Stock Story -
Streaming video giant Netflix (NASDAQ: NASDAQ:NFLX) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 12.5% year on year to $8.83 billion. It made a GAAP profit of $2.11 per share, improving from its profit of $0.53 per share in the same quarter last year.
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Netflix (NFLX) Q4 FY2023 Highlights:
- Market Capitalization: $212.6 billion
- Revenue: $8.83 billion vs analyst estimates of $8.71 billion (1.4% beat)
- EPS: $2.11 vs analyst expectations of $2.22 (4.8% miss)
- Q1'24 EPS guidance: $4.49 per share (above expectations of $4.14)
- Free Cash Flow of $1.58 billion, down 16.3% from the previous quarter
- Gross Margin (GAAP): 39.9%, up from 31.2% in the same quarter last year
- Global Streaming Paid Memberships: 260.3 million, up 13.1 million quarter on quarter (beat vs. expectations of 8.8 million net adds; every geography beat)
Consumer SubscriptionConsumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.
Sales GrowthNetflix's revenue growth over the last three years has been unremarkable, averaging 10.7% annually. This quarter, Netflix beat analysts' estimates but reported mediocre 12.5% year-on-year revenue growth.
Usage Growth As a subscription-based app, Netflix generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.
Over the last two years, Netflix's users, a key performance metric for the company, grew 7.2% annually to 260.3 million. This is average growth for a consumer internet company.
In Q4, Netflix added 29.53 million users, translating into 12.8% year-on-year growth.
Revenue Per UserAverage revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Netflix because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time).
Netflix's ARPU has declined over the last two years, averaging 0.5%. Although the company's users have continued to grow, it's lost its pricing power and will have to make improvements soon. This quarter, ARPU declined 0.3% year on year to $33.94 per user.
Key Takeaways from Netflix's Q4 Results It was great to see Netflix's strong user growth this quarter. The 13.1 million net adds from last quarter were well above expectations of 8.8 million. ARPU also outperformed slightly in every geography except Asia-Pacific. These dynamics led to a revenue beat. Looking ahead, the company called for 16% revenue growth year on year when excluding the impacts of foreign exchange, which was robust. The company also upped its full year operating margin guidance and gave EPS guidance above expectations. Finally, the company struck a bullish tone when speaking about bigger picture competition, saying that industry consolidating is expected but that its opportunity remains vast. Zooming out, we think this was still a solid quarter, showing that the company is exceeding expectations. The stock is up 4.4% after reporting and currently trades at $512.7 per share.
