Why Netflix stock price rose to its highest in two years today

Shares of Subscription Streaming Services netflix (NFL 12.64%) jumped to a two-year high on Wednesday after the company reported its full-year 2023 financial results. The company ended the year with significant growth and higher-than-expected profits. That’s why Netflix stock is up 12% as of 11:20 a.m. ET.

Netflix’s Year of Huge Rebound

In late 2022, Netflix introduced an ad-supported subscription tier. And in mid-2023, it cracked down on users sharing passwords. Both moves appear to have fueled incredible user growth. It ended 2023 with 260 million paid memberships, an increase of nearly 30 million from the end of 2022. For perspective, 2022 added less than 10 million new memberships.

Thanks to its high membership base and operating discipline, Netflix’s profits have soared. The company recorded an annual operating margin of 21% in 2023, a meaningful increase from its 18% operating margin in 2022. Moreover, free cash flow surged from $1.6 billion in 2022 to a whopping $6.9 billion in 2023.

For a company as mature and large as Netflix, these are impressive numbers and explain why the market welcomed the report.

The outlook for 2024 is also good.

Of course, investors are also enthusiastic about Netflix’s 2024 outlook. The company expects first-quarter sales to increase more than 13% year over year, its best quarterly growth rate since the fourth quarter of 2021. This year’s operating profit margin is expected to be 24%. As you can see in the chart below, margins have never been this high over the past 12 months.

NFLX Revenue (TTM) data from YCharts

Netflix’s ability to escape the slump with new growth is certainly impressive. And the company’s margins are actually reaching incredible levels. So it’s understandable that the stock is hitting a two-year high today. And this story may not be over yet, as profitability allows it to invest in additional growth opportunities.