Netflix Q4 sets a new record for net addition of paid subscribers, implying a potential price increase. After-hours trading surges over 8%.

Zhitong App learned that after the US stock market closed on Tuesday, streaming giant Netflix (NFLX.US) announced its financial performance for the fourth quarter of 2023. Netflix achieved a record high in net additions of streaming paid subscribers in Q4, with revenue and earnings per share guidance for the first quarter of this year exceeding market expectations. At the same time, it signaled that there will be further price increases this year. Boosted by this news, Netflix's stock rose more than 8% after hours on Tuesday.

The data shows that Netflix's Q4 revenue increased by 12.5% YoY to $8.833 billion, surpassing market expectations of $8.71 billion. Net profit was $938 million, compared to $55 million in the same period last year; diluted earnings per share were $2.11, lower than the market expectation of $2.22, mainly due to a $239 million non-cash loss caused by exchange rate fluctuations. Operating profit was $1.496 billion, compared to $550 million in the same period last year; the operating profit margin was 16.9%, compared to 7.0% in the same period last year.

Driven by a strong lineup of programs such as the final season of "The Crown" and David Fincher's original film "Killer," Netflix's global streaming paid subscribers reached 260.28 million in Q4, with a net addition of 13.12 million, exceeding market expectations of 8.91 million and setting a new record for net additions in the fourth quarter. In terms of regions, the net addition in the United States and Canada (UCAN) was 2.81 million, in Europe, Middle East, and Africa (EMEA) was 5.05 million, in Latin America (LATAM) was 2.35 million, and in the Asia-Pacific region (APAC) was 2.91 million.

Looking ahead to the first quarter of 2024, Netflix expects Q1 revenue to increase by 13.2% YoY to $9.24 billion, slightly lower than the market expectation of $9.28 billion; diluted earnings per share are expected to be $4.49, higher than the market expectation of $4.09. The company also expects a net addition of 1.8 million streaming paid subscribers in Q1.

It is worth mentioning that Netflix signaled further price increases in its shareholder letter. This is terrifying for price-sensitive consumers but cheers up investors. Netflix stated, "As we invest and improve Netflix, we occasionally ask our members to pay a little more to reflect these improvements, which in turn helps to drive a virtuous cycle of additional investment, further improving and developing our service."

In November 2022, Netflix launched an ad-supported subscription plan to combat password sharing and provide users with a cheaper way to access its content. The company stated earlier this month that the active users of the ad-supported subscription plan have reached 23 million, an increase from 15 million in November.

In addition, Netflix announced on Tuesday that it has reached a multi-year agreement to obtain the exclusive broadcasting rights of the flagship program "Raw" of World Wrestling Entertainment (WWE) in multiple countries including the United States, Canada, Latin America, and the United Kingdom, starting from January 2025. It is reported that this 10-year agreement is worth over $5 billion, marking Netflix's latest attempt in the field of sports broadcasting. It is reported that Raw, which airs every Monday, is the longest-running program brand under WWE. Since its premiere in 1993, it has aired over 1600 episodes, making it the longest-running television program in the history of North American professional sports. The partnership with WWE signifies Netflix's long-term commitment to live sports events, which may help attract loyal fans of these programs.

With more content, Netflix may have more leverage to persuade users to pay higher fees. The company stated in its shareholder letter that it plans to increase the amortization of content costs by a "high single-digit percentage" annually. Netflix's competitor, Disney (DIS.US), plans to launch its ESPN platform under the direct-to-consumer (DTC) business later this year or in 2025. The cost of this product may be much higher than Netflix's, providing an excuse for Netflix to raise prices as consumers may perceive Netflix to offer better value for money.