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Netflix (NFLX 1.33%) Shares rose 8.6% in after-hours trading on Tuesday after the video streaming giant released its 2023 fourth-quarter report.
Investor’s positive reaction was driven by quarterly revenue and net paid subscriber additions that exceeded Wall Street consensus estimates, as well as Q1 2024 revenue guidance that well exceeded analyst expectations. It is caused by Here, we provide an overview of Netflix’s fourth quarter and its outlook, focusing on six key metric categories.
1. Revenue increased by 12.5%
Netflix’s quarterly revenue was $8.83 billion, an increase of 12.5% year over year (13% excluding the impact of currency fluctuations). The results beat Wall Street’s consensus estimate of $8.72 billion and the company’s guidance.
Revenue growth was primarily driven by an increase in average paid subscriptions, with 1% increase in average revenue per subscription also contributing to growth. The company attributed its solid revenue growth to its paid subscription sharing services (part of its password sharing crackdown), recent pricing changes, and overall business strength.
2. Number of net paid subscribers increased by 13.1 million
Net paid subscriber growth in the fourth quarter was 13.1 million, up from 7.7 million in the year-ago period and up from 8.8 million in the prior quarter. The result crushed the expectations of 8.7 million analysts. Netflix ended the third quarter with 260.3 million paid subscribers worldwide, an increase of 13% year over year.
Netflix has added paid channels to all four regions, including the US/Canada region, which is even more difficult due to the company’s high penetration rate. It acquired 2.8 million new paying members in the region, bringing the total to 80.1 million.
3. Operating profit increased by 172%
Fourth-quarter operating income increased 172% year-over-year to $1.5 billion, and operating margin (operating income divided by sales) rose from 7% to 16.9%. Operating results significantly exceeded management’s guidance for an operating margin of 13%. The company attributed this turnaround to higher-than-expected revenue and lower-than-planned spending.
4. EPS soared 1,658%
Net income for the quarter was $938 million, or $2.11 per share, an increase of 1,658% from the same period last year. This result was below the $2.22 earnings per share (EPS) that analysts had expected. The company’s guidance of $2.15 was also slightly missed. However, net income decreased by $239 million compared to the previous year. other than cash Unrealized loss due to foreign exchange remeasurement of the company’s euro-denominated debt.
5. Operating cash flow skyrocketed by 275%
In the fourth quarter, cash provided by operating activities soared to $1.66 billion, an increase of 275% year over year. Free cash flow was $1.58 billion, compared with $332 million in the year-ago period. Netflix ended the quarter with $7.12 billion in cash and $14.14 billion in long-term debt.
6. Management expects 13.2% revenue growth in Q1 2024
Guidance for Q1 2024:
- Sales growth was 13.2% year over year (16% excluding currency effects), slightly lower than the 14% growth expected by analysts.
- Paid subnet additions were down QoQ (reflecting seasonality and potential from strong Q4 2023 results), but up 1.8 million YoY.
- Operating profit margin was 26.2% (21% in the same period last year).
- EPS was $4.49, representing 56% year-over-year growth. This forecast beat Wall Street’s estimate of $4.10.
Outlook for full year 2024:
- “Healthy double-digit revenue growth… with currency fluctuations [foreign-exchange] Neutral foundation driven by continued membership growth and improvements in F/X neutral ARM [average revenue per membership]” according to a letter to shareholders.
- “Strong growth” with a new low-cost ad-supported subscription tier that began rolling out in November 2023. However, the company does not expect this business to be a significant driver of overall revenue growth through 2025.
- Assuming no currency fluctuations, free cash flow would be approximately $6 billion.
In short, Netflix ended 2023 on a strong note, and its outlook suggests it enters 2024 with solid momentum.
Beth McKenna has no position in any stocks mentioned. The Motley Fool has a position in and recommends Netflix. The Motley Fool has a disclosure policy.
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