Netflix earnings showed the that company hauled in nearly double the amount of new members that Wall Street was expecting for the fourth quarter
Netflix Inc. trounced Wall Street’s subscriber expectations for the holiday quarter – just as it prepares to do away with the metric.
The company reported 18.9 million paid net additions for the fourth quarter. Analysts tracked by FactSet were anticipating 9.77 million.
Netflix (NFLX) called out success in live programming, including with its Jake Paul-Mike Tyson boxing match and NFL Christmas slate.
“Although our live programming will likely be a small percentage of our total view hours and content expense, we think the eventized nature will result in outsized value to both our members and our business.”
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The following is a preview published before earnings were released.
It’s the end of an era for Netflix, which has said that it will stop giving out quarterly subscriber updates after the fourth-quarter report due out on Tuesday afternoon.
Netflix shares have a tendency to move on the subscriber numbers, and this time around, the potential for a beat may hinge on one thing: sports. The company has been making a bigger push into live sports programming, and during the fourth quarter it had some key events including Christmas NFL programming and the fight between Jake Paul and Mike Tyson. Rosenblatt Securities analyst thinks this could drive upside to subscriber metrics in the latest period.
Read: The Mike Tyson-Jake Paul fight was a payday for more than just the winner
There’s a flip side, though, in that those who tuned in for these sports events might not prove sticky subscribers. Netflix is betting on sports in hopes it can win over new viewers and get them to stay, but Crockett notes that there’s “some risk” to the first quarter if some sports subscribers quickly cancel their memberships.
Sports are important beyond their subscriber impact, he continued. The company’s guidance calls for $10.128 billion in revenue for the fourth quarter, up $303 million from what it posted in the third quarter. “But factors argue that this could be beaten,” he wrote, given advertising revenue from the two football games and the company’s commentary that it sold out all slots for those games.
See also: Netflix broadens live-sports footprint with Women’s World Cup as it looks for a bigger subscriber base and more ad reach
This, too, adds to the first-quarter pressure, however. “Ad revenue for the new WWE Raw is probably a fraction of the NFL Christmas,” Crockett said in his note to clients. That could make it difficult for Netflix to achieve the $400 million in sequential revenue growth implied by consensus estimates, and Netflix’s guidance may reflect that.
“With Netflix, revenue variances tend to flow directly into operating profit,” Crockett wrote.
Macquarie’s Tim Nollen will also be watching for the impact of sports on Netflix’s business. “We expect live events to become a big driver of [subscriber] addition and retention, with concurrent costs,” he wrote.
By his estimates, Netflix likely made money off of its NFL showing, and he and his team “are optimistic that while content costs will rise, it will still push through 30% operating margin in 2027.”
With subscriber numbers going away, Netflix’s management is expected to emphasize the metrics that will become more important to the investment story going forward. “The focus now shifts to better monetizating the ad tier, with likely live sports expansion and price increases boosting revenue and earnings,” Nollen said in his report.
For the fourth quarter, analysts tracked by FactSet expect $10.112 billion in revenue, up from $8.833 billion a year earlier, along with $4.21 in earnings per share, essentially double the year-prior number. Analysts also model 9.77 million paid net additions.
Looking to the first quarter of 2025, analysts are looking for revenue of $10.49 billion and earnings per share of $5.97.
Nollen sees U.S. price hikes as “imminent” for Netflix, and he thinks the company would be able to withstand those pretty well from a churn perspective. Many streaming companies hiked increased prices in 2024 “and still saw subscriber growth throughout the year,” according to Nollen. Plus, subscribers could move down to the advertising tier if they didn’t want to pay an increased membership fee.
See more: As Hollywood reels, Netflix’s streaming lead is intact ahead of earnings. But expect price increases this year.
Netflix shares are up 79% over the past year, closing Friday at $858, and at least 10 analyst price targets stand at or above $1,000, according to FactSet data. With that in mind, it’s always worth watching whether Netflix’s management opts for a stock split. Executives at Nvidia Corp. (NVDA), Chipotle Mexican Grill Inc. (CMG) and some other high-profile companies with formerly high stock prices proceeded with splits in 2024.