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Here's Why Netflix (NFLX) Shares Gained Today

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Shares of Netflix (NFLX - Free Report) were up more than 3% in morning trading Thursday after the company announced that it was raising prices on some of its U.S. subscription plans this month.

According to Netflix officials who confirmed details with Business Insider, the streaming service’s middle and highest-tier plans will increase in price, with new subscribers seeing the effect today and current subscribers being charged more in their next billing cycle.

The middle-tier plan—which is Netflix’s most popular subscription and allows HD, as well as two simultaneous streams—will now cost $10.99 per month, up from its current price of $9.99. The company’s 4K-enabled, four simultaneous streams subscription—its “premium” plan—will increase to $13.99 per month from $11.99.

In the past, price increases have been a source of contention for Netflix. Almost exactly two years ago, Netflix raised its prices for new members and began to “un-grandfather” existing customers into the new price levels.

Following a subscriber growth miss in 2016, Netflix CEO Reed Hastings blamed the public reaction to the price hike. “People don't like price increases, we know that,” Hastings said on the company’s earnings conference call.

Still, Netflix has been able to keep its subscriber growth relatively consistent. In the first half of 2017, net subscriber additions were up 21% year-over-year, and the company now sports at least 104 million streaming subscribers.

Interestingly enough, management has attempted to shift the conversation away from its subscriber figures this year. In fact, the company has asked investors to begin evaluating its business on revenue growth and global operating margins.

An increase in plan prices will certainly help Netflix with its revenue growth, so long as the company can offset cancellations and adjust to new subscription growth expectations. But investors have already proven that they’re still interested in membership adds, so it will continue to be important for Netflix to attract new subscribers.

In a recent report, Piper Jaffray analyst Michael Olson argued that Netflix’s international markets offer the most exciting subscriber growth potential. According to his projections, the streaming platform could have more than 160 million subscribers overall and 100 million internationally by 2020.

Netflix is currently a Zacks Rank #3 (Hold) and will report its latest quarterly results on October 16. Our latest consensus estimates are calling for EPS growth of 165% and revenue growth of 30%.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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