The company on Tuesday said it's raising US prices by 13% to 18% , its biggest increase ever. As of January 15, Netflix's basic plan will see a $1 per month increase to $8.99 while its most-popular standard plan will jump to from $10.99 per month to $12.99. It's the fourth price hike over the past 5 years for Netflix's US product, but just the first hike for the basic tier.
The price increase came two days before the streaming giant's fourth-quarter earnings release , prompting investors to speculate about whether the company's subscriber trends are strong enough to encourage it to raise price or too slow that it has to increase the price to offset the weakness.
We "got a strong signal that subs are growing at/above management expectations as well," Todd Juenger, an analystat Bernstein, said in a note out on Tuesday.
"If sub trends were weak, we would expect at this point to observe other efforts, aimed at driving adoption. Not a substantial price increase."
Juenger has an "outperform" rating $421 price target 19% above where shares are trading Tuesday. Shares rallied 6% following the price-hike announcement.
And Eric Schiffer, CEO of the Patriarch Organization, a private investment firm agrees that Netflix's loyal consumers will embrace the price increase.
"This is not enough of an incremental price increase," Schiffer told Markets Insider. "That's not gonna horrify a large number of subscribers."
Schiffer added the price hike provides Netflix an opportunity to raise cash for its content spending.
To offset its negative cash flow, Netflix has been borrowing heavily to pay for content. In October, the company launched a $2 billion debt offering and has accumulated more than $10 billion of debt so far.
Netflix was up 60% in the past year.
Now read: