Netflix Delivers Strong Revenue Beat

·       Netflix adds blockbuster 13.1 million subscribers in the fourth quarter.

·       Revenue increased 12.5% beating consensus estimates.

Netflix ended fiscal 2023 with record high subscribers, adding 13.1 million users in the fourth quarter alone, beating estimates of 8.97 million. The year ended with 260 million memberships, an increase of almost 30 million from 2022.

The strong subscriber growth could be attributed to the password-sharing crackdown and the quality of the content, which attracted a large number of viewers. While subscriber gains could remain relatively high, the strong growth from last year could subside in 2024 as the streamer slowly completes its password-sharing crackdown.

The company reported that in the fourth quarter net income increased to $938 million or $2.11 per share from $55 million or $0.12 per share in the same quarter the prior year. The bottom-line missed expectations after three consecutive beats.

Revenue of $8.83 billion increased 12.5% compared to Q4 2022, beating consensus estimates of $8.71 billion. The company attributed the robust top-line growth to its paid subscription-sharing offering which is part of its password-sharing crackdown, recent price changes, and a strong content slate.

Profits for the fiscal 2023 were impressive thanks to the higher membership base and operational discipline. The full year operating margin of 21% in 2023 is up substantially from 18% in 2022. For such a large and mature company, the increase is eye catching.

In addition to the cracker report, the giant streamer projects first quarter 2024 earnings of $4.49 a share, well above analyst’s forecasts of $4.10. Also, the company revised higher its full year 2024 operating margin forecast to 24% from its prior guidance of 22%.

Source: TradingView

Netflix forecasts revenue for the first quarter of 2024 to rise more than 13% year over year. The company’s ability to renew growth is certainly impressive and exciting for investors. The streamer also flagged further opportunities by continuing to expand its programming slate into live entertainment, gaming, and advertising.

The share price soared 13% post the result registering one of its biggest single day gains. The price is up 245% from its May 2022 low and up 57% over the past twelve months. The price structure and the momentum conditions remain constructive, suggesting that the uptrend is firmly intact.

Although the price may not replicate last year’s gains, given the encouraging fundamentals and technicals, we are of the view that further upside in 2024 is achievable. Therefore, we lift our long-term price target in the range between $640 and $660.

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