Netflix shares rise 9% on strong fourth-quarter subscriber growth and rosy first-quarter earnings guidance

netflix (NFL 1.33%) Shares rose 8.6% in the after-hours trading session Tuesday after the video streaming leader released its fourth quarter 2023 report.

The positive response from investors was driven by quarterly revenue and net paid subscriber growth that surpassed Wall Street’s consensus estimates and first-quarter 2024 profitability guidance that easily exceeded analyst expectations. Here’s a look at Netflix’s fourth quarter overview and outlook, focusing on six key metrics categories:

1. 12.5% ​​increase in sales

Netflix’s quarterly revenue increased 12.5% ​​year over year (13% in constant currency) to $8.83 billion. The results exceeded 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 a 1% increase in average revenue per subscription also contributing to the growth. The company achieved solid top-line growth through its paid subscription sharing service (part of a password-sharing crackdown), recent pricing changes, and the strength of its overall business.

2. A sharp increase of 13.1 million paid net subscribers

Paid net subscriber growth in the fourth quarter was 13.1 million, up from 7.7 million in the same period last year and 8.8 million in the previous quarter. The results shattered expectations of 8.7 million analysts. Netflix ended the quarter with 260.3 million global paid subscribers, a 13% increase from the previous year.

Netflix has added paying subscribers in all four regions, including the US/Canada region, a task made more difficult by the company’s high penetration rate. The region added 2.8 million new paid subscribers, bringing total subscribers to 80.1 million.

3. Operating profit soared by 172%

Fourth quarter operating profit increased 172% year over year to $1.5 billion, meaning operating profit (operating profit divided by sales) increased from 7% to 16.9%. Operating performance was a notable improvement over management’s guidance for an operating margin of 13%. The company attributed this performance to higher-than-expected revenues and lower-than-planned expenses.

4. EPS surges 1,658%

Net income for the quarter was $938 million, or $2.11 per share, up 1,658% from the same quarter last year. This result missed analysts’ expected earnings per share (EPS) of $2.22. It was also slightly below the company’s guidance of $2.15. That means net income was down $239 million compared to the previous year. non-cash Unrealized losses resulting from foreign exchange remeasurement of the Company’s euro-denominated liabilities.

5. Cash flow from operations increased by 275%.

Cash generated from operations in the fourth quarter increased 275% year-over-year to $1.66 billion. Free cash flow was $1.58 billion, compared to $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 revenue growth of 13.2% in the first quarter of 2024.

Guidance for Q1 2024:

• Revenue growth was 13.2% year-over-year (16% in constant currency), slightly lower than the 14% growth analysts had expected.
• Paid net child additions declined sequentially (reflecting seasonality and likely moving forward in Q4 2023 results) but increased by 1.8 million year-over-year.
• The operating profit margin was 26.2%, higher than 21% in the same period last year.
• EPS was $4.49, which represents 56% year-over-year growth. This forecast exceeded Wall Street expectations of $4.10.

Full guidance for 2024:

• “Healthy double-digit revenue growth on a foreign exchange-neutral basis, driven by continued membership growth and improving foreign exchange-neutral average revenue per member (ARM),” shareholders said. letter.
• ‘Strong growth’ for new low-cost, ad-supported subscription tiers starting to launch in November 2023. However, the company does not expect this business to become a significant driver of overall revenue growth until 2025.
• If there is no material change in F/X, this would result in free cash flow of approximately $6 billion.

In short, Netflix finished 2023 on a strong note, and its outlook suggests it entered 2024 with solid momentum.