Video streaming giant Netflix (NASDAQ:NFLX) announced its fourth-quarter 2023 earnings, revealing earnings per share of $2.11. Despite a notable increase from the 12 cents reported in the same quarter the previous year, the figure fell short of the Consensus Estimate by 4.09%. However, the company’s revenues demonstrated a positive trend, reaching $8.83 billion, marking a 3.4% YoY increase and surpassing the consensus estimate by 1.33%.

Following the earnings announcement, shares of Netflix experienced an 8.6% surge in after-hours trading on January 23. The upward momentum was fueled by the addition of 13.12 million paid subscribers globally in the fourth quarter, coupled with a 1% rise in average revenue per subscription. Notably, the company had gained 7.66 million paid subscribers in the corresponding quarter of the previous year.

Netflix attributed its robust revenue growth to various factors, including its paid subscription-sharing offering, recent pricing adjustments, and the overall strength of its business. In October 2023, Netflix implemented price increases, with its premium ad-free plan rising to $22.99 and its one-stream basic plan increasing to $11.99.

On the advertising front, ad-tier memberships witnessed a remarkable 70% increase quarter over quarter. The ad plan now constitutes 40% of all Netflix sign-ups in the markets where it is offered. Netflix also reported that its ad tier surpassed 23 million monthly active users, marking a substantial increase from the 8 million reported in November.

Annual revenue per member (ARM) increased by 1% YoY, both on a reported basis and a foreign-exchange neutral basis in the fourth quarter. This performance defied earlier guidance of a “roughly flat year-over-year” ARM, influenced by limited price adjustments over the past 18 months and reductions in some countries in early 2023, offset by price increases in the United States, United Kingdom, and France later in the same year.

By the end of the fourth quarter, Netflix boasted a global paid subscriber base of 260.28 million, reflecting a 12.8% YoY increase. Despite facing stiff competition from companies like Amazon, Disney, and Apple, Netflix continued to thrive, credited to its diverse content portfolio.

The company acknowledged the positive impact of its intellectual property, featuring shows like “Squid Game: The Challenge,” reality shows based on its popular series, new original series such as “All the Light We Cannot See,” and feature films like “Zack Snyder’s Rebel Moon: A Child of Fire.” Additionally, strong demand for licensed titles, including “Young Sheldon,” and high viewership for the final season of “The Crown” and David Fincher’s film “The Killer,” contributed to the company’s gains.

In a significant move to diversify content and compete with rivals like Amazon and Disney, Netflix recently entered into a deal with WWE. This marks the streaming service’s entry into live events, with WWE’s Raw set to air exclusively on Netflix in the United States, United Kingdom, Canada, and Latin America.

Netflix’s shares have outperformed major competitors like Amazon, Disney, Apple, and the Consumer Discretionary sector over the past six months, returning 24.8%.

Segmental Revenue Details

United States and Canada (UCAN): Revenues of $3.93 billion, up 9.3% YoY, representing 44.5% of total revenues. Average Revenue Per User (ARPU) increased by 2.5% YoY. Paid subscribers for UCAN increased by 7.8% YoY to 80.13 million.

Europe, Middle East & Africa (EMEA): Revenues of $2.78 billion, up 18.5% YoY, accounting for 31.5% of total revenues. ARPU remained flat YoY. Paid subscribers for EMEA increased by 15.7% YoY to 88.81 million.

Latin America (LATAM): Revenues of $1.15 billion, up 13.7% YoY, contributing 13.1% of total revenues. ARPU increased by 83.6% YoY. Paid subscribers for LATAM rose by 10.3% YoY to 46 million.

Asia Pacific (APAC): Revenues of $963 million, up 12.4% YoY, representing 10.9% of total revenues. ARPU decreased by 4.9% YoY. Paid subscribers for APAC jumped by 19.3% YoY to 45.34 million.

Operating Details

Marketing expenses increased by 64.1% YoY to $916.6 million, representing 10.4% of revenues.

Operating income decreased by 21.9% YoY to $1.49 billion, with operating margin contracting by 550 basis points to 16.9%.

Balance Sheet & Free Cash Flow

Netflix reported $7.11 billion in cash and cash equivalents as of December 31, 2023, compared to $7.87 billion as of September 30, 2023.

Total debt stood at $14.54 billion as of December 31, 2023, compared to $14.3 billion as of September 30, 2023.

Streaming content obligations were $21.71 billion as of December 31, 2023, compared to $19.65 billion as of September 30, 2023.

Free cash flow for the quarter was $1.58 billion, down from $1.89 billion in the previous quarter.

Netflix repurchased 5.5 million shares worth $2.5 billion in the reported quarter.

Guidance

For Q1 2024, Netflix forecasts a 16% YoY increase in revenues on a foreign-exchange neutral basis. Earnings are projected to be $4.49 per share, reflecting a 55.9% YoY growth or 12% on a foreign-exchange neutral basis.

Total revenues are anticipated to reach $9.24 billion, marking a 13.2% YoY growth or 12% on a foreign-exchange neutral basis.

The quarterly operating margin is projected at 26.2%, compared to 21% reported in the same quarter the previous year.

Netflix expects global ARM to increase YoY on a foreign-exchange neutral basis in Q1 2024.

For the full year 2024, the company anticipates double-digit revenue growth on a foreign-exchange neutral basis, driven by rising membership and improvements in ARM.

The full-year 2024 operating margin forecast has been increased from 22%-23% to 24%, based on FX rates as of January 1, 2024. This reflects the U.S. dollar’s weakening compared to other currencies and a stronger-than-forecasted performance in Q4 2023.

In summary, while Netflix’s Q4 earnings missed estimates, the company’s YoY revenue growth, subscriber gains, and strategic content portfolio continue to position it as a major player in the highly competitive streaming market.

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