Netflix’s Fourth-Quarter Subscriber Additions Surge, Stock Soars
In a surprising turn of events, Netflix announced on Tuesday that its fourth-quarter subscriber additions have surged, surpassing its own forecast. This news has caused the company’s stock to soar by more than 7% in after-hours trading. With 13.12 million new subscribers, Netflix has exceeded its own projection of approximately 9 million. Furthermore, the streaming giant has reported a total of 30 million net additions for the full year of 2023. In the fourth quarter of 2022 alone, Netflix added 7.67 million paying users.
The company’s revenue for the quarter also surpassed Wall Street estimates, reaching $8.83 billion, a 12.5% increase compared to the same period last year. Netflix attributed this success to various revenue initiatives, including its crackdown on password sharing, the introduction of an ad-supported tier, and recent price hikes on certain subscription plans. These strategies have proven effective in driving revenue growth.
Looking ahead, Netflix has guided to first-quarter revenue of $9.24 billion, which aligns with consensus expectations of $9.28 billion. However, the company slightly missed earnings per share (EPS) estimates for the fourth quarter, reporting EPS of $2.11 instead of the expected $2.20. Nonetheless, Netflix has projected first-quarter EPS of $4.49, surpassing consensus calls for $4.09.
In terms of profitability metrics, Netflix has performed exceptionally well. The company achieved operating margins of 16.9% for the fourth quarter and 21% for the full year of 2023, surpassing its own target of 20%. Additionally, free cash flow for the quarter came in at $1.58 billion, exceeding consensus calls of $1.26 billion. For the full year of 2023, Netflix expects its free cash flow to reach $6.9 billion, surpassing its initial guidance of $6.5 billion.
One key metric that Netflix has been closely monitoring is average revenue per member (ARM). In line with the company’s expectations, ARM increased by 1% year-over-year. Analysts anticipate further growth in ARM as the impact of the ad tier and price hikes become more pronounced throughout the year.
Speaking of the ad tier, Netflix revealed that ad-tier memberships have increased by nearly 70% quarter-over-quarter. This plan now accounts for 40% of all Netflix sign-ups in the markets where it is offered. Earlier this month, Netflix announced that the ad tier has surpassed 23 million monthly active users, a significant increase from its November update. However, the company has not disclosed the exact number of paying subscribers for the ad tier or the revenue it has generated thus far.
Despite its impressive performance, Netflix acknowledges that competition in the streaming industry remains fierce. The company emphasized the importance of continually improving its entertainment offering, especially as many competitors reduce their content spend. Netflix remains committed to investing in its content slate and expects to spend $17 billion on content next year.
In a surprising move, Netflix recently announced a partnership with TKO Group Holding’s WWE. Beginning in January 2025, Netflix will stream WWE’s flagship program Raw, marking the company’s first foray into live sports entertainment. This 10-year deal will see Raw leaving linear television for the first time in its 31-year history. The program currently airs on NBCUniversal’s USA Network and attracts 17.5 million unique viewers annually.
In other news, Netflix film chief Scott Stuber will be stepping down from his position in March. The departure of Stuber, who has played a crucial role in Netflix’s success in the film industry, raises questions about the company’s future film endeavors.
Netflix’s impressive fourth-quarter subscriber additions and financial performance have undoubtedly boosted investor confidence, leading to a surge in the company’s stock. As Netflix continues to face fierce competition, its ability to innovate and invest in compelling content will be crucial in maintaining its position as a leading streaming platform.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any other agency, organization, employer, or company.
