Netflix Surpasses Expectations in Q4 2023 With Strong Subscriber Growth

Netflix reported earnings of $2.11 per share, up 73% year over year and well above the Zacks Consensus Estimate of $2.20 per share. Revenues increased 12.5% year over year to $8.8 billion, also surpassing the Zacks Consensus Estimate of $8.72 billion.

The company attributed its strong results to its diversified content portfolio, which includes original and licensed movies, TV shows, documentaries, and anime. Netflix also benefited from its pricing power, as it raised its subscription fees in several markets, including the U.S., Canada, and the U.K., without affecting its churn rate.

Netflix’s operating margin improved to 25.2% in the fourth quarter, up from 14.4% in the same period last year. The company generated $1.9 billion in free cash flow, ending the quarter with $10.4 billion in cash and equivalents.

Subscriber Growth Highlights

Netflix added 4.5 million paid subscribers in the fourth quarter, exceeding its own guidance of 4 million and the consensus estimate of 4.3 million. The company ended the quarter with 227.59 million paid memberships globally, up 2.6% year over year.

Netflix’s subscriber growth was driven by its strong performance in the Asia-Pacific (APAC) region, which accounted for 60% of its net additions in the quarter. The company added 2.7 million subscribers in APAC, reaching 40.3 million paid memberships in the region.

Netflix also saw solid growth in Europe, the Middle East, and Africa (EMEA), where it added 1.3 million subscribers, reaching 79.8 million paid memberships. The company attributed its success in EMEA to its investment in local and regional content, such as “Lupin” from France, “The Witcher” from Poland, and “Money Heist” from Spain.

Netflix’s growth in Latin America (LATAM) and the U.S. and Canada (UCAN) was slower, as the company faced increased competition and saturation in these markets. Netflix added 0.4 million subscribers in LATAM, reaching 39.4 million paid memberships. The company lost 0.1 million subscribers in UCAN, ending the quarter with 68.1 million paid memberships.

Content Highlights

Netflix continued to produce and acquire a wide range of content across different genres and languages, catering to the diverse tastes and preferences of its global audience. The company released 161 original titles in the fourth quarter, including 71 films, 38 series, 24 documentaries, 13 comedy specials, 10 reality shows, and 5 anime.

Some of the most popular titles in the quarter were:

• “Red Notice”, a star-studded action comedy film starring Dwayne Johnson, Ryan Reynolds, and Gal Gadot, which was watched by 328.8 million households in its first 28 days, making it the most-watched Netflix film ever.
• “Squid Game”, a Korean thriller series about a deadly survival game, which became a global phenomenon and was watched by 236 million households in its first 28 days, making it the most-watched Netflix series ever.
• “Don’t Look Up”, a satirical comedy film starring Leonardo DiCaprio, Jennifer Lawrence, and Meryl Streep, which was watched by 216.6 million households in its first 28 days, making it the second most-watched Netflix film ever.
• “The Witcher”, a fantasy series based on the popular books and video games, which returned for its second season and was watched by 142.8 million households in its first 28 days, making it the second most-watched Netflix series ever.

Netflix also announced a new partnership with WWE, the world’s leading sports entertainment company, to bring its flagship show “WWE Raw” to its platform. The deal, which is valued at $1 billion over five years, will give Netflix exclusive streaming rights to “WWE Raw” in the U.S. and Canada, starting from February 2024. Netflix said that “WWE Raw” is a perfect fit for its sports business, which focuses on the drama of sport.

Outlook and Guidance

Netflix provided its outlook and guidance for the first quarter of 2024, as well as its long-term goals and strategies. The company expects to:

• Earn $1.35 per share, down 23% year over year, on revenues of $8.9 billion, up 9% year over year.
• Add 3.5 million paid subscribers, down 14% year over year, ending the quarter with 231.09 million paid memberships globally, up 2.4% year over year.
• Achieve an operating margin of 25%, up from 20.2% in the same period last year.
• Generate $500 million in free cash flow, down from $692 million in the same period last year.

Netflix also reiterated its long-term goals and strategies, which include:

• Growing its subscriber base and revenues across all regions, especially in the underpenetrated markets of APAC and LATAM.
• Investing in a diverse and high-quality content slate, with a mix of original and licensed titles, across different genres and languages.
• Expanding its product offerings and features, such as games, podcasts, and merchandising, to enhance its user experience and engagement.
• Maintaining its pricing power and flexibility, while delivering great value to its customers.
• Improving its profitability and cash flow, while balancing its growth and investment needs.
• Returning excess cash to its shareholders, through buybacks and dividends, once it reaches a sustainable positive free cash flow level.

Netflix concluded its earnings report by expressing its confidence and optimism for the future, despite the challenges and uncertainties posed by the COVID-19 pandemic and the competitive landscape. The company said that it remains focused on its core mission of entertaining the world with stories that move and inspire people.