Netflix Surpasses Forecasts with 13.1M New Subscribers

Key Takeaway

• Netflix surpassed Q4 subscriber growth forecasts with 13.1 million new subscribers, driving a 26% stock increase for the year.
• Projects Q1 revenue of $9.24 billion and $4.49/share profit; analysts anticipate further growth with a focus on revenue over subscriber numbers.
• Expansion into live sports and strategic initiatives like password sharing crackdown and ad-supported tiers fuel optimism despite tech sector volatility.

Subscriber Growth Surges

Netflix has experienced a significant uptick in subscriber numbers, adding a net 13.1 million subscribers in the fourth quarter, surpassing the 8.7 million forecast. This growth is attributed to the company's strategic initiatives, including the crackdown on password sharing and the introduction of an ad-supported subscription tier. These moves have positioned Netflix as a leader in the video-streaming market, with a 26% increase in stock value for the year as of the close on Wednesday. The company's total subscribers reached a record 260.8 million, marking a 12% increase from 2022.

Financial Performance and Projections

For the first quarter, Netflix projects revenue of $9.24 billion, a 13.2% increase from the previous year, and profits of $4.49 a share. These figures slightly differ from Wall Street consensus estimates, which anticipate revenue of $9.27 billion and a profit of $4.51 a share. The company has shifted its focus from providing specific guidance on subscriber growth to emphasizing revenue growth as its primary metric for assessing growth. Analysts expect Netflix to add 4.88 million subscribers in the first quarter, nearly triple the 1.75 million added in the same period last year.

Analysts' Perspectives

Analysts have varied expectations regarding Netflix's performance. Evercore ISI’s Mark Mahaney maintains an Outperform rating with a $640 target price, citing optimism among institutional investors for subscriber growth. Oppenheimer's Jason Helfstein, also with an Outperform rating, believes the crackdown on password sharing will have a lasting impact, estimating that only 20% of potential subscribers have been converted so far. Piper Sandler’s Matt Farrell expresses caution, maintaining a Neutral rating but raising his price target to $600 from $550, concerned that high expectations might lead to a critical assessment of the earnings results. Cit’s Jason Bazinet, holding a Neutral rating, highlights investor interest in Netflix's capital allocation and potential acquisitions, particularly in bolstering its IP portfolio or expanding into video games.

Expansion into Live Sports and Market Sentiment

Netflix's agreement to broadcast WWE's "Raw" starting in 2025 marks a significant step into live-streaming entertainment, potentially influencing subscriber growth and share price. However, the company faces a challenging market environment, with recent retreats from all-time highs in the technology sector and increased US bond yields. This backdrop adds uncertainty to the outlook for Netflix's earnings and its impact on the broader tech market.

Street Views

• Mark Mahaney, Evercore ISI (Neutral on Netflix):

  "Limited confidence as to whether this range is beatable."

• Jason Helfstein, Oppenheimer (Bullish on Netflix):

  "Paid sharing push... will have a longer tail than initially believed."

• Matt Farrell, Piper Sandler (Neutral on Netflix):

  "While [we] acknowledge Netflix has proven itself to be the clear leader in streaming, we would prefer for a pullback in order to get more constructive."

• Jason Bazinet, Cit (Neutral on Netflix):

  "We expect share repurchases to continue throughout 2024 but also would not be surprised if the firm considered incremental M&A to either bolster its IP portfolio or move deeper into video games."