Netflix crosses 200 million subscribers on year-end boom, stock jumps 10%

Netflix Inc. 200 million subscribers went live for the first time at the end of 2020, as the number of subscribers rose again despite rising prices in the US and Canada.

Tuesday afternoon, Netflix NFLX,
+ 0.76%
It reported 8.5 million net new subscribers in the fourth quarter, a significant increase from 2.2 million subscribers in the previous quarter and ahead of expectations by Netflix and analysts. Netflix attracted 25.9 million new subscribers in the first half of the year, as requests for in-place shelter related to the COVID-19 pandemic spread globally, bringing annual net gain of 36.6 million subscribers to 203.7 million subscribers.

This performance pushed Netflix revenue to $ 25 billion for the first time, and increased profits 48% for the full year. Executives gave investors a special treat after the big gains, telling them that they expected the money the company generates should reliably fund day-to-day operations going forward, after years of using massive debt to fund its growing library of video content.

The news sent Netflix shares higher by more than 10% in after-hours trading on Tuesday, despite lower-than-expected earnings. After big gains amid the boom in early 2020, Netflix’s shares have calmed in the second half of the year, dropping more than 5% in the past three months.

Broadcasting Service No. 1 reported fourth-quarter net income of $ 542 million, or $ 1.19 per share, compared to net income of $ 1.30 per share in the quarter of last year. Revenue improved to $ 6.64 billion from $ 5.47 billion a year earlier. Analysts surveyed by FactSet expected adjusted earnings of $ 1.36 per share from sales of $ 6.6 billion.

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After Netflix reported modest gains in the third quarter, there were concerns that demand for Netflix was starting to cool amid competition and escalating content, from the likes of DIS from The Walt Disney Company,
+ 0.48%
Disney + and Hulu, Apple Inc.’s AAPL ,
+ 0.54%
Apple TV + and AT&T Inc.’s T,
HBO Max and AMZN of Inc.
+ 0.53%
Prime Video and CMCSA of Comcast Corp,
+ 0.32%

“The massive growth in streaming entertainment has led to old competitors such as Disney, WarnerMedia and Discovery to compete with us in new ways, which is what we have been expecting for many years,” the executives wrote in a letter to shareholders on Tuesday. “This is in part why we have moved so quickly to grow and enhance our original content library across a wide range of genres and countries.”

Netflix used massive amounts of debt to fund content creation, but executives said in the message, “We believe we are very close to achieving sustainability.” [free-cash-flow] Positive, and bolded only one part of the text in the entire message.

“We believe we no longer need to raise external funding for our day-to-day operations,” reads in the dark text of the letter.

Netflix began increasing the price of popular streaming categories in the US and Canada towards the end of last year as a way to counter any slowdown in subscriber growth. Executives expected Netflix to attract 6 million new subscribers in the first quarter of the year, which would be a massive drop from the more than 15 million people registered with the spread of COVID-19 around the world in the first quarter of 2020.

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While executives did not provide annual guidelines for subscription additions, they said operating margin growth will slow, indicating that they expect not to add that many subscribers in 2021. After gross margin grows 5 percentage points to 18% in 2020, we expect growth. More modest by about two percentage points to 20% this year.

“We intend to continue increasing our operating margin each year at an average rate of 3 percentage points per year over any short period, but we expect some conglomeration,” the executives wrote. “In some years we will finish a little bit (like in 2020), and some years a little less (like in 2021).”

Netflix shares are up 48% in the past twelve months, while the S&P 500 SPX is up,
+ 0.81%
It rose 14%.

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