Netflix Inc. had more than 200 million streaming subscribers for the first time in late 2020, as the number of sign-ups rose again despite higher prices in the US and Canada.
On Tuesday afternoon, Netflix NFLX,
reported 8.5 million net new subscribers in the fourth quarter, a dramatic increase from the 2.2 million reported in the previous quarter and well above Netflix and analyst estimates. Netflix attracted 25.9 million new subscribers in the first half of the year as shelter orders related to the COVID-19 pandemic spread worldwide, for an annual net profit of 36.6 million subscribers to 203.7 million in total.
That achievement led Netflix sales to rise to $ 25 billion for the first time and full-year profit to 48%. Executives gave investors a special treat after the big profits, telling them that they expect the money generated by the company to reliably fund day-to-day operations, after years of using massive debt to support the growing library of video content to fund.
The news sent Netflix shares up more than 10% in after-hours trading on Tuesday, despite earnings being lower than expected. After big gains during the surge in early 2020, Netflix shares had calmed down in the second half of the year, declining more than 5% in the past three months.
The No. 1 streaming service reported fourth-quarter net profit of $ 542 million, or $ 1.19 per share, compared to net profit of $ 1.30 per share in the same quarter a year ago. Sales improved from $ 5.47 billion a year ago to $ 6.64 billion. Analysts polled by FactSet had expected adjusted earnings of $ 1.36 per share on revenue of $ 6.6 billion.
After Netflix reported modest gains in the third quarter, there were fears that demand for Netflix was cooling amid increasing competition, and content from Walt Disney Co.’s DIS, among others,
Disney + and Hulu, AAPL from Apple Inc.,
Apple TV +, AT&T Inc.’s T,
HBO Max, AMZN from Amazon.com Inc.,
Prime Video and CMCSA from Comcast Corp.
Peacock.
“The boom in entertainment streaming has led older competitors like Disney, WarnerMedia and Discovery to compete with us in new ways, which we have anticipated for years,” executives wrote in a letter to shareholders Tuesday. “This is in part why we have continued to grow so quickly and further strengthen our native content library across a wide variety of genres and countries.”
Netflix has used massive debt to fund that content creation, but executives said in the letter that “we believe we’re close to sustainable. [free-cash-flow] positive ”, and only one piece of text in bold throughout the letter.
“We believe we no longer need external funding for our day-to-day operations,” the letter reads in bold.
Netflix began raising the price of popular streaming tiers in the US and Canada late last year as a way of counteracting slowing subscriber growth. Executives predict Netflix would net 6 million new subscribers in the first quarter of the year, which would be a huge drop from more than 15 million who signed up as COVID-19 around the world in the first quarter from 2020.
While executives didn’t provide annual guidelines for adding subscriptions, they did say business margin growth would slow, a sign they don’t expect to add that many subscribers in 2021. After gross margin increased 5 percentage points to 18% in 2020, expect more modest growth this year of about 2 percentage points to 20%.
“We plan to grow our operating margin every year at an average rate of 3 percentage points per year over a few years, but we expect some unrest,” executives wrote. “Some years we are slightly over (such as in 2020), other years a bit below (such as in 2021).”
Netflix shares are up 47% in the last 12 months, while the S&P 500 index SPX,
is up 13%.