Content is king! Netflix has once again won the streaming battle with "Squid Game"

On Tuesday, Netflix (NFLX.US) solidified its dominance in the streaming video market, combining live sports events, popular returning series, and unique content like Beyoncé's NFL halftime show, helping it attract a record number of users during the holiday season. Against this backdrop, Netflix reported a record fourth-quarter earnings report, with revenue and profits once again exceeding analysts' expectations, and added billions of dollars to its buyback program.

User Growth: Relying on Quality Content

The streaming pioneer added a record 18.91 million net new users this quarter, a year-on-year increase of 44%, more than double the expected 9.18 million, bringing its global user base to over 300 million. These figures saw over 70% year-on-year growth in three regions, including its more mature domestic market of the U.S./Canada (adding 4.82 million, or 72%, compared to an expectation of 1.75 million). The Asia-Pacific region saw a 70% increase, Latin America grew by 77%; the Europe/Middle East/Africa market grew by 5 million, a year-on-year decline of 1%. The company's previous best record was 15 million in the first quarter of 2020, driven by the outbreak of the pandemic.

Netflix attributed the record membership growth to "broad strength in content, improved product/market fit across all regions, and typical seasonal factors in the fourth quarter." It also attracted new sign-ups due to recent key content changes, including the second season of its hit series "Squid Game" and major sporting events, including the boxing match between Mike Tyson and Jake Paul, WWE Raw, and Christmas NFL games.

The success of the second season of "Squid Game" also drove subscription growth, marking the platform's largest premiere to date, attracting 68 million views in its first week.

According to research firm Antenna, the registration numbers for the boxing match between Jake Paul and Mike Tyson set a record, even surpassing Netflix's first NFL game. The company stated that the match attracted 108 million viewers globally, making it the most-watched sporting event in history.

The two Christmas NFL games subsequently hosted by Netflix had a global average viewership of 30 million, becoming the highest-viewed football games ever. Earlier this month, Netflix also added live WWE "Raw."

Mike Proulx, director at research firm Forrester Research, stated, "It's clear that content drives users to stream services. With the maximum growth in subscribers, Netflix's focus on high-quality content is the reason for its strong overall performance this year and in the fourth quarter."

Meanwhile, Netflix announced that this would be the last time the company reports quarterly user numbers, as it will focus on sales and profits. Previously, the company's crackdown on password sharing led to a surge in new users Analysts and investors had previously expected that the benefits of this effort would gradually fade, but Netflix has just announced its highest-ever user increase in a year, with a net addition of 41 million new customers.

Seeking Alpha analyst Brett Ashcroft Green responded, "It will take another quarter to analyze how many new users are based on organic content increases and how many are based on the one-time event increase from Tyson/Paul. Compared to the Tyson-Paul boxing match that had 108 million viewers last November, their NFL program aired on Christmas Day is not a concern, which is a positive factor. However, the stock's valuation remains high. Analysts expect a year-on-year growth rate of only 12.17% in 2025. The expected price-to-earnings ratio for the stock is 35.97 times, and the expected PEG is still close to 3 times—where close to 1 or lower is a good GARP value."

Looking ahead to 2025, Netflix plans to further optimize its core business, launch more series and movies, improve user product experience, and continue to develop its advertising business. Additionally, the company will delve deeper into live events and gaming. In 2025, Netflix will welcome the return of two popular series, "Stranger Things" and "Wednesday," which are expected to further attract users and drive growth.

The company has secured broadcasting rights for the FIFA Women’s World Cup in 2027 and 2031. The company stated that this deal illustrates its strategy of providing special event programming rather than regular season sports programming.

Monetization: Price Increases and Advertising in Parallel

Netflix will raise its prices in the United States, Canada, Portugal, and Argentina. The price increase announced on Tuesday will raise the ad-free standard monthly fee from $15.49 to $17.99, while the ad-supported standard monthly fee will increase by $1 to $7.99. The highest-priced premium package, which includes 4K video quality, will increase by $2 to $24.99.

Regarding the price increase, Netflix stated, "As we continue to invest in content production and provide more value to our members, we occasionally ask members to pay a little more so that we can reinvest and further improve Netflix. To this end, we are adjusting the prices of most plans in the United States, Canada, Portugal, and Argentina (we have already considered this in the guidance for 2025 provided in October 2024)." In the fourth quarter, Netflix's increasingly important ad-supported service accounted for 55% of registered users in its home country, with the total number of subscribers to the ad plan increasing by 30% compared to the previous quarter. Building on this success, the streaming company announced an additional ad subscription plan to expand its footprint in 10 of the 12 "ad countries." Last November, Netflix launched its first-party advertising technology platform in Canada.

Live programs such as sports events are also crucial for Netflix's expansion of its advertising business. The company showcases ads to all members during soccer and wrestling matches, not just those on lower-priced, ad-supported plans. The streaming giant has been slow to start in advertising and has stated that it will not generate substantial economic benefits until 2026. However, it has begun to make progress. Most new customers in the 12 markets are opting for the ad plan, and the company stated that by the end of this year, it will have sufficient scale to meet advertisers' demands.

The company wrote in a letter: "Our newly established live programs have already provided some must-see moments. While our live programming may only account for a small portion of our total viewing time and content costs, we believe this balanced nature will bring tremendous value to our members and our business."

Macquarie Securities analyst Tim Nollen predicts that as more people sign up for the company's ad-supported plan and Netflix's advertising technology matures, the company's ad revenue will rise to $2 billion this year, with live events continuing to drive user registrations.

As streaming services increasingly raise monthly costs and push users toward lower-priced ad-supported plans to improve profitability, this price increase is the latest for consumers. In recent years, companies like Disney, Max, Peacock, and Apple have all raised prices. The last time Netflix increased its standard plan price was in 2022.

Seeking Alpha analyst Max Greve stated: "This is almost a home run. The company's performance is better than others. The price increase indicates that management remains confident in their new approach centered around paid sharing and advertising. This confidence is warranted as subscriptions remain strong. Some of the strongest growth is in the U.S. and Canada (UCAN), which are their highest revenue regions. Frankly, such reports are hard to feel optimistic about. One concern people may have is how large the scale of sports programming will be and whether sports programming will begin to crowd out regular entertainment programming as it does on cable. But that is speculation, and as the market reaction clearly shows, management's strong execution over the past 30 years has earned them the benefit of the doubt."

Nevertheless, the surge in advertising and paid subscriptions solidifies Netflix's dominant position in the streaming space. In recent years, as traditional cable and broadcast businesses have shrunk, traditional media companies have invested billions to launch their own streaming services to compete with Netflix. While some competitors, including Disney and CNN parent Warner Bros. Discovery, have recently achieved profitability in the streaming space for the first time, rivals have struggled to match Netflix's market share. Netflix is the most subscribed OTT streaming service in the U.S It accounts for 30.8% of the total revenue from OTT subscriptions in the United States. Therefore, Netflix is in a leading position in SVOD (Subscription Video on Demand) revenue.

PP Foresight analyst Paolo Pescatore stated: "Netflix has solidified its leadership position in the streaming market; it is absolutely in the lead. Compared to its competitors, it is now showcasing its strength by adjusting prices, as its programming lineup is much stronger and more diverse."

Profit Margin

The company reported a 16% increase in revenue this quarter, reaching $10.2 billion, the largest increase since the end of 2021, and stated that sales growth in 2025 will exceed expectations. This growth will be partly driven by price increases.

As the company continues to downplay quarterly membership and revenue forecasts, profit margins are increasingly in focus—its operating profit margin for the fourth quarter was 22.2%, significantly higher than 16.9% a year ago (but still the lowest profit margin in four quarters of 2024; the third quarter margin was 29.6%).

Netflix expects an operating profit margin of 28.2% for the first quarter of this year, slightly higher than 28.1% for the first quarter of 2024. Netflix expects first-quarter revenue to be $10.4 billion, with earnings per share of $5.58, both slightly below Wall Street's average expectations. The company also expects revenue this year to reach up to $44.5 billion, an increase of $500 million from previous guidance, representing a 14% growth compared to last year, with an operating profit margin of 29%.

The company also stated that its stock repurchase plan will increase by $15 billion, bringing its total authorized amount to $17.1 billion. Last year, Netflix repurchased 9.9 million shares at a cost of $6.2 billion. If there are no significant fluctuations in foreign exchange, free cash flow is expected to reach approximately $8 billion in 2025, assuming content cash expenditures of about $18 billion