Netflix (NFLX 0.45%) stock gained 8.6% in Tuesday's after-hours trading session following the video streaming leader's release of its fourth-quarter 2023 report.
Investors' positive reactions are attributable to the quarter's revenue and net paid subscriber additions surpassing Wall Street's consensus estimates, along with bottom-line guidance for the first quarter of 2024, easily exceeding analyst expectations. Here is an overview of Netflix's fourth quarter, along with its outlook, centered on six key metric categories.
1. Revenue jumped 12.5%
Netflix's quarterly revenue grew 12.5% year over year (and 13% in constant currency) to $8.83 billion. This result exceeded the $8.72 billion Wall Street consensus estimate, as well as the company's guidance.
Revenue growth was primarily driven by the increase in average paid subscriptions, with a 1% rise in average revenue per subscription also contributing to growth. The company attributed the robust top-line growth to its paid-subscription-sharing offering (part of its password-sharing crackdown), its recent price changes, and the strength of its business in general.
2. Paid net subscriber count soared by 13.1 million
In Q4, paid net subscriber growth was 13.1 million, up from 7.7 million in the year-ago quarter and up from 8.8 million in the prior quarter. This result crushed the 8.7 million analysts were expecting. Netflix ended the quarter with 260.3 million global paid subscribers, up 13% year over year.
Netflix added paid subs in all four of its regions, including in its U.S./Canada region, which is more difficult to do because of the company's high penetration rate. It gained 2.8 million new paid subs in this region, bringing its total to 80.1 million.
3. Operating income surged 172%
In Q4, operating income increased 172% year over year to $1.50 billion, translating to the operating margin (operating income divided by revenue) rising from 7% to 16.9%. Operating results were notably better than management's guidance for an operating margin of 13%. The company attributed this beat to the stronger-than-expected revenue and its lower-than-planned spending.
NASDAQ: NFLX
Key Data Points
4. EPS soared 1,658%
The quarter's net income was $938 million, or $2.11 per share, up 1,658% from the year-ago period. This result missed the earnings per share (EPS) of $2.22 that analysts had forecast. It also fell a bit short of the company's guidance of $2.15. That said, net income was reduced by $239 million from a non-cash unrealized loss from foreign-exchange remeasurement on the company's euro-denominated debt.
5. Cash flow from operations rocketed up 275%
In Q4, cash generated from operations rocketed 275% year over year to $1.66 billion. Free cash flow was $1.58 billion, compared with $332 million in the year-ago period. Netflix ended the quarter with $7.12 billion in cash and $14.14 billion in long-term debt.
6. In Q1 2024, management expects revenue growth of 13.2%
First-quarter 2024 guidance:
- Revenue growth of 13.2% year over year (and 16% in constant currency), slightly lower than the 14% growth analysts had been projecting.
- Paid net sub additions down sequentially (reflecting seasonality as well as possible pull forward from the strong Q4 2023 results) but up year over year by 1.8 million.
- Operating margin of 26.2% versus 21% in the year-ago period.
- EPS of $4.49, which translates to growth of 56% year over year. This forecast topped Wall Street's expectation of $4.10.
Full-year 2024 guidance:
- "Healthy double-digit revenue growth ... on a F/X [foreign-exchange] neutral basis driven by continued membership growth as well as improvement in F/X-neutral ARM [average revenue per membership]," according to the shareholder letter.
- "Strong growth" from the new lower-priced ad-supported subscription tier, which began rolling out in November 2023. However, the company doesn't expect this business to be a significant driver of its overall revenue growth until 2025.
- Free cash flow of about $6 billion, assuming no material swings in F/X.
In short, Netflix ended 2023 on a strong note, and its outlook suggests it has entered 2024 with solid momentum.
