Netflix: Revenue and Margin Beat Sets Positive Tone for Tech Earnings

Written by: Sophie Lund-Yates | Hargreaves Lansdown

  • Q4 subscriber growth better than analysts expected, rising 12.8%, taking the total to 260.3m

  • Revenue growth up 12.5% to $8.8bn and ahead of expectations. Operating profit rose to $1.5bn from $550m the previous year

  • Ad supported tier expected to grow strongly this year but from a small base

  • Group expects double digit revenue growth for the full year and has upgraded operating margin forecast 

Netflix has fired the starting gun on consumer-led earnings and shown the crowds that things are looking promising. The market had already largely priced in an expected double-digit climb in revenue growth, but investors are cheering an even better-than-expected result. The meaningful growth in subscriber numbers is partly a result of password sharing crackdowns, but is also testament to Netflix’s ability to keep us glued to screens. Full year-margin expectations have been upgraded thanks in part to the higher volume of Netflix fans joining the service, and that nugget of news is being celebrated the loudest. 

Looking further down the track for 2024, consumer spending is expected to slow. Indicators suggest that certain consumer groups have run out of road when it comes to trimming non-essential costs. Any tough blows dealt by the economy will be partially mitigated by the more affordable ad-supported plan, but while growth here has an exciting trajectory, it’s not an area of the business expected to move the dial this year. On one hand, consumer pressure puts the likes of Netflix in a difficult spot, but on the other, it looks as though Netflix subscriptions are being treated more like a utility bill than a discretionary luxury. 

Keeping eyes on Netflix and away from other apps rests on the group’s leading original content slate. Original content has higher retention rates, making it a serious weapon in the streaming wars. It doesn’t come cheap though, and some would balk at Netflix’s annual content budget, but it’s this investment that keeps Netflix’s frame gilded. News that Scott Stuber, head of films, is also set to depart does leave a question mark about creative direction – changes at the top don’t always happen smoothly. 

Looking even further down the line, Artificial Intelligence and gaming potentially hold the key to exciting growth for Netflix. Diversified offerings or tailored content solutions could see margins inflate meaningfully, but we are a long way from knowing if this will be the case. And, of course, the largest catalyst for a shift in sentiment will be whether the Federal Reserve’s actions in spring match up to current expectations. Interest rates are still widely pegged to lose some steam in the near-term, and this would maintain the substantial wind in Netflix’s sales.

Related: Netflix: Password Crackdown Drives Subscriber Boom