Netflix Price Increase: 5 Reasons to Buy the Stock

As Netflix gets hammered by thousands of users upset with the video services company's 60 percent monthly price increase for unlimited streaming video and DVDs by mail, shareholders are casting votes of approval, sending Netflix's stock up more than $7 on the trading day, near a 52-week high at $298.50 per share.

Investors like the fact that Netflix is leaving behind a the costly business of DVD's by mail, which involve shipping, handling, and replacement. Customers are complaining about the company's apparent move to a streaming video business model because they can't get the same vast assortment online that they can get through the mail.

But the DVD by mail business isn't sustainable at low prices like Netflix was offering before so the change had to be made, for investors and long-term profitability.

But the price changes aren't all Netflix has been up to lately. The Internet video company recently expanded into Canada. Now, its taking its streaming video services to Latin America and the Caribbean.

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Founded in 1997, the Los Gatos, California-based company (NASDAQ: NFLX) has more than 23 million subscribers, and in April Netflix reported its first-quarter profit soared 87 percent on a revenue jump of 46 percent. Wall Street has roared in approval, as shares of Netflix are trading near a 52-week high, at $289.63, increasing almost three-fold in the past 12 months.

Yet not everybody is buying into the hype.

Short sharks loom, as one-fifth of the company's stock float is sold short -- meaning they think that Netflix stock that's been on a meteoric ride is due to come crashing back to earth.

But think before you bite and join that short hype and get burned, since Netflix has some advantages as the company rolls out its worldwide launch, and the 60 percent price hike for unlimited streaming video and DVDs by mail is one of them, whether consumers like it or not (they don't have to answer to shareholders).

Here's five other reasons Netflix stock is worth a look from buyers looking for a bull on a ride:

1) Latin America has many rapidly growing pay TV markets and Netflix is well positioned with its globally-recognized brand and service to win millions of customers with attractive pricing. Netflix says it will expand to 43 countries in Latin America and the Caribbean later this year, offering unlimited TV shows and movies over the Internet for a base monthly subscription price.

2) Netflix is committed to not sacrificing price for marketshare, meaning those shorts are expecting Netflix will have to deeply discount its services. The company understands keeping pricing in place is the key to its profitable long-term future. The recent price hikes prove just that. The company had to end its money-losing proposition in the unlimited streaming video and DVDs by mail with a big jump. Netflix had used the low price for a long time to win customers. Now, maximizing growth and profitability becomes key. For investors, the price hike is a savvy long-term strategy.

3) Netflix will grow internationally faster than many investors think. Because the company moved to streaming media in 2007 as its primary platform over DVD-by-mail as it originally started with in 1997 it is nimble, and can move very fast into new markets with low cost.

4) Skeptics say Netflix has to pay too much for the content it distributes but those skeptics should consider that the bigger Netflix grows, the better deals it gets for distributable properties including television shows, documentaries and feature films. It's the Wal-Mart supply model, in that girth gets good deals. Translation: the bigger and faster Netflix expands worldwide, the better deals it gets on the properties it distributes.

5) Cable is on the way out. Netflix has plenty of growth opportunity remaining in the U.S. As cable gets more expensive with more channels, customers increasingly want to pay only for what they want to watch. Netflix is an affordable option, and as more households gain devices to deliver streaming media to the family, the more the company secures its long-term profitability.

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