Please ensure Javascript is enabled for purposes of website accessibility

Why Netflix Probably Won't Raise Prices in 2020

By Rick Munarriz - Jan 17, 2020 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The premium video streaming service had a big price increase last year, and it will be a long time before it can again flex that kind of muscle.

It's been a little more than a year since Netflix (NFLX 2.90%) announced its plans to increase its subscription rates by as much as 18%. Jacking up the monthly rate of its most popular streaming plan from $10.99 to $12.99 may not seem like much for folks averaging triple digits on their cable or satellite television bills, but it still turned heads. 

Netflix has boosted its rates four times since 2014, a whopping 62% increase over that time. Last year's move was the largest on a percentage basis. And given the rapidly evolving competitive climate since then, it may be a long time before Netflix has the pricing flexibility to push out another price pop. 

The cast of Netflix's Spanish-language Chicas de Cable show.

The cast of Netflix's Spanish-language Las Chicas del Cable. Image source: Netflix.

Hitting the "no mas" moment

A year ago yesterday, I was on CBS This Morning discussing the increase. "There will come a point where people will say 'no mas,' but until they get to that point, you're going to see Netflix nickel and dime about every year or so and adjust their prices higher," I said at the conclusion of that segment.

I was wrong. A couple of months later, Disney (DIS 1.84%) announced aggressive pricing for the Disney+ service it launched in November. Disney's $6.99-a-month pricing (with big discounts for folks paying a year or more in advance) helped Disney+ top 10 million subscribers by the end of its first day on the market. Even before the launch, the Netflix price increase that kicked in during the springtime of last year resulted in back-to-back quarters in which the longtime market darling failed to live up to its earlier subscriber guidance.

Shares of Netflix moved sharply higher when the company announced the upcoming increase on Jan. 15 of last year, but the stock finds itself trading slightly lower over the past year. It seems odd to find Netflix chasing the market and perhaps even its smaller rivals, but it will need a strong quarterly report next week to win back the bulls. If it misses its subscriber guidance for the third consecutive period, it will be hard to gain the market's trust in what used to be conservative outlooks that it could hit out of the park with ease. 

The market has changed, and the rollout of Peacock and HBO Max later this year will only make the climate more challenging. Netflix will have to hold its ground on pricing, and that's if it doesn't find a creative way to discount its platform along the way. The pressure is on Netflix, but thankfully it's been up to the challenge before. It will need a strong fourth-quarter report next week to resume its role as one of the past decade's hottest tech stocks, but never having a dull moment is what content generation is all about.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$179.95 (2.90%) $5.08
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$96.14 (1.84%) $1.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.