Netflix (NFLX) said Tuesday that subscriber growth surged in the fourth quarter, beating its own forecast and sending shares up as much as 14% in early trading Wednesday.
The subscriber gain of 13.12 million exceeded Netflix's own forecast of about 9 million, with net gain for full-year 2023 coming in at around 30 million. The company added 7.67 million paying users in the fourth quarter of 2022.
Revenue beat Wall Street estimates of $8.71 billion and reached $8.83 billion in the quarter, up 12.5% from the same period last year, as the streamer additionally relied on revenue initiatives like its Crackdown on password sharing and ad-supported plans was based on recent price increases on certain subscription plans.
Netflix forecast first-quarter revenue of $9.24 billion, roughly in line with consensus expectations of $9.28 billion.
Earnings per share (EPS) fell slightly short of estimates in the quarter. The company reported earnings per share of $2.11, below consensus expectations of $2.20. The company reported earnings per share of $0.12 in the same period last year.
Still, Netflix forecast first-quarter earnings per share of $4.49, beating consensus estimates of $4.09.
Profitability metrics also performed well, with operating margins at 16.9% in the fourth quarter and 21% for full-year 2023, above the company's 20% target.
Free cash flow was $1.58 billion for the quarter, beating consensus expectations of $1.26 billion. The company grew its full-year 2023 free cash flow to $6.9 billion, beating Netflix's $6.5 billion forecast given the impact of last year's twin Hollywood strikes.
Average revenue per member (ARM) increased 1% year-over-year, meeting the company's expectations of “roughly flat year-over-year.” Wall Street analysts expect ARM to rally later this year as both the impact on ad levels and price increases are felt.
In the advertising space, ad-level memberships increased nearly 70% compared to the previous quarter, the company said in its earnings release. The ad plan now accounts for 40% of all Netflix subscriptions in the markets where it is offered.
The story goes on
Earlier this month, Netflix announced that its ad tier had surpassed 23 million monthly active users, up 8 million from its November update.
It is important to note that monthly active users, also known as MAUs, are not the same as paying subscribers. The company has not yet disclosed actual subscriber numbers for the ad tier or how much revenue it has generated so far. MAUs can include multiple people using the same account.
The company said it still expects to spend $17 billion on content next year – but it doesn't expect it to be a big M&A buyer, particularly when it comes to linear assets.
“We are not interested in acquiring linear assets,” the company said in the earnings release. “We also do not believe that further mergers and acquisitions between traditional entertainment companies will significantly improve the competitive environment given the consolidation that has already occurred over the last decade (Viacom/CBS, AT&T/Time Warner, Disney/Fox, Time Warner/Discovery, etc.). will change.).”
However, Netflix said competition remains fierce, which is why it is “so important to continue to improve our entertainment offering, and as many of our competitors reduce their content spending, we continue to invest in our offering.”
Earlier Tuesday, Netflix and TKO Group Holdings' WWE (TKO) announced a new partnership that will bring WWE's flagship program Raw to the streaming service beginning in January 2025.
The 10-year deal marks Netflix's first major entry into the world of live sports entertainment, while Raw will exit linear television for the first time since its launch 31 years ago. The show currently airs on NBCUniversal's USA Network and attracts 17.5 million unique viewers annually, according to the companies.
Although the financial details of the deal were not disclosed, multiple reports stated that the deal is worth more than $5 billion.
Separately, the company announced late Monday that Netflix film chief Scott Stuber will step down in March.
The number of Netflix subscribers rose sharply in the fourth quarter of 2023. (Getty Images) (Wachiwit via Getty Images)
Click here for the latest stock market news and in-depth analysis, including stock-moving events
Read the latest financial and business news from Yahoo Finance