Netflix announces better-than-expected Q1 2014 earnings
Netflix (NFLX) said on Monday that it will raise the price of its streaming service by $1 to $2 per month for new subscribers from the present rate of $7.99 per month. The company also mentioned that existing members will maintain their current prices “for a generous time period.” Netflix announced its earnings for Q1 2014 as well. Its revenues of $1.27 billion met Wall Street expectations, while its earnings per share of $0.86 per share were better than analysts estimates of $0.83 per share. Netflix added 2.25 million net U.S. subscribers and 1.75 million international subscribers in the first quarter, and it expects to add a further 520,000 U.S. subscribers and 940,000 international subscribers in Q2.
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Netflix stock has been volatile
As the above chart shows, in the last year, Netflix stock has been quite volatile and has swung between $162 and $458 per share. Netflix’s popular shows like House of Cards and Orange Is the New Black have helped it gain subscribers and thereby compete effectively in the online streaming market. According to a report from Qwilt, Netflix is the dominant player in the U.S. online streaming market, and its share in this market increased from 52.5% in March 2013 to 57.5% in March 2014. As of March 2014, Google’s (GOOG) YouTube is distant second, with a share of 16.9%, Amazon (AMZN) is third, at 3.0%, and Hulu is fourth, at 2.8%. They’re followed by Twitch, Apple (AAPL), HBO Go, and Microsoft’s (MSFT) Xbox.
Netflix is increasing prices to license more content
Although the price increase could dissuade some customers from using Netflix’s service, the company justified the increase to license more content and deliver high-quality video. During the conference call to announce earnings, Reed Hastings (Netflix’s chairman of the board, president, and chief executive officer) mentioned, “Over the last couple of years, we have been improving the content selection on Netflix and broadening it, most recently with the addition of the amazing shows like House of Cards and Orange Is the New Black, and if we want to continue to expand to do more great original content, more series, more movies, we have to eventually increase prices a little bit.”