As anticipated, Netflix reported strong fourth quarter and full year 2020 results. One key highlight is Netflix’s addition of 8.51 million paid members (net) in the fourth quarter, bringing the total number of paid members to 203.7 million worldwide. This represents growth of 21.9% year-over-year. For the full year 2020, Netflix added 37 million paid members (net), a 31% increase over the 28 million paid members (net) added in all of 2019.

“2020 was an incredibly difficult year with extraordinary loss for so many families, new restrictions that none of us have ever had to live with before and great uncertainty. We’re enormously grateful that in these uniquely challenging times we’ve been able to provide our members around the world with a source of escape, connection and joy while continue to build our business,” said Netflix in its January 19, 2021 shareholder letter.

Fourth quarter highlights

Other highlights for the quarter include the following:

• Total revenue for the quarter was $6.7 billion, a 21.5% increase year-over-year.
• Operating income was $954 million, compared to $459 million in the fourth quarter of 2019.
• Operating margin for Q4 2020 was 14.4%, a 6% increase over the same period in 2019.
• Total net income for Q4 was $542 million, or $1.19 diluted earnings per share.
• Average paid streaming memberships increased 23% year-over-year, but average revenue per member was flat year-over-year.
• In terms of the company’s guidance, revenue was 1% higher than estimated, and paid net adds exceeded guidance by 2.5 million. Operating margin was also higher than expected.

First quarter 2021 guidance

For the first quarter of 2021, Netflix provided the following guidance:

• Netflix estimates paid net additions of 6 million, bringing total global streaming paid memberships close to 210 million, representing growth of 14.7%.
• Total revenue is forecast to be $7.1 billion, a 23.6% increase year-over-year.
• Operating income will be $1.78 billion with an operating margin of 25%.
• Net income is estimated at $1.36 billion, or $2.95 diluted earnings per share.

Content

Netflix offers a wide range of ad-free streaming content to suit a variety of audiences speaking many different languages. The streaming giant is well known for the quality of its Netflix Originals. During the fourth quarter, season 4 of The Crown premiered, bringing total viewers of the series to more than 100 million since the original series first launched. Netflix is expecting similar results, which it plans to release later this week, for Shonda Rhime’s Bridgerton, a period piece that Netflix says has been “immensely popular.”

Other popular programs during the fourth quarter included the original film The Midnight Sky starring George Clooney, which was viewed by approximately 72 million households in the first four weeks. Over the Moon attracted 43 million households, and We Can Be Heroes drew in viewers from 53 million households in four weeks. Two holiday movies were also widely viewed: Holidate reached 68 million households, while The Christmas Chronicles: Part Two reached 61 million households. Netflix has also had popular content created in other languages to appeal to audiences in Germany, Japan, Brazil, Argentina, Italy, Spain, Poland, and other countries. This has helped Netflix attract paid members internationally.

Though the pandemic put production on hold for a while, Netflix production is back in business in most regions of the world. Netflix has more than 500 shows in post-production or in preparation for launch, including at least one new original movie every week of 2021. First quarter 2021 releases include season 3 of Cobra Kai and Lupin.

User experience

As more streaming services compete for viewers and recurring revenue, they must set themselves apart through content and user experience. In 2020, Netflix improved parental controls, published top 10 lists around the world, and added a “new & popular” tab. Netflix is currently testing a feature that chooses a program for viewers to watch. Netflix said that early results of this new feature have been favorable.

Growing competition

In the last 14 months, Netflix has gotten a lot of new competition, including Apple TV+, Disney+, Peacock, HBO Max and Discovery+. User generated video content on platforms like YouTube, TikTok and Instagram are also competing for viewers. Netflix remains confident in its strategy to attract and retain members.

“Our strategy is simple: if we can continue to improve Netflix every day to better delight our members, we can be their first choice for streaming entertainment. This past year is a testament to this approach. Disney+ had a massive first year (87 million paid subscribers!) and we recorded the biggest year of paid membership growth in our history,” wrote Netflix.

Insider Take

Streaming video consumers have many choices for content these days, and more than 200 million of them are choosing Netflix because of the content. This is true even in light of Netflix’s recent price increase of $1 to $2 per month, depending on the plan, which goes into effect for many users during the next billing cycle. This price increase makes Netflix the most expensive streaming (without live TV) service available. If Netflix continues to provide high quality original content, and secure exclusive rights to license popular content, Netflix will have a strong 2021.