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When Netflix Raises Prices, It's Not Just in the U.S.

By Danny Vena - Jul 12, 2019 at 5:00PM

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Domestic customers aren't the only ones who ponied up more for a subscription this year. That bodes well for Q2 earnings.

Back in January, Netflix ( NFLX -2.33% ) announced a monthly subscription price hike in the U.S., the first such rate increase since October 2017. The monthly cost rose $1 to $2, depending on the price tier. The higher prices took effect immediately for new customers and were rolled out to existing subscribers over several months. While seemingly inconsequential, the price hikes could add as much as $1.2 billion in additional revenue annually for the streaming giant.

A new study just out on Netflix pricing plans shows the U.S. wasn't the only country that saw rate increases this year.

Bernstein analyst Todd Juenger just completed a quarterly review of Netflix pricing in more than 50 countries, using a system he calls "VPN and brute force." His research reveals that Netflix has raised prices in much of Western Europe, Israel, and some countries in Latin America.

Those subscription price hikes could bode well for Netflix's upcoming earnings report.

Smiling woman handing over $20 bills.

Image source: Getty Images.

Tapping its worldwide subscriber base

In a note to clients, the Bernstein analyst wrote that Netflix raised prices in most of the European Union (including the U.K.), as well as Israel, Switzerland, Greece, and Argentina. All of the countries saw "double-digit increases" for the standard plan. It appears the price hikes were rolled out in phases throughout the quarter. Juenger noted that there hadn't yet been increases in a number of other markets, including the Netherlands, Belgium, and Portugal, so there may be additional increases yet to come.

Juenger also wrote that Netflix was taking a more measured approach with the countries in Asia, an area where Netflix has had difficulty gaining traction. He hadn't detected any price changes in Hong Kong, Korea, India, Malaysia, Thailand, Taiwan, or New Zealand -- nor has there been a rate increase in the two years that Juenger has been conducting the study.

The streaming giant has been virtually shut out of China, with its population of more than 1.38 billion, the result of Chinese government restrictions of foreign-owned businesses.

A greater pool of subscribers

In the first quarter, Netflix added 9.6 million new members -- the most quarterly subscribers in the company's history -- which included 1.74 million new domestic customers -- taking the grand total of U.S. subs above 60 million for the first time. As impressive as that threshold may be, Netflix's international subscriber base grew to nearly 89 million, nearly one-and-a-half times its domestic number.

With the majority of its monthly subscribers outside the U.S., it only makes sense that Netflix would want to gradually increase the cost of membership for its international customers, just as it has done in the U.S.

It's also worth noting that in its first-quarter shareholder letter, the company forecast revenue of $4.9 billion, an increase of 26.1% year over year, a striking acceleration from the 22.2% increase in the first quarter. Netflix increases revenue through a combination of new subscribers and rate increases.

A woman on an exercise machine watching Netflix original series "Orange Is the New Black" on a tablet while she exercises in a crowded gym.

Image source: Netflix.

We don't know the exact amounts of the price increases (as the price varies country to country), but a $1 monthly increase across its entire base of 149 million customers would generate nearly $1.8 billion in additional revenue per year.

While it's obvious that's not what Netflix is doing, it serves to illustrate just how quickly the company can ratchet up its income with a price hike.

We'll know soon enough

Netflix is scheduled to report its second-quarter earnings after the market close on Wednesday. Knowing that it was planning rate increases in a variety of countries around the globe may have given the company the assurance that it could hit the more robust revenue growth in its forecast.

We'll know for sure when it reports.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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