Investors bet customers won't go.

By Jeff John Roberts
October 5, 2017

Netflix is boosting prices by a buck for some services, and it’s safe to say customers won’t rejoice at the idea of paying more for their their next hit of Narcos or Stranger Things. Investors, on the other hand, appear to love the idea: Netflix’s shares soared by about 7 percent when news of the price hike dribbled out on Thursday.

Shares of the streaming company opened around $185 but jumped as high as $192 on the news. As of noon ET, the stock was trading close to $191.

The positive reaction suggests the market believes the price hike won’t lead many Netflix customers to bail on the service, and that the stock is in good shape prior to its Q3 earnings report, which will come out on October 16.

Investors’ confidence that subscribers will stick around is likely due to the fact that the $1 price hike only applies to its higher priced subscription plans. As my colleague Don Reisinger explains:

Netflix has increased the price on two of its three subscription tiers. The midrange “Standard” plan that allows users to watch content on two screens at once has been bumped from $9.99 per month to $10.99 per month. The top-tier “Premium” plan, which allows for four simultaneous streams and access to higher-resolution content, has been upped from $11.99 a month to $13.99 per month. The basic plan that offers single-screen streaming remains at $7.99 per month.

The multi-tier plans also reflect Netflix’s success at developing incremental revenue streams even as the market for streaming video risks becoming saturated as a flood of big league competitors, including Amazon, have rushed into the space.

While some Netflix skeptics believed its growth had peaked, the company delivered a surprise last quarter by adding 1.07 million subscribers in the U.S.—its highest Q2 jump since 2011. Meanwhile, overseas growth remains robust as the company also added 4.1 million customers in non-US markets.

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All of this has contributed to a remarkable 2017 bull run for Netflix, which has seen its share price increase approximately 65 percent since January.

Longtime Netflix watchers know, however, that the stock is notoriously volatile. If the company misses its Q3 targets, the news of the share price increase (which won’t be reflected in this quarter’s earnings) is unlikely to stave off a big drop.

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