Netflix blows away expectations on subscriber numbers

Key Points
  • Netflix added 7.66 million paid subscribers during the fourth quarter, more than the 4.57 million Wall Street expected.
  • This is the first quarter that Netflix's ad tier is reflected in its earnings.
  • Founder Reed Hastings is stepping down as co-CEO and will be executive chairman.

In this article

Illustration of stock trading graph of Netflix seen on a smartphone screen.
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Netflix added millions more subscribers in the fourth quarter than Wall Street expected, helping to send shares of the streamer up after the bell despite a big earnings miss.

The company also disclosed that co-CEO Reed Hastings would be stepping down from his position and transitioning to the post of executive chairman. Greg Peters, the company's chief operating officer has been promoted to co-CEO alongside the already established Ted Sarandos.

Here are the results:

  • EPS: 12 cents vs 45 cents per share, according to Refinitiv.
  • Revenue: $7.85 billion $7.85 billion, according to Refinitiv survey.
  • Global paid net subscribers: 7.66 million adds, compared to 4.57 million subscribers expected, according to StreetAccount estimates.

Netflix's EPS missed largely due to a loss related to euro-denominated debt, but its margins of 7% still topped Wall Street's expectations. The depreciation of the U.S. dollar compared to the euro during the fourth quarter isn't an operational loss.

Netflix is back: LightShed's Rich Greenfield on the streaming giant's earnings
Netflix is back: LightShed's Rich Greenfield on the streaming giant's earnings

This is the first quarter that Netflix's new ad-supported service is included in its earnings results. The company launched this cheaper tier in November, but has not disclosed what portion of the new subscriptions are from users who have opted for this service.

During the company's prerecorded earnings call, Netflix said that it has seen comparable engagement from its new ad tier members as it has seen with its regular consumers. Additionally, it noted that it has not seen a significant number of people switching plans. So, those who subscribe to its premium and more expensive offerings are rarely bumping down to the cheaper ad-supported model.

"We wouldn't be getting into this business if it couldn't be a meaningful portion of our business," said Spencer Neumann, the company's chief financial officer, during the call. "We're over $30 billion in revenue, almost $32 billion in revenue, in 2022 and we wouldn't get into a business like this if we didn't believe it could be bigger than at least 10% of our revenue."

Last quarter, the streamer said it was "very optimistic" about its new advertising business. Going forward, Netflix will no longer give subscriber guidance, although it will still report those numbers in future earnings reports. The rationale is that the company is growing its focus on revenue as its primary top line metric instead of membership growth.

"2022 was a tough year, with a bumpy start but a brighter finish," the company said in a statement. "We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering. As always, our north stars remain pleasing our members and building even greater profitability over time."

Netflix touted new releases like the television series "Wednesday," the docuseries "Harry and Meghan" as well as Rian Johnson's film "Glass Onion" as popular content during the quarter.

The company predicts that revenue growth in the first quarter 2023 will rise 4%, higher than the 3.7% Wall Street is currently projecting. Netflix says this growth will be driven by more paid memberships and more money per paid membership.

Additionally, the first quarter will mark Netflix's preliminary roll out of its paid sharing program, which aims to make money from users who previously shared passwords with people outside their own homes.

The company said it expects some users who were borrowing accounts to stop watching programming on the platform, because they are not added as extra members to existing accounts or do not convert to paid members.

"However, we believe the pattern will be similar to what we've seen in Latin America, with engagement growing over time as we continue to deliver a great slate of programming and borrowers sign-up for their own accounts," the company said.