Beats street on 4Q23 earnings; 1Q24F guidance inline
- Netflix’s (NFLX) 4Q23 operating income of US$1.5bn (-22% q-o-q, +172% y-o-y) was 24% above the consensus.
- Password crackdown, elimination of basic tiers in some regions and introduction of low-priced options resulted in NFLX recording all time high fourth quarter (4Q) subscriber net addition of 13.1m in 4Q23.
- 1Q24F revenue guidance of US$9.2bn (+4.6 q-o-q, 13% y-o-y) and operating margin of 26% are inline with consensus estimates.
NFLX’s 4Q23 operating income of US$1.5bn (-22% q-o-q, +172% y-o-y) was 24% above consensus projection. 4Q23 operating income of US$1.5bn (-22% q-o-q, +172% y-o-y) was 24% above both consensus and management expectations on i) under forecasting by the management in 3Q23 due to the revenue upside in the quarter and ii) lower than planned spending. Operating margin in 4Q23 stood at 17% (3Q23 margin at 22%), above both management and consensus estimate of 13% and 14% respectively. The q-o-q decline in operating income margin was due to a 64% q-o-q increase in sales and marketing expenses to US$917m. NFLX’s normalized net income (excluding a US$239m loss from FX remeasurement) stood at US$1.2bn (-22% q-o-q, -128% y-o-y), 19% above consensus expectation of US$0.98bn. NFLX reported revenue of US$8.8bn (+3.4% q-o-q, +13% y-o-y), inline with consensus. Growth in revenue was supported by subscriber addition of 13.1m in 4Q23, beating consensus expectations of 8.9m addition, growing across all regions. The net addition in 4Q23 was the largest ever net addition in a 4Q for the platform. NFLX’s ad-tier membership grew ~70% q-o-q, similar to 3Q23 on improvements offering (e.g., downloads) and phasing out of Basic plan for new and rejoining members in the ads markets. NFLX has more than 23m active monthly users on ad plans worldwide. The increase in prices and phasing out of basic plans is to lure subscribers to NFLX’s ad-tier plans which includes advertisements, supporting revenue growth. The ads plan currently accounts for 40% of all NFLX sign-ups and the company intends to phase out the basic plan in select ad-focused countries, commencing with Canada and the UK in the 2Q24F, with potential expansion to other locations thereafter.
NFLX guides 1Q24F revenue of US$9.2bn (+4.6 q-o-q, 13% y-o-y) and 1Q24F operating margin of 26%, inline with consensus projection. NFLX has guided US$9.2bn (+4.6 q-o-q, 13% y-o-y) for 1Q24F revenue, inline with consensus expectations. NFLX expects net subscriber addition to be lower than its record net additions in 4Q23 but a higher number of net additions than it reported in 1Q23 (1.8m) due to seasonality. Consensus expects NFLX to add 4.1m in 1Q24F. NFLX guides an operating margin of 26% for 1Q24F which is also inline with consensus expectations.