Netflix Inc. ended its greatest yr in firm historical past with a bang, powering its inventory to intraday and shutting highs after including extra clients than anticipated and saying it now not must borrow cash to construct its leisure empire.
The world’s main paid streaming service attracted 8.51 million new subscribers within the last three months of the yr, helped by the recognition of hit reveals corresponding to “Bridgerton” and “The Queen’s Gambit.” That outpaced Netflix’s personal forecast and the 6.06 million projected by Wall Street. The firm’s shares rose 17% — probably the most since October 2016 — to $586.34 in Wednesday buying and selling.
The earnings report after Tuesday’s shut included two key milestones for Netflix: The firm handed the 200 million-subscriber mark for the primary time and mentioned its money circulate will permit it to cease counting on debt to gas its progress. With $8.2 billion in money — and a credit score line that hasn’t been drawn down — Netflix mentioned it now not wants exterior financing. It’s additionally contemplating inventory buybacks, one thing it hasn’t accomplished in a few decade.
The pandemic has offered an enormous increase to Netflix’s enterprise, forcing folks inside and limiting different leisure choices like film theaters and concert events. The firm added 25.9 million clients within the first six months of final yr, and ended up including 36.6 million clients in all — a document.
“It’s accelerated that big shift from linear to streaming entertainment,” Spencer Neumann, the corporate’s chief monetary officer, mentioned on a name with buyers and analysts Tuesday.
Netflix has repeatedly warned that the surge within the first half of 2020 would restrict its progress in subsequent quarters — what it calls the “pull-forward” impact. Neumann cautioned this could proceed to have an effect on progress in 2021, and Netflix gave a conservative estimate for the present quarter. It expects so as to add 6 million new subscribers within the interval, in contrast with a mean analyst estimate of seven.45 million.
But Netflix discovered extra runway than anticipated within the newest interval.
Its progress over the past yr dispelled two frequent critiques of the corporate. Skeptics of Netflix have lengthy recognized its debt as a looming catastrophe, arguing an financial recession would cripple the corporate and trigger clients to cancel subscriptions en masse.
Burning Cash
While Netflix has constantly reported income, it needed to borrow billions of {dollars} to fund its spending on new packages. It had unfavorable free money circulate of $3.3 billion in 2019, its worst on document. Since then, it’s turned a nook. Free money circulate can be near the break-even level in 2021, Netflix mentioned Tuesday. Analysts had projected unfavorable $619.7 million. Against that backdrop, Netflix’s debt spree seems to be like a worthy funding. It borrowed some $15 billion to spice up its market capitalization by greater than $200 billion.
Critics have additionally argued Netflix would endure when rival media firms pulled their hottest titles from the service and created their very own rivals. Yet Netflix posted its greatest efficiency but in the identical yr that a number of new rivals entered the fray and Disney+ added 87 million paid subscribers.
What Bloomberg Intelligence Says
“The bigger story was free-cash-flow guidance for 2021… We think that should put an end to bears’ concerns about endless cash burn, especially after $3.3 billion in 2019 free-cash-flow losses. The narrative seems to have squarely shifted to the operating leverage that Netflix has with its investments in global content.”
–Geetha Ranganathan, senior media analyst
“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,” the corporate mentioned in a letter to shareholders. “This past year is a testament to this approach.”
Netflix shares climbed as a lot as 18% to $593.29 throughout Wednesday’s buying and selling. The inventory rallied 67% final yr, however issues about slowing progress had weighed on Netflix in 2021. Through Tuesday’s shut, it was down 7.2% for the reason that begin of the yr.
“Investors come out of the fourth quarter incrementally more bullish on the potential of a powerful developing shareholder return story for Netflix in the coming years,” Evercore ISI analyst Lee Horowitz wrote in a be aware.
Analysts at J.P. Morgan Securities mentioned the corporate is more likely to start share buybacks within the second half of the yr.
Global Service
Netflix, based mostly within the Silicon Valley city of Los Gatos, California, is leaning extra on worldwide markets now that its residence market of North America is basically saturated. The service has relied on Europe and Latin America to produce most of its new clients in the previous few years, and is simply beginning to crack Asia. More than 60% of its clients now dwell exterior the U.S. and Canada, and 83% of its new additions in 2020 got here from overseas. Europe equipped 41% of its new clients — nearly 15 million folks — whereas Asia added 9.3 clients, the second most.
Netflix has thrived by creating pipelines of latest packages from everywhere in the world that enchantment to viewers exterior of the native tongue. In the fourth quarter alone, Netflix launched well-liked sequence in German, Korean, Japanese and French.
The English-language “Queen’s Gambit” and “Bridgerton” had been each main hits for Netflix. “Queen’s Gambit” was seen by 62 million households in its first 28 days on the service, whereas “Bridgerton” is on monitor to succeed in 63 million accounts.
But a more recent present, launched this month, underscores Netflix’s world attain. “Lupin,” a French crime sequence starring Omar Sy, has develop into the second-biggest debut within the firm’s historical past. It’s on monitor to be watched by 70 million households in its first 28 days on the service.
This range of reveals is what’s going to assist Netflix proceed to develop, each at residence and overseas, within the face of rising competitors.
“We’re still a very small share of even just pay-TV penetration in most markets around the world and small share of viewing,” Neumann mentioned.
