Netflix (NFLX -0.63%) was surging this week after the streaming stock dazzled investors in its fourth-quarter earnings report, posting strong subscriber growth and offering bullish guidance for the coming year.
The report showed that Netflix had put earlier concerns about hitting a wall in subscription growth fully behind it. According to data from S&P Global Market Intelligence, the stock was up 14% from last week as of 2:30 p.m. ET on Thursday.
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Netflix shines in Q4
Netflix left investors with little doubt that its recent moves, such as adding an advertising tier, cracking down on password sharing, and launching new categories like gaming, were paying off. The streamer also announced a new partnership with the WWE, pleasing investors and representing a significant foray into live sports.
And the fourth-quarter numbers were strong. Netflix posted record Q4 subscriber additions at 13.1 million, which was driven by its new advertising tier and paid sharing. Netflix said that 40% of sign-ups in its ads markets were for the ad tier, and it's considering retiring its lowest-cost ad-free plan in some countries in order to drive more spending to the ad tier.
Subscriber growth was also broad-based, with each of its four regions adding at least 2 million subscribers in the quarter. In the EMEA (Europe, Middle East, and Asia) region, it added 5 million.
Renewed subscriber growth and higher prices also helped drive revenue higher. Revenue rose 12.5% to $8.83 billion, and the company expects revenue growth to accelerate into the first quarter, calling for 13.2% growth in the current quarter.
The company also lifted its operating margin guidance for 2024, saying it now expects 24% operating margin this year, compared to an earlier range of 22% to 23%. That also represents an increase from 21%, which shows that investors should see another solid increase in profits in 2024.
Netflix passes the test
In addition to the strong fourth-quarter results, Netflix has also reasserted its competitive advantages in the industry. Its massive audience, which has now reached 260 million subscribing households, is appealing to partners like the WWE and Rockstar Games, whose Grand Theft Auto: The Trilogy is now available on Netflix. That reach is also appealing to independent creators and has made Netflix a preferred buyer for licensed content, which is on the rise as legacy media companies have struggled to launch their own streaming services.
Meanwhile, the ad business is also a clear success and gives Netflix another lever to pull to grow revenue. While the company won't add 13 million subscribers every quarter, it's clear that its growth days are far from over, and the leverage in its subscription model should help drive margins higher as it continues to grow.
