Netflix's (NASDAQ: NFLX) fourth-quarter earnings release on Tuesday afternoon included several major surprises for investors. Revenue, earnings, and membership count, for instance, all came in ahead of expectations for the quarter. But some of the more notable news may have been the streaming service company's announcement of price increases for plans in some key markets, including the U.S. and Canada. The move demonstrates the company's impressive pricing power with its customer base.
Here's what these these price increases will look like in the U.S., and what the move means for investors.
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The details of Netflix's latest price increase
The company is rolling out price increases in the U.S., Canada, Portugal, and Argentina.
Here's the breakdown of what the price increases will look like domestically: Its standard plan without ads will see an increase of $2.50, bringing the monthly cost to $17.99. Meanwhile, the ad-supported tier will go up by $1 to $7.99 per month, and the premium tier, which allows for four simultaneous streams, will increase by $2 to $24.99 per month. Finally, the cost of adding an extra member to a primary account will increase from $7.99 to $8.99 per month.
Though the price increase will set its members back a bit more every month, it will also benefit them, supporting more heavy investment in content. "As we continue to invest in programming and deliver more value for our members, we will occasionally ask our members to pay a little more so that we can reinvest to further improve Netflix," the company explained in its fourth-quarter letter to shareholders.
For investors, the price increase is a double-edged sword. On one hand, it reflects Netflix's confidence in its value proposition and its ability to command higher prices. Furthermore, it will probably contribute positively to revenue growth. On the other hand, there is always the risk that higher prices could lead to increased subscriber churn, especially in some of the company's more competitive markets.
Of course, this isn't the company's first rodeo when it comes to price increases, which in recent years were all executed smoothly and received well. Given the positive history, the risks of increased churn are probably low. Ultimately, the company has proved to investors it has considerable pricing power.
Business momentum
The decision to raise prices comes on the heels of a record-breaking quarter for Netflix. The company added 18.9 million subscribers in Q4 2024, the largest quarterly increase in its history. This surge in subscribers was driven by a strong content slate, including the highly anticipated second season of Squid Game, the blockbuster film Carry-On, and the most-streamed sporting event ever, the Jake Paul vs. Mike Tyson fight.
With its business firing on all cylinders, management raised its guidance for 2025 revenue. It's now expecting full-year sales of between $43.5 billion and $44.5 billion. The midpoint of his range is $0.5 billion more than the company's previous forecast. "This updated guidance reflects improved business fundamentals and the expected carryover benefit of our stronger-than-forecasted Q4 '24 performance," management explained in is fourth-quarter update. The higher guidance is particularly impressive because it also includes incremental "headwinds from the strengthening of the U.S. dollar over the past few months," management noted.
For further context on just how upbeat Netflix's outlook is, the company's 2025 revenue guidance implies 12% to 14% year-over-year growth, or 14% to 17% on a constant currency basis.
Overall, news of higher prices from Netflix is a positive signal from investors, suggesting management believes there's untapped pricing power in its model and plenty of room for further growth. Of course, the company's aggressive guidance reflects this confidence.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
