Netflix Earnings! Lowest Subscriber Growth since 2015

Netflix attracted 4.4 million net new members in the third quarter, bringing its global total to 213.6 million. The figure was higher than the company’s expectation of 3.5 million. In the September quarter, Netflix plans to attract another 8.5 million net new members, well ahead of Wall Street’s current projection of 8.4 million.

Netflix reported revenue of $7.48 billion in the third quarter, increasing 16.3 percent year over year and in line with expectations. Profits were $3.18 per share, considerably above the $2.56 average expectation on Wall Street. The operating margin was 23.5 percent in the third quarter, up from 20.4 percent a year earlier but down from 25.2 percent in the previous quarter. The firm reported a negative $106 million in free cash flow for the quarter.

Netflix expects revenue of $7.7 billion in the December quarter, up 16.1%, with earnings of 80 cents per share and an operating margin of 6.5 percent as the firm ramps up investment on new content. Netflix said it aims to break even on cash flow for the whole year, with positive cash flow in 2022 and beyond, and a full-year operating margin of 20% or slightly better in 2022.

“We’re very excited to finish the year with what we expect to be our strongest Q4 content offering yet, which shows up as bigger content expense and lower operating margins sequentially,” the company said in a letter to shareholders.

Netflix repurchased 200,000 shares in the quarter, for about $100 million, with the buyback pace slowed by its recent M&A activity.

Netflix claimed that revenue increase in the most recent quarter was driven by 9% greater paid memberships and 7% higher average revenue per membership, or 5% higher when foreign currency exchange rates are taken into account. The Asia Pacific area accounted for 2.2 million net additions in the quarter, while Europe, Middle East, and Africa accounted for 1.8 million.

Netflix said that Squid Game is now its most watched show ever, with 142-million-member households viewing in the first four weeks after its release. Squid Game ranks as the No. 1 show on the service in 94 countries, including the U.S.

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As it was anticipated, with people moving back to offices and cutting down on binge-watch times, the labour crisis led to people cutting down on their entertainment times, Netflix reported a disappointing subscriber addition for the 4Q probably the worst since 2015. The stock was down by 21%.

Here are the numbers: the company had forecasted 8.5M new subscribers but they were 8.28M in factual figures. The total number is now 221.8M globally.

For the first quarter of 2022, Netflix has only predicted a dismal 2.5M while the analysts projected 5.7M in terms of subscribers. Does that show the company’s business has reached its maturity stage or is it temporary?

Netflix also said that customer acquisition growth “has not yet reaccelerated to pre-Covid levels,” adding that “this may be due to several factors including the ongoing Covid overhang and macro-economic hardship in several parts of the world,” including Latin America.

“Even in a world of uncertainty and increasing competition, we’re optimistic about our long-term growth prospects as streaming supplants linear entertainment around the world,” the company said. “We’re continually improving Netflix so that we can please our members, grow our share of leisure time and lead in this transition.”

The operating margin was 8% which is down by 6%, average revenue per membership was up by 7%. Netflix expected operating margin was 6.5% but the reported operating margin was up as forecasted content spend was lower.

The company’s fourth-quarter sales were $7.7 billion, up 16 percent over the previous quarter and in line with the company’s forecast of $7.7 billion. Profits were $1.33 cents per share, much-exceeding analysts’ expectations of 83 cents, thanks mostly to an unrealized gain related to the company’s euro-denominated debt.

Netflix expects $7.9 billion in first-quarter revenue, up 10.3% year over year, but significantly below the $8.2 billion average on Wall Street.

Netflix is aiming for a 19 percent to 20 percent operating margin in 2022, down from 20.9 percent in 2021, which includes a two-point negative impact from foreign currency. In 2022 and beyond, the firm intends to be cash-flow positive, according to the company. Netflix reported $15.5 billion in gross debt at the end of 2021, a little more than its goal range of $10 billion to $15 billion, and said it will pay down $700 million in senior notes this quarter.

Netflix also said that its board has decided to make some changes in its corporate governance structure, including “declassifying our board, removing supermajority voting provisions in our charter and bylaws, and enabling shareholders to call special meetings.”

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Netflix is a component of the bubble, which is about to burst. Despite attaining a valuation of $300 billion in November, Netflix has never generated significant free cash flow. Its profits are a figment of the imagination. This quarter alone, they burnt through more than $400 million in cash for operations. They are projected to attain cash-flow breakeven due to the recent price hike. Is breaking even good enough for a corporation with a market valuation of $200 billion? Netflix is just another speculative bubble.

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Netflix profited from the stimulus payments as well as the stay-at-home movies.
Both are now on their way out.

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