Netflix Just Raised Its Prices Again – Its Stock Is Up. What That Tells You About Pricing Power.

Almost without any ceremony, it took place on a Thursday in late March. The stock hardly flinched when Netflix raised prices across all U.S. tiers for the second time in less than a year. After that, it ascended. NFLX increased on a day when the overall market was down almost 2%. That kind of response reveals information that the press release was unable to.

A specific type of business is capable of doing this. One is Apple. Another is Costco, in its own subtle way. Additionally, Netflix, which falls somewhere between a household utility and a tech company, has joined the select group where price increases aren’t seen as desperate. It conveys assurance. It’s odd to say about a streaming service that began by sending out red envelopes, but investors seem to view it almost as a sign of health.

By themselves, the new figures aren’t particularly noteworthy. The premium plan increases to $26.99, while the standard plan goes from $17.99 to $19.99. Even the ad tier, which was meant to be the low-cost lifeline, has increased by one dollar to $8.99. Ask anyone in any living room across the nation if they will cancel for more than $2. The answer is already known to you. That’s the whole idea.

The timing is intriguing. Just weeks prior, Netflix withdrew its bid for Warner Bros., taking home a $2.8 billion breakup fee from Paramount. After that, buybacks started up again. Prices were then increased. When you read those three moves together, they don’t seem accidental. They seem like a business that is aware of its own space.

According to JPMorgan, the increase increases annualized revenue by about $1.7 billion with little churn. Oppenheimer raised its goal to $135. The bear case, which was succinctly expressed in a recent TIKR analysis, concerns engagement; viewing hours per household are declining, in part because growth is coming from countries like Japan, where viewing habits differ from those of Americans. Additionally, YouTube is constantly making an appearance on living room large screens. The average household’s monthly streaming expenditure, according to Deloitte’s most recent Digital Media Trends report, is $69, unchanged from the previous year. Somewhere there is a ceiling. No one is sure where.

The problem with pricing power is as follows. The dollar or the two dollars don’t really matter. It’s about what the lack of opposition makes clear. At the Morgan Stanley conference in early March, CFO Spencer Neumann stated unequivocally that Netflix provides value and then occasionally prices into that value. That’s not how a business makes guesses. It’s the language of a business that uses receipts.

It’s difficult to ignore how routine everything has become as you watch this play out. A price increase for Netflix ten years ago made headlines for days. There were cancellation threats. The stock rises now that it’s a Thursday afternoon footnote. When Paramount-Warner eventually merges, YouTube refines its TV strategy, and households eventually reach the $69 ceiling, it remains to be seen if that durability will hold. However, the market has decided to trust the playbook for the time being. With content expenditures approaching $20 billion, Netflix appears content to continue operating it.