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Netflix Blows Past Analyst Expectations as Strong Run Continues

Published 24/01/2024, 14:49
Updated 09/07/2023, 11:31

Netflix (NASDAQ:NFLX) delivered another set of impressive results, this time surpassing the average analyst estimates for the fourth quarter and showcasing strong growth in the number of paid subscribers.

Netflix reported an Nvidia-like number for its subscriber membership base. As a result, shares rose about 8% in early Wednesday trade.

How Did Netflix Perform in Q4

The paid net change of +13.12 million marked a substantial 71% year-over-year increase and blew past the estimated +8.91 million.

The growth was robust across different regions, with the UCAN (United States and Canada) region leading with 2.81 million new paid subscribers compared to the 910,000 additions for the same period last year.

EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific) also demonstrated substantial increases of +5.05 million and +2.91 million, respectively, outperforming the estimates for both regions.

Overall, the number of streaming paid memberships reached 260.28 million, up 13% annually and exceeding the estimated 256.11 million.

The company's overall revenue for the fourth quarter reached $8.83 billion, showing a solid 12% YoY increase and topping the average analyst estimate of $8.72 billion.

Netflix's earnings per share (EPS) for Q4 was $2.11, a number that came in slightly below the estimated $2.19. Netflix said the Q4 EPS includes a $239 million non-cash unrealized loss from foreign exchange remeasurement on Euro-denominated debt.

“We believe there is plenty of room for growth ahead as streaming expands, and our north star remains the same: to thrill members with our entertainment. If we can continue to improve Netflix faster than the competition, we’ll have an increasingly valuable business – for consumers, creators, and shareholders,” the company said in a shareholder letter.

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Operating margin for Q4 was 16.9%, significantly up from 7% the previous year and easily surpassing the estimated 14.1%.

Operating income reached $1.50 billion, again topping the estimated $1.2 billion. Free cash flow (FCF) also exhibited strong growth, reaching $1.58 billion, while analysts were looking for $1.26 billion.

Looking ahead, Netflix sees Q1 revenue of $9.24 billion and EPS of $4.49. This compares to the analyst consensus of $9.28 billion and EPS of $4.09. An operating margin is seen rising to as much as 26.2%, while analysts were looking for 24.1%.

The company continues to project double-digit revenue growth, a free cash flow of about $6 billion, and an operating margin of 24% for the full year 2024, emphasizing a high single-digit percentage year-over-year increase in content amortization.

Netflix also maintained its expectation for a cash spend on content of up to $17 billion in 2024.

“Ads plan now accounts for 40% of all Netflix sign-ups in our ads markets and we’re looking to retire our Basic plan in some of our ads countries, starting with Canada and the UK in Q2 and taking it from there,” the company added.

In the fourth quarter, Netflix said it bought back 5.5 million shares for $2.5 billion, leaving it with $8.4 billion available under our current buyback authorization.

Moreover, the company said it intends to utilize its existing cash reserves to pay off the $400 million in senior notes set to mature in the first quarter of this year.

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A Push Into Live Entertainment and Sports

Hours before reporting its fourth-quarter results, Netflix announced that starting in January 2025, WWE’s Raw will be live on Netflix exclusively in the US, Canada, the UK, and Latin America.

The streaming giant committed to add other countries and regions over time.

Currently, the program holds the top position on the USA Network (LON:NETW), attracting 17.5 million unique viewers annually.

Demonstrating strong performance in the 18-49 advertising demographic, Raw consistently trends on X for all 52 weeks, aligning with the airing of each new episode.

Across its various social media platforms, WWE’s social media following exceeds one billion.

The partnership extends beyond Raw, encompassing all WWE shows and specials outside the U.S. Netflix will become the exclusive home for WWE's other weekly shows, SmackDown and NXT, along with Premium Live Events such as WrestleMania, SummerSlam, and Royal Rumble.

Moreover, WWE's acclaimed documentaries, original series, and upcoming projects will be accessible on Netflix internationally, starting in 2025.

The announcement also came as Netflix’s management dismissed that it may look to buy one of its smaller companies.

While “it’s logical to expect further consolidation, particularly among companies with large and declining linear networks,” Netflix said it is “not interested in acquiring linear assets.

Nor do we believe that further M&A among traditional entertainment companies will materially change the competitive environment given all the consolidation that has already happened over the last decade (Viacom/CBS, AT&T/Time Warner, Disney/Fox, Time Warner/Discovery, etc.).”

Earlier this week, it was reported that Scott Stuber, the current head of films, is set to depart the streaming service pioneer in March to establish his own media company.

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Stuber, who assumed the role of chairman of Netflix Film in January 2023, played a major role in expanding the platform's array of original films since joining in 2017.

During his tenure, the former Universal Studios executive utilized his industry connections to build strong collaborations with renowned filmmakers such as Alfonso Cuarón, Spike Lee, Greta Gerwig, Rian Johnson, Jane Campion, and Martin Scorsese.

Stuber's departure marks a significant transition for Netflix and a potential blow to the company’s plans.

Summary

Netflix posted its best gain in new subscribers since the remarkable surge during the Covid-19 pandemic, sending its shares higher in early Wednesday trade.

The company reported a strong set of results and announced a major push into live entertainment and sports with the $5 billion deal for WWE’s Raw.

***

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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