Is Netflix's Third Price Increase in Less Than 3 Years a Red Flag or a Buying Opportunity?

Netflix (NFLX 0.61%) is increasing prices across U.S. subscription tiers, with premium and standard increasing by $2 per month and the ad-supported tier rising by $1 per month.

Extra member pricing is also on the rise, with ad-supported and ad-free additional user costs increasing by $1 per month.

Here’s the good and the bad of the price increase – and whether Netflix is a buy now.

Image source: Netflix.

Netflix is getting expensive

A dollar or two increase per month may not sound like a lot, but it’s significant on a percentage basis. Especially considering this is the third price increase since October 2023.

In that period, the ad-supported tier is up 28.6%, the standard is 29.1% more expensive, and the premium is up 17.4%.

Data source: CNBC.

Steeper price hikes on lower-cost subscription tiers are a bold move, as they risk driving users out of Netflix’s ecosystem entirely.

Companies have a better chance of retaining customers if they have products at different price points. For example, the least expensive new Apple MacBook Air is $1,099, while the most expensive MacBook Pro starts at $3,899. Similarly,** Procter & Gamble** sells premium-priced Tide detergent, but it also sells Gain, which tends to be cheaper. So if Tide gets too expensive, P&G can still land a sale if a customer steps down to Gain.

Netflix’s ad-supported tier essentially serves as a safety net for users who may fall out of the premium and standard tiers. It removes the all-or-nothing nature of a premium-priced streaming service. But by increasing prices across the board, Netflix is testing the durability of that ad-supported safety net.

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NASDAQ: NFLX

Netflix

Today’s Change

(-0.61%) $-0.58

Current Price

$95.56

Key Data Points

Market Cap

$403B

Day’s Range

$94.27 - $97.20

52wk Range

$75.01 - $134.12

Volume

1.4M

Avg Vol

49M

Gross Margin

48.59%

Netflix is betting big on itself

Netflix’s latest price increase sends a clear message that the company is confident it can deliver organic growth without Warner Bros. Discovery. In the past, Netflix has justified price increases by expanding its content library. There’s no denying Netflix is adding value – having branched into sports with the NFL, the WWE, and most recently, the 2026 MLB opening day.

By offering more under one service, Netflix wants to keep users on its platform so the company can justify paying more for the subscription. This logic makes sense in the traditional media network business model, where Netflix is only competing with other streaming and cable providers. But in today’s age, Netflix is also competing for screen time with Alphabet’s YouTube, social media, and other free platforms.

The price increase is an especially confident move, given that inflationary and cost-of-living pressures are straining consumer spending. Higher oil prices will further test consumer resilience at the pump, on travel, and indirectly by increasing input costs across the economy.

In Netflix’s defense, strained consumer spending is not a new narrative. It overlaps with Netflix’s price increases over the past few years, too. So, contrary to what some leading restaurant and discretionary goods companies may be saying, Netflix’s customer base’s loyalty shows that consumers have been pulling back on what they feel they don’t need and prioritizing the most important entertainment and discretionary choices.  – like choosing a monthly Netflix subscription over the one-time purchase of a double steak burrito from Chipotle Mexican Grill.

Netflix is worth its premium valuation

Netflix’s investment thesis centers around high-margin, recurring revenue from a loyal subscriber base that can accept price increases. With predictable cash flows, Netflix can manage its content production and licensing, making it a highly attractive business model. Investors have taken notice, as Netflix commands a relatively expensive 37 price-to-earnings (P/E) ratio and 29.8 forward P/E.

Netflix’s stock price typically falls when this model is tested, most recently when investors reacted negatively to its big deal for Warner Bros. Discovery, because it would add debt to Netflix’s balance sheet and involve capital-intensive production houses. Netflix’s stock has recovered significantly since it declined to raise its bid above **Paramount Skydance’**s. And even in recent weeks, Netflix has held up remarkably well despite the Nasdaq Composite falling into correction territory.

If Netflix’s added revenue from its price increases easily offsets subscriber losses from cancellations, it will prove that Netflix is a stable entertainment option for many households even during a period of weaker consumer spending. It would also reinforce the narrative that Netflix is somewhat recession-proof – making it a foundational holding in a diversified portfolio. But if not, questions will emerge about whether Netflix is overpriced and whether its content expansion into categories like sports is overdone.

Add it all up, and Netflix is a buy for investors who believe the value of Netflix’s platform justifies its price increase – as it would accelerate its earnings growth. But if not, the growth stock may be best left on a watch list.