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Netflix price hike signals management confidence in subscriber growth

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Netflix price hike signals management confidence in subscriber growth

Michelle Clancy

Netflix is hiking the price of its most popular streaming subscription by $1 a month to $9.99 for new customers in the US, Canada and parts of Latin America.

The standard streaming service supports two viewers at a time. Pricing for the less popular one-viewer/no HD and four-viewer/4K plans will stay the same.

A similar €1 increase for European subs was enacted in August.

Netflix also carried out a $1 price hike last year, saying at the time that existing customers won't see a hike for two years. It seems to be remaining somewhat true to that pledge: Existing customers will have grace periods of varying lengths in this latest increase, the company said.

Pacific Crest has boost its price target on Netflix to $140 from $122 on the news. Analyst Andy Hargreaves said that the move signals confidence from Netflix management in its continued subscriber growth, and could tip a faster pace of price increases in the future.

"We view today's price increase positively, as it likely signals confidence in subscriber growth and suggests a faster pace of price increases than is embedded in our model," Hargreaves wrote in a note to clients.

Netflix expects to have 69.1 million global subscribers at the end of the third quarter, meaning that a $1 per month hike for the company's entire subscriber base would generate over $800 million in annual revenue. The additional funds are well-needed to help pay for streaming content obligations that totalled $10.1 billion at the end of Q2. The company also has an additional $4.3 billion in programming costs coming in over the next year, and almost $5 billion more earmarked for the following three years.

It’s also expecting to continue to gain additional revenue from new markets: Netflix has said that it expects to complete its global expansion by the end of 2016; Australia, New Zealand and Japan have gone live this year, bringing the total footprint to more than 50 countries; and Spain, Portugal and Italy launches are slated for later this month.

“It feels like they are confident in how well they are growing and that they have the consumer love to push the price,” said Rich Greenfield, an analyst at BTIG LLC, speaking to Reuters.