Why Netflix stock rose so much today

netflix (NASDAQ:NFLX) continued its strong performance, posting a fourth quarter of subscriber growth for the sixth straight quarter.

Netflix reported a significant increase in sales and profits this quarter and predicted that it will be even more profitable in the near term. As a result, the company’s shares rose about 13% to $558 per share in Wednesday morning trading.

Most net new subscribers since pandemic

Netflix’s subscriber count has increased since it added a cheaper, ad-supported tier in November 2022. This growth has been particularly strong since the company cracked down on password sharing in May.

In fact, the fourth quarter was the best quarter for net new subscriber additions since the pandemic began. That’s because Netflix added 13.1 million subscribers in the quarter compared to the third quarter. Additionally, Netflix has 260 million paid subscribers, 12.8% more than in the fourth quarter of 2022.

Over the past three quarters, and since the password sharing crackdown, Netflix has added 5.9 million subscribers, 8.8 million subscribers, and 13.1 million subscribers, for a total of just under 28 million. Additionally, we have recorded six consecutive quarters of net new subscriber growth since the third quarter of 2022, when the advertising tier was launched.

“So we are very pleased with our engagement trends both domestically and globally. This is really the story of the transition from linear TV to streaming,” said Theodore Sarandos, co-CEO, president and director, on the earnings call. “Our engagement is slightly influenced by paid sharing. Imagine having fewer households using the same account. So if those people can spin out and have their own accounts and convince them with our programming, it will normalize and continue to grow.”

More subscribers mean more revenue for Netflix, as its revenue has posted five straight quarters of quarterly growth, reaching $8.8 billion in the fourth quarter, up 12.5% ​​year-over-year. Sales increased due to an increase in subscribers and an increase in the prices of basic and premium plans.

The company’s net income was $938 million, or $2.11 per share, up from $55 million in the fourth quarter of 2022. However, while Netflix’s revenue topped revenue estimates, foreign exchange remeasurements in the fourth quarter of 2020 resulted in net income falling short of $239 million. Euro debt.

Will grow further in the future

Netflix expects another strong performance in the first quarter of 2024, with sales expected to be $9.2 billion (up 13% year-over-year) and net profit of $1.98 billion (up from $1.3 billion in the first quarter of 2023) for the quarter. there is. .

In fiscal 2024, the company expects double-digit revenue growth and continued membership growth, with the goal of making advertising a more viable revenue stream, providing more consistent and consistent revenue.

Co-CEO Gregory Peters said Netflix now has 23 million monthly active users (MAUs) on its ad-supported tier, up about 70% from the previous quarter. Ad-supported plans currently account for about 40% of available new subscriptions, and Peters sees this continuing to grow.

“There is no magic MAU number, but I think it is fair to say that we still have plenty of room to grow in all the markets we operate in,” Peters said.

At the same time, Netflix is ​​phasing out its basic plan, so the goal appears to be to move more people to the advertising tier while maintaining its standard and premium packages.

Netflix is ​​also looking to beef up its live events roster. Those plans received a boost Tuesday when the company announced a partnership with WWE and TKO Group Holdings (NYSE:TKO). rawOn Netflix starting in 2025.

“WWE Raw It is sports entertainment that fits right into the sweet spot of our sports business, the drama of sports. Think of this as weekly, or 52 weeks of live programming each year. This satisfies our desire to expand our live event programming,” Sarandos said on the call.

Netflix is ​​trading at about 40 times earnings with a forward price-to-earnings ratio of 30, so its valuation is decent considering its growth potential.