Netflix Beats Q4 Subscriber And Revenue Forecasts, Sees Cash-Rich Future
Netflix beat forecasts for subscriber growth and total revenue in the fourth quarter, adding 8.5 million subscribers to reach a global total of 203.7 million.
The wave of new subscriptions exceeded company guidance for 6 million new customers in the fourth quarter and caps a remarkable 2020, when Netflix added about 37 million subscribers. Revenue hit $6.6 billion, just a shade ahead of expectations. Earnings per share fell about 20 cents short of expectations at $1.19 a share, down from $1.30 in the year-earlier period.
Netflix stock has pulled back almost 7% in 2021 to date, but it rose 4% today to finish at $501.77 and rocketed another 13% after hours on the earnings news. It surged 67% in 2020 amid a broad advance by tech stocks during the onset of Covid-19.
In a significant milestone, the streaming leader also said it expects to be cash-flow positive from 2021 onward and expects this year to be cash-flow neutral. With ample cash on hand, Netflix noted that it will pay bonds maturing February 1. If that all comes to pass, it will mean less dependence on the debt market, where prior fundraising efforts have raised concerns from some Wall Streeters despite the company’s weed-like growth.
“Combined with our $8.2 billion cash balance and our $750 million undrawn credit facility, we believe
we no longer have a need to raise external financing for our day-to-day operations,” the company said in its quarterly letter to shareholders.
In a related surprise, the company also said it might explore returning cash to shareholders through ongoing stock buybacks, which it did from 2007 to 2011.
The upswing in the fourth quarter followed a more muted showing in the third quarter, when it signed up just 2.2 million subscribers. That was a sharp drop from the boom in the first half of 2020, when 26 million customers came aboard during the first half of the year, amid the most severe lockdowns of the coronavirus pandemic.
A price increase for Netflix subscriptions in the U.S. was announced in the fourth quarter and has just taken effect, boosting the monthly rate of the most popular plan to $14 a month from $13. It was the first hike in two years and comes as Netflix faces mounting competition domestically.
Programming highlights for Netflix in the quarter include the fourth season of The Crown, the debut of The Queen’s Gambit and original movies like The Christmas Chronicles 2 and Oscar hopefuls like Mank.
Netflix remains well ahead of fast-rising Disney+, which reached 86.8 million global subscribers in December, but it faces more competition than ever. Parents of new streaming rivals like Disney+, HBO Max, Apple TV+, Peacock and Discovery+ will soon also report their quarterly financials and shed some light on their progress.
In the shareholder letter, Netflix name-checked all other recent entrants, even throwing in a couple on the next tier down, Discovery+ and Paramount+, the rebranding of CBS All Access slated to kick in on March 4. Unlike past letters, which conspicuously omitted other companies, this one even noted Disney’s subscriber tally with an admiring exclamation point.
“It’s a great time to be a consumer of entertainment,” the letter declared. “There are a wealth of options ranging from linear TV to video gaming to user generated content on YouTube and TikTok. We continue to work hard to grow our small share of screen time against these major competitors.”
The shareholder letter also said that each January the company plans to provide an update on the long-term performance of its stock. A set of tables showed that it has dramatically outpaced the major stock indices in terms of annual return. An investment of $10,000 in Netflix stock upon its initial public offering in 2002 would have turned into more than $5 million today.
The company said it plans to keep $10 to $15 billion in gross debt on its books.
Net cash generated by operating activities in the fourth quarter was a negative $138 million versus negative $1.5 billion the year earlier, according to the quarterly report.
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