Though the first half of 2022 was a rocky for the streaming giant, Netflix finished 2022 strong with revenue and subscriber growth and a slate of content that pushed them over the finish line. Other highlights for the company’s fourth quarter of last year include major leadership changes and the launch of a lower-priced, ad-supported tier.

“2022 was a tough year, with a bumpy start but a brighter finish. 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,” said Netflix is a January 19, 2023 shareholder letter.

Fourth quarter financial highlights

For the fourth quarter 2022, Netflix reported the following financial highlights:

• Revenue was $7.85 billion, representing 1.9% growth year-over-year, slightly above forecast.
• Operating income was $550 million, compared to $632 million in Q4 2021. The company forecast $330 million so the increase was due to higher revenue and a slower hiring pace.
• Operating margin was 7.0%, compared 25.1% in Q1, 19.8% in Q2 and 19.3% in Q3.
• Net income was $55 million, or $0.12 diluted earnings per share, down significantly compared to the first three quarters of the year.
• Netflix reports 230.75 million total global streaming subscriptions, representing 4.0% growth year-over-year, and paid net additions of 7.66 million, higher than the 4.5 million paid net additions the company projected.

In the shareholder letter, Netflix commented on the lower-priced, ad-supported tier which launched in November. The company said they were pleased with early results and said there was “much more still to do.” While Netflix may be pleased, not all advertisers were. The streaming subscription service missed viewership targets and negotiated refunds and other advertising opportunities with brands that didn’t feel they got their money’s worth.

Content success

Netflix shared some of their recent successes in content:

• Five of Netflix’s top-10 most popular English language TV seasons ever were launched in 2022: Stranger Things 4, Wednesday, Monster: The Jeffrey Dahmer Story, Bridgerton S2, and Inventing Anna.
• Four of Netflix’s top-10 most popular English language films were launched in 2022, too: The Adam Project, The Gray Man, Purple Hearts and Glass Onion: A Knives Out Mystery
• Wednesday was Netflix’s third most popular series of all time, and Harry & Meghan was the second most popular documentary series.
• Troll was the most popular non-English film.
• Glass Onion: Knives Out Mystery was the fourth most popular film.

Leadership changes

As part of the company’s succession plan, the streaming giant has made some significant leadership changes. Netflix founder Reed Hastings has left his role as co-CEO and will serve as the board’s executive chairman. Greg Peters was promoted from chief operations officer to co-CEO alongside Ted Sarandos and to join the Netflix board. The pair have worked closely together for 15 years.

“Going forward, I’ll be serving as Executive Chairman, a role that founders often take (Jeff Bezos, Bill Gates, etc.) after they pass the CEO baton to others. Ted, Greg and I have been working closely together in different capacities for 15 years. As is common in long, effective relationships, we’ve all learned how to bring out the best in each other. I look forward to working with them in this role for many years to come,” said Hastings in a blog post.

“Ted and Greg have developed great trust and respect for each other through their collective successes and failures. In addition, they can always be relied upon to put Netflix’s interests first. These qualities — combined with their complementary skill sets, deep knowledge of entertainment and technology, and proven track record at Netflix — create a unique opportunity to deliver faster growth and greater success long term with them as co-CEOs,” Hastings added.

Hastings said he will serve as a “bridge” between the board and the co-CEOs, and he will be “very focused” on the success of Netflix stock. In addition to these changes, Bela Bajaria, previously head of global TV, was named chief content officer and Scott Stuber is chairman of Netflix Film.

First quarter 2023 forecast

“Revenue is our primary top line metric, particularly as we develop additional revenue streams where membership is just one component of our growth (like advertising and paid sharing). The quarterly guidance we provide is our actual internal forecast at the time we report. As always, we strive for accuracy although the rollout of major new initiatives (paid sharing and ads) plus current uncertain macroeconomic environment leads to less-than-normal visibility,” Netflix said.

For the first quarter of this year, Netflix forecasts the following:

• Revenue of $8.17 billion, representing 3.9% growth year-over-year
• Operating income of $1.63 billion, and an operating margin of 19.9%
• Net income of $1.23 billion, or $2.82 diluted earnings per share

As previously reported, Netflix plans to roll out paid sharing more widely, beginning in the first quarter. In their early testing in Latin America last year, Netflix learned that implementation of paid sharing will result in some cancellations. This will eventually be offset by some “borrower householders” implementing their own standalone subscriptions or extra member accounts which will positively impact
revenue.

The company’s primary long-term financial objectives include sustaining double-digit revenue growth, expansion of operating margin and growing positive free cash flow. For 2023 specifically, Netflix was to improve their service, grow their advertising business, and launch paid sharing.

Netflix stock

Investors were impressed with Netflix’s performance. The Q4 2022 financials were released on Jan. 19, Netflix stock was valued at $315.78 per share. The following day, Netflix was valued at $342.50, an increase of $26.72 in 24 hours and $44.75 in the last month.

Source: Google

Insider Take

Netflix, the oldest and arguable the most successful streaming subscription service, often takes heat when a quarter doesn’t go as planned or their ad-supported tier was not immediately successful. But this is a smart company that takes risks, tries new things, and adapts as needed. When everyone else coud only see the slowed growth and layoffs, we believed that Netflix would make the needed adjustments and get back to business as usual. They are playing the long game, and we are confident they will succeed.

Takeaways for subscription companies: Try not to get caught up in the naysayers, whether they are investment experts or the media. Stick to your long-term plan, make short-term adjustments as needed, and stay true to your mission. In Netflix’s case, that is providing a premium streaming subscription service people love while also creating a sustainable, profitable organization for your investors.