Netflix Narrowly Misses Q4 Subscriber Target, Stocks Fall – Deadline
Netflix narrowly missed its fourth-quarter subscriber forecast, reporting a worldwide total of 221.84 million.
The gain of 8.3 million subscribers in the period ending Dec. 31 fell just short of company and Wall Street forecasts for 8.5 million. Netflix also said it expects to have 224.3 million subscribers by the end of the current quarter, which would represent a gain of less than 2.5 million new customers, which also seems to be holding back investor enthusiasm.
Earnings per share were well above expectations at $1.33 diluted, while revenue was in line with expectations at $7.7 billion.
The results send Netflix shares down more than 10% in after-hours trading. It closed the regular trading day at $508.25, down 2%. After hitting historic highs last fall, it has fallen to its lowest level since last spring.
In its letter to shareholders, the company said the subscriber forecast for the first quarter “reflects a more weighted content slate in the background.” The second season of Bridgerton, for example, and original movie marquee The Adam Project, for example, will both launch in March. “Furthermore, while retention and engagement remain healthy, acquisition growth has yet to accelerate to pre-Covid levels,” the letter states. “We believe this may be due to several factors, including the current Covid overhang and macro-economic difficulties in several parts of the world” such as Latin America.
Most subscriber growth has occurred primarily outside of North America for several years now, but the fourth quarter showed a surprising uptick in the region. It added 1.2 million new customers in the region, the best national performance since the early days of the coronavirus pandemic in 2020.
Netflix faces growing competition, especially in the United States, where Disney, WarnerMedia, Apple and others have rushed into the subscription streaming business over the past two years. As it seeks to continue to increase spending from the $17 billion it had projected in 2021 for programming, Netflix launched its second U.S. price hike in the past two weeks last week. years. At $15.49 per month, its most popular plan is now at the top of the market.
“Even in a world of uncertainty and increasing competition, we are optimistic about our long-term growth prospects as streaming supplants linear entertainment worldwide,” the shareholder letter states.
Some of the financial data confirms Netflix’s optimistic view on its prospects. Even though the growth has been more dramatic in the pandemic year 2020, the company has managed to become more profitable and has stated that it will not need to borrow money in its expected future with positive cash flow. Operating margins in 2021 reached 21%, compared to 18%.
On the programming front, the company has shown that it has a significant lead over its rivals in terms of local language production. Korean manufacturing squid game, released just before the fourth quarter but very active on the platform during it, quickly became the most viewed series in Netflix history.
Exchange rates are an issue for Netflix, but will be for any US company with overseas operations. Higher interest rates (or the anticipation thereof) are a boost, but a strong dollar erodes the value of foreign currency earnings. (Higher US interest rates, or the anticipation thereof, is one thing that drives the dollar, and several rate hikes are expected this year to combat rising inflation.)
“The US dollar has strengthened significantly against most other currencies. With ~60% of our revenue outside of the US due to our international success, we estimate that the appreciation of the US dollar over the past six months has cost us approximately $1 billion in expected revenue for 2022 (for reminder, we don’t do coverage),” Netflix said in the shareholder letter. “With the vast majority of our spend in US dollars, this translates to an estimated two percentage point negative impact on our 2022 operating margin. As we’ve written in the past, over the medium term, we believe we can adjust our pricing and cost structure for a stronger US dollar.”