At the end of 2020, Netflix Inc. reached 200 million streaming subscribers for the first time, as subscriptions rose again despite higher prices in the US and Canada.
On Tuesday afternoon, Netflix NFLX,
reported 8.5 million net new subscribers in the fourth quarter, a dramatic increase from the 2.2 million reported in the previous quarter, which is far better than Netflix and analysts. Netflix attracts 25.9 million new subscribers in the first half of the year, as covert orders related to the COVID-19 pandemic spread worldwide, for an annual net profit of 36.6 million subscribers to 203.7 million .
The performance led to Netflix’s revenue rising to $ 25 billion for the first time and profits for the full year up 48%. Managers have given investors a special treat after the huge profits and tell them that they expect the cash generated by the business to be able to reliably finance the day-to-day operations going forward, after years of huge debt to the growing library of video content to finance.
The news boosted Netflix’s shares by more than 10% on Tuesday, despite lower-than-expected gains. After huge gains amid the early rise in 2020, Netflix shares calmed in the second half of the year, falling more than 5% over the past three months.
The No. 1 streaming service showed fourth-quarter net income of $ 542 million, or $ 1.19 per share, compared to net income of $ 1.30 per share in the previous quarter. Revenue improved to $ 6.64 billion from $ 5.47 billion a year ago. Analysts surveyed by FactSet expected adjusted earnings of $ 1.36 per share on sales of $ 6.6 billion.
After Netflix reported modest gains in the third quarter, there was fear that demand for Netflix was declining amid increasing competition and content, as Walt Disney Co. if DIS,
Disney + and Hulu, AAPL from Apple Inc.,
Apple TV +, AT&T Inc. see T,
HBO Max, AMZN from Amazon.com Inc.,
Prime Video and CMCSA from Comcast Corp.
Peacock.
“The huge growth in streaming entertainment has allowed experienced competitors such as Disney, WarnerMedia and Discovery to compete with us in new ways, which we have been expecting for many years,” executives wrote in a letter to shareholders on Tuesday. “This is partly why we have moved so fast to further expand our original content library across a wide range of genres and nations.”
Netflix used large amounts of debt to fund the creation of the content, but executives said in the letter that ‘we believe we are very close to being sustainable [free-cash-flow] positive ”, and bolded only one bit of text throughout the letter.
“We believe we no longer have a need to raise external funding for our day-to-day operations,” the letter reads in bold.
Towards the end of last year, Netflix began raising the price of popular streaming levels in the US and Canada as a way to counter the slow growth of subscribers. Managers predict that Netflix will generate just 6 million new subscribers in the first quarter of the year, which will be a huge decrease from more than 15 million that distributed COVID-19 worldwide in the first quarter of 2020.
Although executives have not given annual clues on adding subscribers, they said growth in the operating margin would slow, a sign that they expect not to add as many subscribers in 2021. After growing the gross margin by 5 percentage points to 18% in 2020, expect modest growth of around 2 percentage points, to 20%, this year.
“We aim to grow our operating margin each year at an average rate of 3 percentage points per year over a number of years, but we expect some clumsiness,” managers wrote. “Some years we will be a little over (like in 2020), some years a little less (like in 2021).”
Netflix shares have risen 47% over the past 12 months, while the S&P 500 index SPX,
increased by 13%.