If there was ever a time for Netflix (NFLX 2.12%) to prove mortal, it should've been during Tuesday afternoon's fourth-quarter report. The arrival of Disney's (DIS -1.62%) new streaming service midway through the quarter gave the leading streaming service its biggest challenger to date. Netflix's own forecasts were also called into question since it had fallen short of its subscriber guidance in the two previous quarterly outings. 

Netflix came through in a major way this week. Tuesday afternoon's earnings release won't technically be called a blowout quarter, as the imperfections were everywhere. Year-over-year revenue growth slowed after back-to-back quarters of acceleration. Operating margin contracted sequentially at a clip more severe than Netflix had been suggesting three months earlier. Free cash flow was a 10-digit hole. Domestic growth has slowed to a crawl. However, Netflix came out swinging in the areas where it really needed a hit -- and things should get better from here. 

The cast of Sense 8 raising a glass as a toast.

Image source: Netflix.

Chill factor

Netflix was targeting 7.6 million global streaming paid net additions for the fourth quarter, and it managed to come through with 8.76 million more accounts than it had had at the end of September. It's true that the lion's share of the gains -- 8.21 million of those net additions -- came from outside of its U.S. and Canada markets. Netflix didn't survive Disney+ just because it topped its guidance. Disney+ had more subscribers in its first day of service -- 10 million -- than Netflix tacked on through the entire quarter. It still feels good to see Netflix with more than 167 million paid subscribers at this point. Every quarter that Netflix grows, it becomes less likely that someone will catch up.

It's not problematic that Netflix has grown its North American subscriber base by only 5% over the past year. Average revenue per user in the territory is actually up 17% over the past year following the springtime price increase that was the largest hike in its history. The average revenue-per-user comparisons will get harder once we lap next quarter's rate increase, especially since a price increase in 2020 doesn't seem likely. This isn't a deal breaker, especially because even Netflix concedes that the stateside slowdown in subscriber growth is partly the result of last year's beefier pricing. 

Another encouraging sign is that Netflix is considering offering annual plans at a discount, something it tested out in India late last year. A big reason for the success that Disney+ had out of the gate was that it approached some of the company's biggest brand buffs -- theme park pass members, Disney credit card holders, and D23 fan club subscribers -- to buy as many as three years in advance at a healthy discount. It also struck a deal with a major wireless carrier to offer a year of service. Netflix can benefit greatly by locking its current users into longer terms than its current month-to-month plan. Given the onslaught of new services, why wouldn't Netflix want to keep everybody locked in for as long as possible?

Netflix has been a top stock over the long haul, but the shares are now trading lower than they were a year ago. The fourth quarter wasn't perfect, but it was a period in which Netflix exceeded its own guidance across most of its forecast metrics, and that's as good a sign as any that the old Netflix the market knows and loves is back.