Netflix (NASDAQ: NFLX) experienced a remarkable surge this week as the streaming giant’s fourth-quarter earnings report sent its stock soaring. With strong subscriber growth and bullish guidance for the upcoming year, Netflix has managed to leave earlier concerns in the dust, propelling its stock up by a staggering 14% from last week by 2:30 p.m. ET on Thursday, according to data from S&P Global Market Intelligence.
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Netflix’s Strong Q4 Performance
Netflix’s fourth-quarter report unequivocally demonstrated that its recent strategic moves, including the introduction of an advertising tier, crackdown on password sharing, and the launch of new categories like gaming, have paid off handsomely. The streaming giant also disclosed a new collaboration with the WWE, a move that not only pleased investors but also marked a significant entry into live sports.
The Q4 numbers underscored the company’s robust performance, with a record 13.1 million subscriber additions driven by the newly-introduced advertising tier and paid sharing. Notably, 40% of sign-ups in its advertisement markets opted for the ad tier, prompting consideration of phasing out the lowest-cost ad-free plan in certain countries in favor of boosting spending on the ad tier. Subscriber growth proved to be widespread, with each of its four regions adding at least 2 million subscribers in the quarter, including an impressive 5 million additions in the EMEA (Europe, Middle East, and Asia) region.
The renewed subscriber growth, coupled with higher prices, contributed to a 12.5% revenue surge to $8.83 billion. Furthermore, the company foresees an even more accelerated revenue growth in the first quarter with a projected 13.2% increase.
In addition to the impressive Q4 results, Netflix also revised its operating margin guidance for 2024, anticipating a 24% operating margin for the year, up from the earlier range of 22% to 23%. This upward revision from the prior 21% demonstrates the possibility of another noteworthy profit increase in 2024.
Netflix’s Competitive Edge
Beyond the stellar fourth-quarter results, Netflix has underscored its competitive advantages within the industry. With a vast audience now reaching 260 million subscribing households, the streaming service remains an attractive partner for entities such as the WWE and Rockstar Games, the latter of which made its Grand Theft Auto: The Trilogy available on Netflix. This expansive reach also allures independent creators and has positioned Netflix as a preferred buyer for licensed content—particularly significant as traditional media companies struggle to launch their own streaming platforms.
Moreover, the success of its ad business has provided Netflix with an additional growth lever for revenue. While sustained additions of 13 million subscribers each quarter may not be realistic, the company’s growth trajectory remains intact, and the leverage in its subscription model is poised to drive margins higher as it continues to expand.
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Jeremy Bowman has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
