Netflix Shares Rise as Content Drives Strong Subscriber Growth
Netflix Inc.
NFLX 7.49%
shares rose Friday after the streaming company handily topped its own projections for subscriber gains for the fourth quarter, while analysts weighed the impact of its plans to crack down on password sharing and roll out an ad-supported plan.
The streaming giant said after the bell on Thursday that it added 7.7 million new subscribers in the final quarter of the year, topping its own projections for 4.5 million new customers and pushing revenue 1.9% higher than in the same quarter a year ago.
Shares rose 6.9% in recent trading to $337.55, on pace for their highest close since April.
Several analysts said Friday morning that the better-than-expected subscriber gains were driven by a strong slate of content in the fourth quarter, including “Glass Onion: A Knives Out Mystery” and “Wednesday.”
“Content performance is underpinning all aspects of financial improvement and helps investors sleep better,”
Wells Fargo
analysts said in a note.
The strong finish comes with a note of caution from Netflix management that user growth is expected to be only modestly positive in the first quarter of 2023, as the company’s fourth-quarter success is expected to have pulled forward some demand. Management is also bracing for some churn as it cracks down on password sharing among users.
Netflix exceeded its own projections as 7.7 million new subscribers were drawn to content including ‘Glass Onion: A Knives Out Mystery.’
Photo:
John Wilson/Associated Press
Credit Suisse
analysts said the crackdown limits Netflix’s visibility into subscriber gains for the first half of 2023, as it starts offering an option for users to pay extra if they want to share accounts with people outside of their household.
The move will likely damp net gains in the short term, assuming some users react negatively to the change and “churn Netflix out of spite,” MoffettNathanson analysts said in a note. But it is also expected to accelerate revenue growth over the course of the year, as some former shared-account users start paying up, several analysts said.
Netflix is also seeing what newly appointed Co-Chief Executive
Greg Peters
called “ridiculously early” indications that its recently launched ad-supported subscription tier is rolling out smoothly, with no technical issues and limited trade-down from paid-plan subscribers.
“It means we’re delivering a solid experience and it’s better than we modeled,” Mr. Peters said.
Wedbush analysts Alicia Reese and Michael Pachter are optimistic that the ad-tier should help mitigate the expected password-sharing churn and reaccelerate revenue growth. They suspect that the ad-tier option likely “brought back subscribers who had churned in the past.”
“We expect this phenomenon to repeat itself in the coming year, with the result that we expect Netflix to return to subscriber growth of 17 million new users per year,” the analysts said.
Analysts were unfazed by Netflix’s announcement Thursday that co-founder
Reed Hastings
has stepped down as co-chief executive to become executive chairman. Netflix has tapped Mr. Peters, its former chief operating officer and a key player in the swift implementation of the ad-supported tier in November, to take over the co-CEO role and serve alongside
Ted Sarandos.
Write to Dean Seal at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Netflix Inc.
NFLX 7.49%
shares rose Friday after the streaming company handily topped its own projections for subscriber gains for the fourth quarter, while analysts weighed the impact of its plans to crack down on password sharing and roll out an ad-supported plan.
The streaming giant said after the bell on Thursday that it added 7.7 million new subscribers in the final quarter of the year, topping its own projections for 4.5 million new customers and pushing revenue 1.9% higher than in the same quarter a year ago.
Shares rose 6.9% in recent trading to $337.55, on pace for their highest close since April.
Several analysts said Friday morning that the better-than-expected subscriber gains were driven by a strong slate of content in the fourth quarter, including “Glass Onion: A Knives Out Mystery” and “Wednesday.”
“Content performance is underpinning all aspects of financial improvement and helps investors sleep better,”
Wells Fargo
analysts said in a note.
The strong finish comes with a note of caution from Netflix management that user growth is expected to be only modestly positive in the first quarter of 2023, as the company’s fourth-quarter success is expected to have pulled forward some demand. Management is also bracing for some churn as it cracks down on password sharing among users.
Netflix exceeded its own projections as 7.7 million new subscribers were drawn to content including ‘Glass Onion: A Knives Out Mystery.’
Photo:
John Wilson/Associated Press
Credit Suisse
analysts said the crackdown limits Netflix’s visibility into subscriber gains for the first half of 2023, as it starts offering an option for users to pay extra if they want to share accounts with people outside of their household.
The move will likely damp net gains in the short term, assuming some users react negatively to the change and “churn Netflix out of spite,” MoffettNathanson analysts said in a note. But it is also expected to accelerate revenue growth over the course of the year, as some former shared-account users start paying up, several analysts said.
Netflix is also seeing what newly appointed Co-Chief Executive
Greg Peters
called “ridiculously early” indications that its recently launched ad-supported subscription tier is rolling out smoothly, with no technical issues and limited trade-down from paid-plan subscribers.
“It means we’re delivering a solid experience and it’s better than we modeled,” Mr. Peters said.
Wedbush analysts Alicia Reese and Michael Pachter are optimistic that the ad-tier should help mitigate the expected password-sharing churn and reaccelerate revenue growth. They suspect that the ad-tier option likely “brought back subscribers who had churned in the past.”
“We expect this phenomenon to repeat itself in the coming year, with the result that we expect Netflix to return to subscriber growth of 17 million new users per year,” the analysts said.
Analysts were unfazed by Netflix’s announcement Thursday that co-founder
Reed Hastings
has stepped down as co-chief executive to become executive chairman. Netflix has tapped Mr. Peters, its former chief operating officer and a key player in the swift implementation of the ad-supported tier in November, to take over the co-CEO role and serve alongside
Ted Sarandos.
Write to Dean Seal at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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