Shares of Netflix Inc. (NASDAQ: NFLX) were up 4% on Monday. The stock has gained 26% over the past three months. The streaming giant delivered mixed results for the fourth quarter of 2022 last week but they were overshadowed by strong subscriber growth as well as several new changes within the business. Here’s a look at what the company anticipates for the coming year:
Netflix said it had a “bumpy start but a brighter finish” in 2022. This was most evident in subscriber growth. After subscriber losses in the first half of the year and a rebound in the third quarter, the company roared back with paid net additions of 7.7 million in the fourth quarter of 2022. Although it was below the 8.3 million reported in the year-ago period, it was way better than the 4.5 million the streaming leader had predicted for the quarter.
Netflix ended the fourth quarter with 231 million paid memberships, reflecting a growth of 4% over the prior-year quarter. For the first quarter of 2023, the company expects modest positive paid net adds. This compares to a loss of 0.2 million subscribers in the first quarter of 2022. Netflix expects to see a change in the quarterly paid net adds pattern in 2023 once it rolls out its paid sharing plan. Paid net adds are anticipated to be higher in the second quarter of 2023 compared to the first quarter.
In November, Netflix launched its lower-priced ad-supported plan in 12 countries and the results have been encouraging. Viewer engagement on the ad-supported plan is consistent with that of members on the ad-free plans and also better than what the company had expected, which means the lower price point is driving incremental membership growth. There is also very little switching from other plans.
Although the company has lots to do in terms of better targeting and measurement, it is pleased with the early results and believes the ad-supported plan has strong unit economics, which is at minimum, in-line with or better than the comparable ad-free plan. It also believes this plan will generate incremental revenue and profit over time.
Paid account sharing
Netflix plans to roll out its paid sharing plan more broadly later in Q1 2023. Based on its experience in Latin America, the company expects to see some cancellations in each market once paid sharing is rolled out, which can impact near-term member growth. But as borrower households activate their own standalone accounts and add extra members, overall revenue is expected to improve.
Netflix’s CEO Reed Hastings has become Executive Chairman while Greg Peters has moved up from the position of COO to become co-CEO alongside Ted Sarandos.
Netflix delivered revenue of $7.85 billion in Q4 2022, which was up 1.9% year-over-year and ahead of estimates. However, EPS of $0.12 fell short of expectations. For the first quarter of 2023, the company expects revenue to increase around 4% YoY to $8.1 billion while EPS is projected to be $2.82.
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