What happened
The results are in and Netflix (NFLX -0.20%) is a winner.
Shares of the original streaming stock tacked on 6.9% through 11:20 a.m. ET after the company missed analyst predictions for earnings last night, but met revenue expectations and delivered more subscribers than expected -- 231 million as of the end of the year. For the fourth quarter of 2022, Netflix earned only $0.12 per share instead of the expected $0.45, while revenue was $7.85 billion.
Also, Reed Hastings is retiring from his job as CEO to become simply executive chairman. (Ted Sarandos and Greg Peters will be co-CEOs from here on out.)
So what
Netflix may have missed analyst forecasts for Q4, but management was still pleased as punch with itself, noting that "Q4 '22 revenue, operating profit and membership growth exceeded our forecast" -- not that said forecast was particularly aggressive.
As it turned out, sales grew less than 2% year over year in Q4, the company's operating profit margin slipped to just 7%, and per-share profits plunged 91%. On the plus side, Netflix generated $332 million in positive free cash flow (FCF) for the quarter, versus $569 million in negative free cash flow a year ago.
For all of 2022, Netflix collected $31.6 billion in revenue -- up 6% from 2021. Operating profit margin for the year was 17.8% -- down 310 basis points from 2021. Earnings per share declined 11% to $9.95. But again, free cash flowed strongly. Netflix generated positive free cash flow of $1.6 billion in 2022, versus about $132 million in negative free cash flow in 2021.
Now what
And Netflix plans to report more good news in the new year.
Initially, the improvements should be modest -- just 4% revenue growth and a few more subscriber additions in the first quarter of 2023. Long-term, however, Netflix still aims to return to double-digit revenue growth, get its operating profit margin growing again, and thus grow its free cash flow. Indeed, for the full year 2023, management is targeting $3 billion in positive free cash flow -- or more -- which implies a one-year growth rate approaching 100%.
What does this mean for investors? Short-term, things seem to be going pretty well. But assuming Netflix hits its target, at $150 billion in market capitalization, the stock will still be valued at about 50 times free cash flow. That's not exactly cheap. It wouldn't be cheap even if Netflix merely resumes growing in the double-digit-percentage range.
But for folks thinking Netflix can maintain anywhere near the 100% FCF growth rate it is promising for 2023 -- long term -- Netflix stock may finally be looking attractive again.
