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Netflix (NFLX) Q4 Earnings Miss, Revenues Up Y/Y on User Gain
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Netflix (NFLX - Free Report) reported fourth-quarter 2022 earnings of 12 cents per share, missing the Zacks Consensus Estimate by 74.47%. The figure slumped 91% year over year.
Revenues of $7.85 billion increased 1.9% year over year but lagged the consensus mark by 0.18%. On a foreign-exchange neutral basis, revenues grew 10% year over year.
The average revenues per membership decreased 2% year over year on a reported basis but increased 5% on a foreign-exchange neutral basis.
The streaming giant gained 7.66 million paid subscribers globally, higher than its estimate of 4.5 million users. It added 8.28 million paid subscribers in the year-ago quarter.
At the end of the fourth quarter, Netflix had 230.75 million paid subscribers globally, up 4% year over year and better than our estimate of 227.59 million.
Although Netflix is suffering from growing competition from services provided by Amazon (AMZN - Free Report) , Disney (DIS - Free Report) and Apple (AAPL - Free Report) , the company benefited from a strong content portfolio in the reported quarter.
Hits like Wednesday, Harry & Meghan, Troll, and Glass Onion: A Knives Out Mystery helped Netflix to win subscribers.
Netflix’s shares have underperformed Apple and Disney but outperformed Amazon in the past year. While Netflix shares have declined 37.9%, Apple, Disney and Amazon lost 17.8%, 32.9% and 38.3%, respectively.
Netflix also announced the appointment of Greg Peters as Co-CEO, along with Ted Sarandos. Reed Hastings has been appointed as the executive chairman.
Segmental Revenue Details
The United States and Canada (“UCAN") reported revenues of $3.60 billion, which rose 8.6% year over year and accounted for 45.8% of the total revenues. ARPU grew 10% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for UCAN decreased 1.2% from the year-ago quarter to 74.30 million, which was better than our estimate of 73.84 million. The company gained 0.91 million paid subscribers compared with the year-ago quarter’s 1.19 million.
Europe, Middle East & Africa (“EMEA”) reported revenues of $2.35 billion, which declined 6.9% year over year and accounted for 29.9% of the total revenues. ARPU grew 5% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for EMEA increased 3.6% from the year-ago quarter to 76.73 million, which was better than our estimate of 74.53 million. The company gained 3.2 million paid subscribers compared with the year-ago quarter’s net addition of 3.54 million.
Latin America’s (LATAM) revenues of $1.02 billion increased 5.5% year over year, contributing 13% to the total revenues. ARPU grew 7% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for LATAM rose 4.4% from the year-ago quarter to 41.70 million and was higher than our estimate of 40.69 million. The company gained 1.76 million paid subscribers compared with the year-ago quarter’s net addition of 0.97 million.
The Asia Pacific’s (“APAC”) revenues of $857 million decreased 1.6% year over year and accounted for 10.9% of the total revenues. ARPU decreased 17% year over year on a foreign-exchange neutral basis.
The paid subscriber base for APAC jumped 16.5% from the year-ago quarter to 38.02 million but was lower than our estimate of 38.53 million. The company added 1.8 million paid subscribers in the quarter, down 30.2% year over year.
Operating Details
Marketing expenses increased 4.9% year over year to $831.6 million. As a percentage of revenues, marketing expenses increased 30 basis points (bps) to 10.6%.
Operating income decreased 13% year over year to $549.9 million, higher than Netflix’s guidance of $330 million, driven by higher revenues and lower hiring. The operating margin contracted 120 bps on a year-over-year basis to 7% primarily due to unfavorable forex.
Balance Sheet & Free Cash Flow
Netflix had $6.06 billion of cash and cash equivalents as of Dec 31, 2022, compared with $6.11 billion as of Sep 30, 2022.
Long-term debt was $14.4 billion as of Dec 31, 2022 compared with $13.9 billion as of Sep 30, 2022.
Streaming content obligations were $21.83 billion as of Dec 31, 2022, compared with $21.57 billion as of Sep 30, 2022.
Netflix reported a free cash flow of $332 million compared with $471.9 million in the previous quarter.
Guidance
For the first quarter of 2023, Netflix forecasts earnings of $2.82 per share, indicating a 20% decline from the figure reported in the year-ago quarter.
The Zacks Consensus Estimate for the same is pegged at $2.97 per share, currently higher than the company’s expectation but suggesting a 15.86% decline from the figure reported in the year-ago quarter.
Total revenues are anticipated to be $8.172 billion, suggesting year-over-year growth of 3.9%. The consensus mark for revenues stands at $8.17 billion, almost in line with the company’s expectation and indicating 3.88% growth from the figure reported in the year-ago quarter.
The quarterly operating margin is projected at 19.9% compared with the 25.1% reported in the year-ago quarter.
For 2023, Netflix expects revenues on a foreign-exchange neutral basis to accelerate during the course of the year. Paid net additions are likely to be greater in the second quarter of 2023 compared with the first quarter due to the rollout of paid sharing more expansively.
Moreover, Netflix expects the operating margin to be 21-22%. Including forex, the range is expected to be 18-20%.
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Netflix (NFLX) Q4 Earnings Miss, Revenues Up Y/Y on User Gain
Netflix (NFLX - Free Report) reported fourth-quarter 2022 earnings of 12 cents per share, missing the Zacks Consensus Estimate by 74.47%. The figure slumped 91% year over year.
Revenues of $7.85 billion increased 1.9% year over year but lagged the consensus mark by 0.18%. On a foreign-exchange neutral basis, revenues grew 10% year over year.
The average revenues per membership decreased 2% year over year on a reported basis but increased 5% on a foreign-exchange neutral basis.
The streaming giant gained 7.66 million paid subscribers globally, higher than its estimate of 4.5 million users. It added 8.28 million paid subscribers in the year-ago quarter.
At the end of the fourth quarter, Netflix had 230.75 million paid subscribers globally, up 4% year over year and better than our estimate of 227.59 million.
Although Netflix is suffering from growing competition from services provided by Amazon (AMZN - Free Report) , Disney (DIS - Free Report) and Apple (AAPL - Free Report) , the company benefited from a strong content portfolio in the reported quarter.
Hits like Wednesday, Harry & Meghan, Troll, and Glass Onion: A Knives Out Mystery helped Netflix to win subscribers.
Shares of this Zacks Rank #3 (Hold) company were up almost 6% in pre-market trading following the announcement of the better-than-expected results. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Netflix, Inc. Price, Consensus and EPS Surprise
Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote
Netflix’s shares have underperformed Apple and Disney but outperformed Amazon in the past year. While Netflix shares have declined 37.9%, Apple, Disney and Amazon lost 17.8%, 32.9% and 38.3%, respectively.
Netflix also announced the appointment of Greg Peters as Co-CEO, along with Ted Sarandos. Reed Hastings has been appointed as the executive chairman.
Segmental Revenue Details
The United States and Canada (“UCAN") reported revenues of $3.60 billion, which rose 8.6% year over year and accounted for 45.8% of the total revenues. ARPU grew 10% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for UCAN decreased 1.2% from the year-ago quarter to 74.30 million, which was better than our estimate of 73.84 million. The company gained 0.91 million paid subscribers compared with the year-ago quarter’s 1.19 million.
Europe, Middle East & Africa (“EMEA”) reported revenues of $2.35 billion, which declined 6.9% year over year and accounted for 29.9% of the total revenues. ARPU grew 5% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for EMEA increased 3.6% from the year-ago quarter to 76.73 million, which was better than our estimate of 74.53 million. The company gained 3.2 million paid subscribers compared with the year-ago quarter’s net addition of 3.54 million.
Latin America’s (LATAM) revenues of $1.02 billion increased 5.5% year over year, contributing 13% to the total revenues. ARPU grew 7% from the year-ago quarter on a foreign-exchange neutral basis.
The paid subscriber base for LATAM rose 4.4% from the year-ago quarter to 41.70 million and was higher than our estimate of 40.69 million. The company gained 1.76 million paid subscribers compared with the year-ago quarter’s net addition of 0.97 million.
The Asia Pacific’s (“APAC”) revenues of $857 million decreased 1.6% year over year and accounted for 10.9% of the total revenues. ARPU decreased 17% year over year on a foreign-exchange neutral basis.
The paid subscriber base for APAC jumped 16.5% from the year-ago quarter to 38.02 million but was lower than our estimate of 38.53 million. The company added 1.8 million paid subscribers in the quarter, down 30.2% year over year.
Operating Details
Marketing expenses increased 4.9% year over year to $831.6 million. As a percentage of revenues, marketing expenses increased 30 basis points (bps) to 10.6%.
Operating income decreased 13% year over year to $549.9 million, higher than Netflix’s guidance of $330 million, driven by higher revenues and lower hiring. The operating margin contracted 120 bps on a year-over-year basis to 7% primarily due to unfavorable forex.
Balance Sheet & Free Cash Flow
Netflix had $6.06 billion of cash and cash equivalents as of Dec 31, 2022, compared with $6.11 billion as of Sep 30, 2022.
Long-term debt was $14.4 billion as of Dec 31, 2022 compared with $13.9 billion as of Sep 30, 2022.
Streaming content obligations were $21.83 billion as of Dec 31, 2022, compared with $21.57 billion as of Sep 30, 2022.
Netflix reported a free cash flow of $332 million compared with $471.9 million in the previous quarter.
Guidance
For the first quarter of 2023, Netflix forecasts earnings of $2.82 per share, indicating a 20% decline from the figure reported in the year-ago quarter.
The Zacks Consensus Estimate for the same is pegged at $2.97 per share, currently higher than the company’s expectation but suggesting a 15.86% decline from the figure reported in the year-ago quarter.
Total revenues are anticipated to be $8.172 billion, suggesting year-over-year growth of 3.9%. The consensus mark for revenues stands at $8.17 billion, almost in line with the company’s expectation and indicating 3.88% growth from the figure reported in the year-ago quarter.
The quarterly operating margin is projected at 19.9% compared with the 25.1% reported in the year-ago quarter.
For 2023, Netflix expects revenues on a foreign-exchange neutral basis to accelerate during the course of the year. Paid net additions are likely to be greater in the second quarter of 2023 compared with the first quarter due to the rollout of paid sharing more expansively.
Moreover, Netflix expects the operating margin to be 21-22%. Including forex, the range is expected to be 18-20%.