Netflix (NASDAQ: NFLX) announced its quarterly results for Q4 of 2022 yesterday and reported revenue of $7.85 billion and adjusted earnings of $0.12 per share. It also added 7.66 million subscribers in Q4.
Comparatively, Wall Street forecast the streaming giant to report revenue of $7.85 billion and earnings of $0.45 per share in the quarter.
While Netflix met revenue estimates, it missed earnings consensus by a wide margin. But NFLX stock is up over 7% in pre-market trading as it blew past Wall Street’s subscriber estimates. The company added 7.66 million subscribers in the quarter, much higher than forecasts of 4.57 million subscriber additons.
During the earnings call, Netflix also disclosed that co-CEO Reed Hastings would step down from his position, transitioning to the role of an executive chairman.
What impacted Netflix's earnings in Q4 of 2022?
Netflix attributed its earnings miss to a loss tied to euro-denominated debt. However, its margins of 7% surpassed analyst estimates. The December quarter was the first time that Netflix included details of its ad-supported service in its financials. This tier was launched in November, and the company has not disclosed how many subscribers are from users who opted for the lower-priced service.
Netflix claimed user engagement from the ad-supported tier was similar to other regular plans. It also confirmed that there has not been a massive shift in the number of people switching to ad-supported plans.
Netflix CFO Spencer Neumann stated, “We wouldn’t be getting into this business if it couldn’t be a meaningful portion of our business. We’re over $30 billion in revenue, almost $32 billion in revenue, in 2022 and we wouldn’t get into a business like this if we didn’t believe it could be bigger than at least 10% of our revenue.”
Netflix remains optimistic about its shift to an ad-supported business model. But the company will no longer offer subscriber guidance in future earnings reports as it remains focused on expanding revenue which will now be Netflix’s north star metric instead of membership growth.
Netflix explained, “2022 was a tough year, with a bumpy start but a brighter finish. We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering. As always, our north stars remain pleasing our members and building even greater profitability over time.”
What next for NFLX stock and investors?
Netflix continues to spend billions of dollars each year to create proprietary content and expand its subscriber base across geographies. It now expects revenue in Q1 of 2023 to increase by 4% year over year, compared to the 3.7% top-line forecast by Wall Street. Netflix expects revenue growth will be driven by an increase in paid memberships and more money per paid membership.
The upcoming quarter ending in March will also be the first where Netflix will roll out its paid sharing program. Here, it might be able to increase sales from users who previously shared passwords with those outside their homes.
The streaming heavyweight also said it expects a portion of its users who borrow passwords to stop watching content on its platform as they are not added as extra members to existing accounts.
Valued at a market cap of $140 billion, Netflix stock is down 54% from all-time highs. After increasing sales by 6.5% year over year in 2022, analysts expect the top line to expand by 7.3% to $33.9 billion in 2023. However, its earnings are likely to narrow from $11.2 per share in 2021 to $10.4 per share in 2023.
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