Netflix added nearly 19 million subscribers during the holiday-season quarter to help propel its earnings beyond analysts’ projections, capping the video streaming service's best year yet in a sign that its expansion into live programming is paying off.
The numbers released Tuesday covered a October-December period highlighted by Netflix’s streaming of a widely watched fight between YouTube sensation Jake Paul and former heavyweight boxing champion Mike Tyson in addition to two National Football League games on Christmas Day. Those marquee events helped Netflix to easily surpass the 13 million subscribers that picked up in the same quarter during 2023.
Although Netflix’s interest in live programming is primarily tied to its efforts to sell more commercials, it also appears to be giving current subscribers another reason to stick with the service while also reeling in more viewers to pay for the service. Netflix ended last year with more than 300 million worldwide subscribers, an increase of 41 million from 2023. That eclipsed its previous best year of growth during 2020 when its service added more 36.6 million subscribers amid pandemic lockdowns that kept people corralled at home and desperate for entertainment.
Forrester Research analyst Mike Proulx thinks live programming is quickly becoming Netflix's “secret ingredient” that is helping to widen its lead over its streaming rivals. “With more choice in programming than ever before, streaming services need to differentiate,” Proulx said. “FOMO (fear of missing out) is a powerful tool in piquing interest and creating stickiness.”
The October-December breakdown marked the last time Netflix plans to provide a quarterly count on its total subscribers as management tries to get investors to intensify their focus on the Los Gatos, California company’s financial performance.
And those figures were robust in the most recent quarter, with Netflix earning $1.9 billion, or $4.27 per share, nearly doubling from the same time in 2023. Revenue climbed 16% from the same 2023 period to $10.2 billion.
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To juice its finances even more this year, Netflix announced in its shareholder letter that it will be raising its prices in the U.S., Canada, Portugal and Argentina in the upcoming weeks. Netflix didn't spell out its new prices in those markets, but the company increases the costs of its plans in increments of a $1 to $2 per month.
Signaling that Netflix is confident the price increases won't trigger a backlash resulting in mass cancellations, Netflix slightly raised its revenue outlook for this year to a mid-range of $44 billion, which would translate into a roughly 13% increase from last year.
“When you’re going to ask for a price increase, you better make sure you have the goods and the engagement to back it up,” Netflix co-CEO Ted Sarandos said during a conference call with analysts.
Netflix’s shares surged by 14% in extended trading after the report came out. If the shares behave similarly in Wednesday's regular trading session, it will mark a new high for the stock. The shares soared by 83% last year to create nearly $200 billion in additional shareholder wealth as Netflix continued to extend its lead over the rest of the video streaming pack.
Besides asking subscribers to pay more, Netflix is trying to sell more advertising as part of an initiative that began in late 2022 with the introduction of a low-priced version of its service that included periodic commercial interruptions for the first time. The commercials are shown to all subscribers during live programming, one of the reasons Netflix is focusing more on the segment, leading to high-priced deals with the NFL, World Wrestling Entertainment and the Women’s World Cup. Netflix co-CEO Greg Peters told investors during the conference call that the ad-supported service accounted for more than half of Netflix's new subscribers during the last quarter,
Netflix's advertising evolution has "transitioned from crawl to walk” Peters said.
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Netflix still isn’t revealing how much advertising revenue that it’s bringing in, with management saying the amount will remain relatively small for at least another year or two.
But Netflix’s main drawing card remains scripted TV series and movies – an entertainment pipeline that this year will include new seasons of popular shows such as “Stranger Things,” “Squid Games,” and “You.” Netflix plans to increase its programming budget to $18 billion this year, an increase of about $1 billion, to keep its video pantry well stocked.