Netflix reported its fourth-quarter 2022 earnings Thursday, revealing financial performance for the three-month period during which the platform’s cheaper, ad-supported plan launched and the new Tim Burton drama “Wednesday” regularly dominated the weekly Top 10 rankings.
The streamer added 7.66 million net new subscribers in Q4, compared to its own estimation of 4.5 million additions. And Netflix ended 2022 with 230.75 million worldwide, smashing its previous target of 227.59 million. That represents 4% year over year growth in total subs, with paid memberships rising by 910,000 in the U.S. and Canada, 3.2 million throughout Europe, the Middle East and Africa, 1.76 million in Latin America and 1.8 million in the Asia-Pacific region.
In discussing its financial results for the quarter, Netflix management stated flatly that the company’s most free-spending years are behind them. The current quarter marks 10 years since Netflix up-ended the industry with the launch of original series content with the David Fincher drama series “House of Cards.”
“Now that we are a decade into our original programming initiative and have successfully scaled it, we are past the most cash intensive phase of this buildout,” Netflix wrote in its letter to shareholders. “As a result, we believe we will now be generating sustained, positive annual free cash flow going forward. Assuming no material swings in (foreign currency fluctuations), we expect at least $3B of FCF for the full year 2023.”
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Netflix reported 2.41 million net new paid subscribers in Q3, including a gain of 100,000 in the U.S./Canada region, to stand at 223.1 million worldwide as of the end of September. At that time, it advised to investors not to expect a “material” lift in subscriber growth from the ad-plan launch in Q4’s results.
In the shareholder letter, Netflix wrote, “2022 was a tough year, with a bumpy start but a brighter finish. We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering. As always, our north stars remain pleasing our members and building even greater profitability over time.”
Aside from the big news it had blown its own subscriber estimates away, Netflix revealed an even bigger bombshell in the Q4 financial update: Reed Hastings is stepping down as co-CEO. He will remain executive chairman of the company, while Ted Sarandos, currently co-CEO and chief content officer, and Greg Peters, chief product officer and formerly COO, will now serve as co-CEOs. Netflix’s top two content executives — Bela Bajaria and Scott Stuber — also received promotions to chief content officer and film chairman, respectively.
For the fourth quarter, Wall Street forecast earnings per share (EPS) of 45 cents on $7.85 billion in revenue, according to analyst consensus data provided by Refinitiv. On Thursday, Netflix reported diluted EPS of 12 cents, or $55 million net profit, on $7.85 billion in revenue.
While revenue was up 1.9% year over year, the company’s profit for Q4 came in well bellow Netflix’s own projection of 36 cents per share. The streamer attributed that to “a $462 million non-cash unrealized loss from the F/X remeasurement on our Euro denominated debt as a result of the depreciation of the U.S. dollar vs. the Euro during Q4 ’22.”
Free cash flow was at $332 million. Netflix noted. “Now that we are a decade into our original programming initiative and have successfully scaled it, we are past the most cash intensive phase of this buildout. As a result, we believe we will now be generating sustained, positive annual free cash flow going forward. Assuming no material swings in F/X, we expect at least $3B of FCF for the full year 2023.”
When releasing its third-quarter earnings report in October, Netflix announced that starting with its Q4 earnings report in January, it would not provide subscriber guidance for the next quarter (Q1 of 2023) as it shifts its focus away from subs growth and toward revenue. Netflix held true to this decision Thursday, offering projections of $8.2 billion in revenue and diluted EPS of $2.82 for the first quarter of 2023 — but not making any forecast on subscriber additions.
Netflix stock closed Thursday at $315.78 per share, and was up more than 6% in after-hours trading as of 4:11 p.m. ET. The regular U.S. stock markets will reopen Friday at 9:30 a.m. ET.
The streamer will release a pre-recorded interview with Netflix executives discussing the quarter in greater detail at 6 p.m. ET.