In a remarkable performance, Netflix (NASDAQ:NFLX) reported a surge in fourth-quarter subscriber additions that exceeded its forecast, propelling its stock up by as much as 14% in early Wednesday trading. The streaming giant added 13.12 million subscribers in the quarter, surpassing its projection of approximately 9 million. The full-year 2023 net additions stood at around 30 million, with 7.67 million paying users added in Q4 2022.
Netflix’s revenue also surpassed Wall Street estimates, reaching $8.83 billion in the quarter, a 12.5% increase compared to the same period the previous year. The company attributed this success to revenue initiatives such as cracking down on password sharing, introducing an ad-supported tier, and implementing recent price hikes on certain subscription plans.
The streaming giant anticipates first-quarter revenue to be around $9.24 billion, aligning closely with consensus expectations of $9.28 billion. Despite slightly missing estimates for earnings per share (EPS) in the fourth quarter, reporting $2.11 against the consensus of $2.20, Netflix projects first-quarter EPS of $4.49, exceeding the consensus calls for $4.09.
Profitability metrics also showcased strength, with operating margins at 16.9% for the fourth quarter and 21% for the full year 2023, surpassing the company’s 20% target. Free cash flow reached $1.58 billion in the quarter, exceeding consensus calls of $1.26 billion, and the full-year 2023 free cash flow was raised to $6.9 billion, surpassing the guided $6.5 billion.
Average revenue per member (ARM) increased by 1% year-over-year, consistent with the company’s expectation of being “roughly flat year-over-year.” Netflix anticipates a potential uptick in ARM later this year as the effects of the ad tier and price hikes take hold.
Netflix reported a significant uptick in ad-tier memberships, increasing by nearly 70% quarter over quarter. The ad-supported plan now constitutes 40% of all Netflix sign-ups in the markets where it is offered, with over 23 million monthly active users as of the latest update.
While reaffirming plans to spend $17 billion on content next year, Netflix expressed disinterest in acquiring linear assets and downplayed the impact of further mergers and acquisitions in the traditional entertainment sector. Despite acknowledging fierce competition, the company emphasized its commitment to continually improving its entertainment offering, even as some competitors reduce content spending.
In a strategic move, Netflix announced a groundbreaking 10-year partnership with TKO Group Holdings’ WWE (TKO), bringing WWE’s flagship program Raw to the streaming service starting January 2025. This collaboration marks Netflix’s foray into live sports entertainment, departing from traditional linear television. The deal, reportedly valued at more than $5 billion, underscores Netflix’s commitment to innovation and expansion.
In a separate development, Netflix revealed that Scott Stuber, the Chief of Netflix Films, is set to exit his position in March.
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