Just prior to its earnings release, Netflix is rallying hard – here’s why
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Just prior to its earnings release, Netflix is rallying hard – here’s why

After the bell today, streaming video on demand (SVOD) market leader Netflix will report earnings for the quarter ended December. And, if the market is anything to go by, expectations are high. Since Christmas Eve, the company’s share price has soared by 37% - but what’s pushing it upwards? Over the last few days, one thing in particular: the platform’s incredible pricing power.

Netflix’s share price has been on a tear since Christmas Eve – will it be validated this evening?

graph 17 netflix

Source: Yahoo Finance

Earlier this week, Netflix announced that the price of its most popular plan in the US (its domestic, and most lucrative, market) would rise from $11 to $13, effective from Tuesday. $2 might not seem like a massive price hike when you consider the product on offer – but bear in mind that Netflix had 58.46 million US subscribers at the end of last quarter – pretty soon, we’ll know what the figure is now. In any case, that’s a serious addition to its income stream, which should go some way to mollifying analysts and investors who get nervous when Netflix’s spending habits get mentioned.

More important than added revenue, however, is what the price hike represents: pricing power. Michael Olson of Piper Jaffray said: “As consumer content dollars shift from traditional video to streaming and as Netflix commands a larger share of viewing time due to an improving content slate, we believe ongoing periodic price increases make sense and should be expected. We believe the primary determinant in the ability to raise price is subscriber perception of content quality.”

This will be Netflix’s fourth price hike in the US, and it follows a quarter where the company’s ambitious content strategy has kicked into hyperdrive. That content drop, along with the fact that Netflix is still not trading as high as it was last June, is what’s helped to push shares higher. In just a few hours, we’ll know whether the company’s efforts have paid off, and been able to attract more subscribers to its platform. As always, we’ll bring you full reporting of the figures once they’re out.

Disclosure

Dominion holds Netflix in its Global Trends Ecommerce Fund.


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