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Netflix Delivers Stellar Subscriber Growth

Posted on Thursday, Jan 21st 2021

Earlier this week, Netflix (Nasdaq: NFLX) reported its fourth-quarter performance that surpassed all market expectations. The significant increase in its subscriber base helped the stock soar. In the after-hours trading session, the stock climbed an impressive 12%.

Netflix’s Financials

Netflix’s Q4 revenues grew 31% to $6.64 billion, ahead of the Street’s forecast of $6.63 billion. Average revenue per subscriber grew 9%. EPS was $1.19, behind the market’s forecast of $1.36.

During the quarter, it added 20%, or 8.51 million subscribers, compared with 6.03 million paid subscribers that it had expected to add. The market was expecting it to add 6.5 million net new subscribers. Netflix now has over 203.7 million paid subscribers worldwide growing 37 million over the year.

For North America, Q4 revenue was $3 billion with paid memberships of 73.9 million. It added 860,000 new customers in the US and Canadian markets despite a price hike. Europe, Middle East, and Africa revenue was $2.1 billion driven by a net addition of 4.5 million subscribers to end the quarter with 66.7 million paying customers. Latin America revenue was $789 million from 37.5 million paid members, with net addition of 1.2 million subscribers. Asia-Pacific revenue was $685 million from 25.5 million subscribers, recording a growth of 2 million net subscribers.

Netflix ended the year with revenues growing to $25 billion compared with $20.16 billion a year ago. EPS increased to $6.08 for the year compared with $4.13 last year.

For the first quarter, Netflix forecast earnings of $2.97 per share on revenue of $4.1 billion. The market was looking for revenues of $7.02 billion for the quarter with an EPS of $2.10.

Netflix’s Offering Improvement

During the quarter, it continued to improve its parental controls, giving families more control over their experience. The enhancements include the ability to filter out content based on maturity level or title, the ability to create PIN to lock the profile, and the ability to customize autoplay. It also extended parental control support to downloads and provided parents with greater transparency into the themes, characters, and content of the programs watched by their children. Netflix now offers a Kids Activity Report, that is a dashboard that keeps parent informed of the content that is being watched.

To help viewers select the content they want to watch, it released its Top 10 lists across the world. It also introduced the New and Popular tab on the television interface and added a Worth to Wait section that emphasizes titles that are yet to be released as far as a year away. It plans to roll out a feature later this year that will allow members to instantly get connected to something to watch, instead of scrolling through all of its options.

It also continues to add to its content library, especially with original content. During the quarter, it released season four of the critically acclaimed The Crown which was the biggest season so far. More than 100 million viewers have watched this series since its initial launch. Late last year, it also released its first original series from Shonda Rhimes, Bridgerton, which has also earned positive reviews. Within films, it released its largest film of the quarter, The Midnight Sky, starring and directed by George Clooney. 43 million households watched the movie within the first 4 weeks of its release.

Besides English language content, it continued to add local language hits. It released Barbarians, a historical action series from Germany; Sweet Home, a Korean language horror show, Selena: The Series for Mexico, and Alice in Borderland, a sci-fi thriller from Japan.

Netflix recognizes that competition from other streaming services is growing. Disney, WarnerMedia, Amazon, and Apple have all been adding significant content. Disney recorded more than 87 million paid subscribers in its first year itself. But Netflix believes that by offering impressive content, it can continue to remain the preferred streaming service for the masses.

Its stock is trading at $497.98 with a market capitalization of $221.7 billion. It hit a 52-week high of $575.37 in July. The stock had fallen to a 52-week low of $290.25 in March last year.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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