(Bloomberg) – Netflix Inc ended its biggest year in the company’s history with a big blow, sending its stock to a record high after adding more customers than expected and saying it no longer needed to borrow money to build its entertainment empire.
The world’s leading premium live streaming service attracted 8.51 million new subscribers in the last three months of the year, buoyed by the popularity of hit shows like Bridgerton and Queen’s Gambit. That exceeded Netflix’s own forecast and the $ 6.06 million Wall Street forecast, and its shares rose 15% – the most since October 2016 – in trading Wednesday.
The earnings report after Tuesday’s close included two major milestones for Netflix: The company crossed the 200 million subscriber mark for the first time and said its cash flow would allow it to stop relying on debt to fuel its growth. With $ 8.2 billion in cash – and a line of credit yet to be withdrawn – Netflix said it no longer needs outside financing. She’s also considering stock buybacks, which she hasn’t done in nearly a decade.
The pandemic provided a major boost to Netflix’s business, forcing people to enter and limit other entertainment options such as movie theaters and concerts. The company added 25.9 million customers in the first six months of last year, and ended up adding 36.6 million customers – a record number.
“I’ve accelerated this major shift from linear to streaming entertainment,” Spencer Newman, the company’s chief financial officer, said in a call with investors and analysts on Tuesday.
Netflix has repeatedly warned that an increase in the first half of 2020 will limit its growth in subsequent quarters – which it calls the “pull-ahead” effect. Newman warned that this will continue to impact growth in 2021, and Netflix has provided a conservative estimate for the current quarter. It expects to add 6 million new subscribers in this period, compared to the average analyst estimate of 7.45 million.
But Netflix has found more of it than expected lately.
Its growth over the past year has dispelled two common criticisms of the company. Skeptics of Netflix have long viewed its debt as a looming disaster, saying an economic recession would cripple the company and lead to mass customer subscriptions being canceled.
While Netflix has consistently announced its earnings, it has had to borrow billions of dollars to fund its spending on new programs. It had a negative free cash flow of $ 3.3 billion in 2019, which is worst ever. Since then, the angle has turned. Netflix said Tuesday that free cash flow will be close to breakeven in 2021. Analysts forecast a negative $ 619.7 million. Against this background, Netflix’s debt spree looks like a good investment. It borrowed about $ 15 billion to boost market capitalization by more than $ 200 billion.
Critics also argued that Netflix would struggle when rival media companies pulled their most popular titles from the service and created their competitors. However, Netflix recorded its best performance so far in the same year many new competitors got into the fray, and Disney + 87 million paid subscribers added.
What Bloomberg Intelligence says
“The bigger story was directing free cash flow for 2021 … we think that should put an end to the bears’ concerns about endless cash burn, especially after $ 3.3 billion in 2019 free cash flow losses. The narrative appears to have shifted squarely to operating leverage. Netflix enjoys through its investment in global content. “
– Geetha Ranganathan, Senior Media Analyst
Click here to read the research.
“Our strategy is simple: If we can continue to improve Netflix every day to better please our members, then we can be their first choice for streaming entertainment,” the company said in a message to shareholders. “The past year is testament to this approach.”
Netflix shares soared to $ 577.77 in New York trading on Wednesday. The stock was up 67% last year, but concerns about slowing growth weighed on Netflix in 2021. Until Tuesday’s close, it had fallen 7.2% since the start of the year.
“Investors are coming out of the fourth quarter more optimistic about the potential for a strong return story for Netflix’s growing shareholders in the coming years,” Evercore ISI analyst Lee Horowitz wrote in a note.
Analysts at JPMorgan Securities said the company is likely to start stock buybacks in the second half of the year.
Netflix, headquartered in Los Gatos, California in Silicon Valley, is tilted more into international markets now that its home market in North America is largely saturated. The service has relied on Europe and Latin America to supply most of its new customers in the past few years, and it is only just beginning to penetrate Asia. More than 60% of its customers now live outside the United States and Canada, and 83% of new additions in 2020 came from abroad. Europe provided 41% of its new customers – nearly 15 million people – while Asia added 9.3 customers, the second most.
Netflix has thrived by creating pipelines of new shows from around the world that lure viewers outside of their native language. In the fourth quarter alone, Netflix released popular series in German, Korean, Japanese and French.
English language “Queen’s Gambit” and “Bridgerton” are both huge hits on Netflix. The Queen’s Gambit was seen by 62 million households in its first 28 days of service, while Bridgeton is on its way to reaching 63 million accounts.
But the latest show, released this month, confirms Netflix’s global reach. The French crime series “Le Pen”, starring Omar C, became the second biggest appearance in the company’s history. It is on track to be seen by 70 million families in its first 28 days of service.
It is this diversity of offerings that will help Netflix continue to grow, both at home and abroad, in the face of increasing competition.
“We are still a very small share of even pay TV penetration in most markets around the world and a small share of viewership,” Newman said.
(Updates with posts from the first paragraph.)
For more articles like this, please visit us at bloomberg.com
subscribe now To stay ahead of the curve with the most trusted business news source.
© 2021 Bloomberg LP