings at the market's close.
Netflix stock has been volatile since it announced its previous quarter earnings. Company stock climbed to nearly $455 after the streaming service announced a deal with Comcast to ensure high quality streaming of Netflix content for Comcast Net customers.
Since then, the stock has taken a hit in the wake of last month's reports that Apple and Comcast were teaming up for an as-yet-unannounced streaming TV service. Share prices dropped nearly 7% to $405.99 after that report and has continued to decline before rising slightly in preparation for the earnings report.
Among Netflix's good first-quarter signs was an increased rate of growth in new U.S. streaming subscribers in the first quarter of 2014, an additional 2.3 million, compared to 2 million in the same quarter last year. "You don't normally see that. Normally the bigger the company gets the harder it is to add subscribers," Mahaney said. "That tells you that the value proposition is getting stronger."
And profitability rose across the various including the DVD mail service and the international business. Netflix's international business grew to by 1.75 million during the quarter to 12.7 million and accounted for about 25% of total revenue.
"They essentially said that the international segment will reach profitability later this year," Mahaney said. "Now they are showing that all this money they actually sent overseas they are finally getting a return on it."
Competition and costs of programming will continue to be challenges for the streaming company, said Dan Rayburn of Frost & Sullivan. "As much as they want to say Amazon is no real threat and ... (Netflix CEO) Reed (Hastings) points to HBO Go as their threat, HBO Go is not a threat because it's not a standalone service."
Amazon brought its own Amazon Fire TV settop box to market earlier this month. And its streaming service, which has its own original programming just as Netflix does, "has gotten much better over time, certainly over the last year," Rayburn says. "Amazon has some advantages in that they own the hardware."
In his letter to shareholders Monday, Hastings also revealed publicly his opposition to Comcast's proposal to buy and merger with Time Warner Cable.
Earlier this year, Hastings said he "reluctantly" agreed to pay Comcast an unspecified amount of money for an "interconnection" deal that would connect Netflix's servers directly to Comcast's network. It resulted in greater transmission speeds for downloading movies for the cable company's customers.
The $45.2 billion merger would create a company that "would possess even more anticompetitive leverage to charge arbitrary interconnection tolls for access to their customers. For this reason, Netflix opposes this merger," he said. "The Internet faces a long term threat from the largest (Internet service providers) driving up profits for themselves and costs for everyone else."
"Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix," he said.
Contributing: Roger Yu