Netflix (NASDAQ: NFLX) experienced a significant surge this week, following the release of its fourth-quarter earnings report. The company’s robust subscriber growth and optimistic guidance for the upcoming year captured the intrigue of investors, resulting in a 14% stock increase from the previous week as of 2:30 p.m. ET on Thursday, based on data from S&P Global Market Intelligence.
Image source: Getty Images.
Strong Performance in Q4
The streaming giant, Netflix, left little doubt about the success of its recent strategic decisions, including the introduction of an advertising tier, measures to combat password sharing, and the launch of new categories such as gaming. Additionally, a new collaboration with the WWE was unveiled, signaling a substantial foray into live sports and generating excitement among investors.
The momentum in the fourth-quarter was impressive with Netflix reporting record subscriber additions of 13.1 million, mainly driven by the new advertising tier and paid sharing. Notably, 40% of registrations in the ad markets were for the ad tier, prompting considerations to phase out the lowest-cost ad-free plan in certain countries to channel more spending toward the ad-supported tier.
Subscriber growth was widespread, as each of the company’s four regions added at least 2 million subscribers, with the EMEA (Europe, Middle East, and Asia) region contributing an additional 5 million. Furthermore, the combination of renewed subscriber growth and increased prices contributed to a 12.5% rise in revenue, reaching $8.83 billion. The company also foresees a surge in revenue growth for the first quarter, forecasting a 13.2% increase for the current quarter.
Positive Indications
The company also raised its operating margin guidance for 2024, now expecting a 24% operating margin, up from the earlier projected range of 22% to 23%. This upward revision, from the earlier figure of 21%, underlines the potential for another substantial increase in profits in 2024.
In addition to the impressive financial results, Netflix has confirmed its competitive advantages in the industry. With a massive audience of 260 million subscribing households, the company is increasingly appealing to partners such as the WWE and Rockstar Games, as demonstrated by the availability of Grand Theft Auto: The Trilogy on Netflix. This broad reach is also attractive to independent creators and has positioned Netflix as a favored buyer for licensed content, a trend that has gained momentum as traditional media companies have encountered challenges in launching their own streaming services.
Moreover, the success of its advertising business provides Netflix with an additional pathway to drive revenue growth. While consistently adding 13 million subscribers every quarter may be unrealistic, it is evident that Netflix’s growth potential is far from exhausted. The leverage inherent in its subscription model is expected to drive margins upward as the company continues to expand.
Investing in Netflix
Before considering an investment in Netflix, it’s crucial to note that the Motley Fool Stock Advisor analyst team recently identified what they believe are the 10 best stocks for investors to consider currently, with Netflix not among them. The 10 stocks recommended by the Stock Advisor service could potentially yield substantial returns in the coming years. The service has exceeded the returns of the S&P 500 by over threefold since 2002*.
Learn more about the 10 stocks
*Stock Advisor returns as of January 22, 2024
Jeremy Bowman has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.