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Netflix Raising Prices: What Wall Street's Saying

Updated from 11:17 a.m. to include additional comments from BMO analyst.

NEW YORK (TheStreet) -- As Netflix (NFLX) continues to add new content and create content on its own, it's doing the only thing it can do: raise prices.

Netflix surged after the company reported first-quarter results and announced a price hike for new customers, noting existing customers will their current pricing "for a generous time period." 

With regards to the price increase, CEO Reed Hastings said there will be an increase for new members of $1 or $2, depending on the country. "Existing members would stay at current pricing (e.g. $7.99 in the U.S.) for a generous time period," Hastings noted. "These changes will enable us to acquire more content and deliver an even better streaming experience." On the call, Netflix said that most of the increase in revenue from the price increases would go towards spending on original content. The revenue increase in the short-term would be "modest."


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Though Hastings didn't quantify when existing members would see the price bump, JPMorgan analyst Doug Anmuth, who helped moderate the call, noted it would be "likely 2 years in the US."

Shares of Netflix surged in early Tuesday trading, gaining 5.5% to $367.73, following the results.

As the company continues to do more original programming, Netflix is reinvesting the proceeds from the price hike towards content. On the conference call, Chief Content Officer Ted Sarandos noted that Orange Is the New Black, a Netflix original, is the company's most watched show. The popular political thriller House of Cards helped drive subscriber growth during the quarter, with Sarandos noting, "We saw a lot of very early front weighted viewing for the launch, which kind of told us that America was ready for more and dug in right away. And as we mentioned in the letter, we have been actually thrilled so far with the show from the early launch relative to how you would measure television on any show on basic cable or premium cable, and I only give you that information, by the way, to help you understand the class of viewing to think about a show like House of Cards."

Los Gatos, Calif.-based Netflix earned 86 cents a share on $1.27 billion in revenue for the quarter, as the company surpassed 35 million streaming subscribers, of which 34.38 million are paying. Streaming margins hit 25.2% in the first quarter. Analysts surveyed by Thomson Reuters were expecting the company to earn 83 cents a share on $1.266 billion in revenue for the first quarter.

On the conference call, Hastings continued to reiterate that Netflix's total addressable market in the U.S. is between 60 million and 90 million households, but throughout the world, it's "everyone who loves TV and has the Internet."

In the letter to shareholders, CEO Hastings described the company's international performance as strong. Netflix added 1.75 million international subscribers during the quarter, bringing its total to 12.7 million members. "Due to rapid growth in our international segment we aren't experiencing the same level of seasonality as in the U.S., and we anticipate over 50% y/y growth in Q2 net additions despite slight headwinds from the World Cup," Hastings said in the letter.

CFO David Wells noted that both the U.K. and Latin America have gotten better with regards to profitability. "Both has been growing and has been improving in terms of a loss but we didn't give any specifics about it," Wells said on the conference call. "We wanted to give that comment about our overall profitability of all of our existing markets to demonstrate that before we launch another substantial expansion that we are pretty confident in our existing performance in the markets we have today."

Hastings added that Netflix is "very confident of our success in Latin America as well as the U.K. So we are making great progress in every country, which is giving us a big ambition for this next round of European expansion."

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