Video streaming service Netflix has said that profits rose again during the first quarter of the year, while it is also planning to increase subscription prices.
In a letter to the company’s shareholders, chief executive Reed Hastings and chief financial officer David Wells said that profits stood at $53 million (£32 million) in the first three months of 2014. Though this is a huge improvement on last year’s figures, it is still a relatively slight return on revenues of $1.27 billion.
As part of a bid to boost these figures, the company has announced plans to increase the cost of subscribing to the service for new customers by between $1 and $2 per month. Since the company is projected to have more than 50 million users signed up to its streaming service around the world by the second half of this year, it is likely that this would make a considerable difference to Netflix’s financial position.
Indeed, by eventually rolling out these higher prices to existing customers too, the company could potentially add between $600 million and $1.2 billion to the firm’s revenues within the next two years.
“These changes will enable us to acquire more content and deliver an even better streaming experience,” wrote Mr Hastings and Mr Wells in their letter.
At the moment Netflix says it is prioritising investment over returns. In particular, it is working hard to improve its international earnings, which constitute a quarter of the firm’s total streaming revenues. The company’s global membership grew by 1.75 million in the first quarter of the year – 72 per cent more new additions than in the same period of 2013 – and the company eventually expects its international subscribers to outnumber the domestic users.
But the international segment still made a loss in the first quarter as it invested heavily in marketing and expansion into Europe. Overall, this means that even though the company expects its existing international segment will finally make a profit this year, there will still be losses in the expanded zone.
However, Netflix is working on the basis that the effects of its investment in original content such as House of Cards and Orange is the New Black will reap rewards over time.
“As we’ve discussed in prior investor letters, we intend to continue our international expansion over the coming years, so our near term profits will be quite modest as we invest in this large global opportunity,” wrote Mr Hastings and Mr Wells.
Find up to date information on the FTSE 100 and spread betting strategies at City Index
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.