Netflix Beats Q4 Subscriber Growth Target, But Mixed Financial Results Reflect Challenging Environment – Deadline

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Netflix beat forecasts for subscriber gains for the fourth quarter and also edged revenue estimates, but pressure on earnings per share reflected broader challenges in the streaming business.

The company added almost 7.7 million subscribers during the fourth quarter, reaching 230.75 million globally. That was well ahead of Wall Street guidance of almost 4.6 million new customers and within sight of the stellar 8.3 million added in the year-ago quarter. Revenue came in at $7.82 billion, up just 2% from the same period in 2021 and a hair below Wall Street analysts’ consensus expectation for $7.85 billion. Earnings per share of 12 cents were well below the forecast of 45 cents and down from $1.33 a year ago.

Along with the stats, the company announced that co-founder Reed Hastings would be passing the Co-CEO baton to Greg Peters. Hastings will become executive chairman. Peters had headed up product for Netflix before adding the chief operating officer title and then steering the company’s entry into advertising last fall. TV chief Bela Bajaria and film head Scott Stuber also have earned promotions and new titles, the company said.

Netflix had projected adding 4.5 million subscribers in the period, an eventful one even by the standards of the company. The streaming giant released a number of widely viewed series and films during the period, including Harry & Meghan, Wednesday and Glass Onion: A Knives Out Mystery. On the last title, Netflix also departed from precedent and forged a one-week exhibition deal for Glass Onion with top theater circuits AMC, Regal and Cinemark, collecting about $13 million from a little more than 600 theaters.

Also last November, the new $7-a-month ad tier launched, giving Netflix a way to manage its maturing business, especially in its home territory of the U.S. At a moment when U.S. consumers are cutting back due to inflation and other economic pressures, Netflix has championed the new subscription level as a way for it to continue growing. They insist it will not cannibalize the existing subscription business.

Shares in Netflx, which went on a wild ride in 2022 as the company posted historic subscriber losses and made an abrupt decision to enter the advertising business, responded well to the earnings report. After selling off in the closing minutes of the trading day, shares rose almost 6% in after-hours trading.

As previously announced, the company did not offer subscriber guidance for the current first quarter of 2023, but offered a detailed forecast of financials, especially in light of plans to ramp up efforts to capture revenue from password sharing.

The company said in its quarterly letter to shareholders that revenue will grow 4% to $8.17 billion (or 8% growth when foreign currency fluctuations are discounted). The revenue growth will be due to “a combination of year over year growth in average paid memberships and [average revenue per member],” the letter said. “This translates into modest positive paid net adds in Q1 ‘23” compared with a decline of about 200,000 subscribers in that grim first quarter of 2022.

The slowdown in subscriber growth from the fourth quarter of last year to the first one of this year is “consistent with normal seasonality” and also likely reflects some “pull-forward” from last fall. The company cited a similar dynamic in 2020, when it booked record growth amid the onset of Covid but then saw it drop noticeably in subsequent quarters.

The effort to get those borrowing passwords to pay up, already being tested in Latin America, will roll out more broadly later this quarter. “From our experience in Latin America, we expect some cancel reaction in each market when we roll out paid sharing,” the company said in the letter. “But as borrower households begin to activate their own standalone accounts and extra member accounts are added, we expect to see improved overall revenue, which is our goal with all plan and pricing changes.”

Netflix did not specify which markets would see the new password restrictions in the months ahead.

As far as competition, Netflix didn’t name-check any rival streamers as it has in some recent quarters. Instead, it returned to a familiar positioning from the years when it was more clearly dominant in the field, maintaining that it competes not only with linear TV but also with YouTube, TikTok and video games.

“It’s not easy to build a large and profitable streaming business,” the shareholder letter said. “But we’re competing from a position of strength, as we lead the industry in terms of engagement, revenue and streaming profit. As a pure-play streaming company, we’re also not anchored to shrinking legacy business models, like traditional entertainment firms, allowing us to lean hard into the big growth opportunity ahead of us.”

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