Netflix (NFLX) said Tuesday that its fourth quarter subscriber additions surged, topping its own forecast and sending its stock as much as 14% higher in early trading on Wednesday.
The subscriber additions of 13.12 million beat Netflix's own forecast of about 9 million with full-year 2023 net additions sitting at roughly 30 million. The company had added 7.67 million paying users in Q4 2022.
Revenue beat Wall Street estimates of $8.71 billion to hit $8.83 billion in the quarter, an increase of 12.5% compared to the same period last year, as the streamer leaned on revenue initiatives like its crackdown on password sharing and ad-supported tier, in addition to the recent price hikes on certain subscription plans.
Netflix guided to first quarter revenue of $9.24 billion, roughly on par with consensus expectations of $9.28 billion.
Earnings per share (EPS) slightly missed estimates in the quarter with the company reporting EPS of $2.11, below consensus expectations of $2.20. The company reported EPS of $0.12 in the year-ago period.
Still, Netflix guided to first quarter EPS of $4.49, ahead of consensus calls for $4.09.
Profitability metrics also came in strong with operating margins sitting at 16.9% for the fourth quarter and 21% for full-year 2023, ahead of the company's 20% target.
Free cash flow came in at $1.58 billion in the quarter, above consensus calls of $1.26 billion. The company increased its free cash flow to $6.9 billion for full-year 2023 ahead of Netflix's guidance of $6.5 billion amid the impact of last year's double Hollywood strikes.
Average revenue per member, or ARM, was up 1% year over year, in line with the company's expectations of "roughly flat year-over-year." Wall Street analysts expect ARM to pick up later this year as both the ad tier impact and price hike effects take hold.
On the ads front, ad-tier memberships increased by nearly 70% quarter over quarter, the company said in the earnings release. The ads plan now accounts for 40% of all Netflix sign-ups in the markets it's offered in.
Earlier this month, Netflix said the ad tier has surpassed 23 million monthly active users, up 8 million from its November update.
To note, monthly active users, otherwise known as MAUs, are not the same as paying subscribers. The company has yet to reveal actual subscriber figures for the ad tier or how much revenue it's 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 don't expect it to be a major M&A buyer, particularly when it comes to linear assets.
"We’re not interested in acquiring linear assets," the company said in the earnings release. "Nor do we believe that further M&A among traditional entertainment companies will materially change the competitive environment given all the consolidation that has already happened over the last decade (Viacom/CBS, AT&T/Time Warner, Disney/Fox, Time Warner/Discovery, etc.)."
Still, Netflix said the competition remains fierce, which is "why continuing to improve our entertainment offering is so important, and as many of our competitors cut back on their content spend, we continue to invest in our slate."
Earlier on 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 January 2025.
The 10-year deal marks Netflix's first big venture into the world of live sports entertainment, while Raw will be leaving linear television for the first time since its inception 31 years ago. The program currently airs on NBCUniversal's USA Network and draws in 17.5 million unique viewers a year, according to the companies.
While financial stipulations of the deal were not disclosed, multiple reports said the agreement is valued at more than $5 billion.
Separately, the company announced late Monday that Netflix film chief Scott Stuber will exit his position in March.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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January 24, 2024 at 09:59PM
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