Netflix Q4 Earnings Live Blog

Eric Jhonsa

Netflix kicks off tech earnings season with its fourth quarter earnings report on Tuesday after the close.

Analysts polled by FactSet are expecting the streaming giant to report adjusted fourth-quarter EPS of $1.36 on revenues of $6.62 billion, and to have added 6.19 million paid net subscribers in the quarter, for a total of 201.32 million subscribers worldwide. Investors will be looking to see how quickly Netflix managed to grow during the ongoing pandemic, particularly compared to its growing raft of streaming rivals. 

RealMoney's tech columnist, Eric Jhonsa, is analyzing the company's earnings report after results are released right after the close, as well as the "video interview" with Netflix executives that's scheduled to begin streaming at 6 p.m. ET.

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Eric Jhonsa
Eric Jhonsa

Editor

Netflix's call has ended.

Netflix's shares, which had been range-bound since July, are currently up 12.5% after hours to $564.50 as markets give a thumbs-up to the company's Q4 paid subscriber net adds (8.5M, above a consensus of 6.19M), which were fueled in part by 4.46M net adds in the EMEA region.

The company's guidance for 2021 FCF of "around break even" is also being well-received in light of expectations that 2021 will be a heavy content-spending year, as are Netflix's comments about how it will explore future stock buybacks and believes it no longer needs external financing. The positives are outweigh Netflix's Q1 paid net add guidance of 6M, which is below an 8.49M consensus.

Thanks for joining us.

Eric Jhonsa
Eric Jhonsa

Editor

Question about whether Netflix has any regrets about missed opportunities (for example, does it regret spinning off Roku?). Also, one about how much it views non-streaming entertainment sources such as Fortnite as competition.

Wang: We think we face a lot of different types of competition. We still have a lot of work to do to further grow our streaming regret. I've been here 5 1/2 years, and can't think of anything that comes to mind as a major regret for the company.

Hastings (laughing): Spencer's regret is that he didn't join 3 years earlier. If we kept Roku, it's unlikely that it would've become the success that it now is. We're happy for their success, but we have no regrets.

He finally brings up one regret: Not buying a global license to House of Cards in its first year.

Eric Jhonsa
Eric Jhonsa

Editor

Question about recent streaming M&A transactions done by Asian firms, and what kinds of content assets Netflix would like to acquire.

Wang: We'd prefer to obtain streaming subs organically rather than via M&A. The acquisitions we'd like to do are ones that would bolster our core business.

Sarandos: Historically, we've been builders rather than buyers. I used to quip to employees that one day we'll be so big we'll have a VP of anime. Today we're one of the biggest anime producers in the world.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Netflix's appointment of Strive Masiyiwa, a businessman originally from Zimbabwe, to its board, and what it might signal about its plans for Africa.

Hastings: Strive is a global board member. He's a voice about how to build large subscription businesses. We've been broadening our global board membership. Africa has a ton of potential, but that's not Strive's role specifically.

Eric Jhonsa
Eric Jhonsa

Editor

Question about what Netflix has seen in terms of churn and cohort behavior as it has raised prices in various regions.

Peters: We're looking for "signals and signs" from members that we've added more value to them. That's what influences our decision-making regarding price hikes.

Eric Jhonsa
Eric Jhonsa

Editor

Question about whether Netflix could see ARPU growth accelerate in the coming years.

Peters: We compete against a variety of entertainment sources. It's "super exciting" to drive value creation by expanding the range of content that customers view, and we have a lot of room to keep doing that.

Hastings says Netflix has been "super cautious" about how it raises prices, and (after getting some numbers from Wang) notes ARPU has risen just 10% over the last 3 years.

Neumann: We recently hiked prices in the U.S. and U.K., and still had good subscriber growth. It speaks to Netflix's value proposition.

Eric Jhonsa
Eric Jhonsa

Editor

Question about why licensing major new studio movies isn't an attractive model for Netflix.

Sarandos: We're not saying that it isn't, but our current model has been the most attractive one.

Peters: We'd prefer not to have a transactional approach to selling content and stick with our current subscription-based approach.

Sarandos: Our approach also leads many consumers to watch content (for example, foreign-language hits such as Lupin) that they may have never previously considered watching.

Hastings: Consumers look at home entertainment and theaters as different experiences, much like they view dining out as different from making dinner at home.

Eric Jhonsa
Eric Jhonsa

Editor

Question about movies having shorter release windows, and whether that opens up opportunities for Netflix to initially show films in theaters with small exclusivity windows.

Sarandos: We've never had an issue with our movies being in theaters. Our issue has been with the long exclusivity windows we'd have to agree to. If those windows collapse, we'd love to have our films both in theaters and on Netflix. The theater-viewing experience is very different from the streaming experience, it's just not core to our business.

Hastings notes Warner Bros. recent decision to simultaneously show new films in theaters and on HBO Max, and says he hopes it sparks a trend.

Eric Jhonsa
Eric Jhonsa

Editor

Question about the enormous number of original films Netflix is launching (now around 70/year), and how it evaluates returns on these investments.

Sarandos: It's likely more than 70. People have very diverse tastes in movies. We're now working with a lot of A-list talent to create popular content, and will keep investing.

Eric Jhonsa
Eric Jhonsa

Editor

Question about whether Netflix can do other things in Asia-Pac to drive more growth there.

Peters: There are a lot of things that we can do. Improving local-language capabilities, for example. We can also add more payment options, create more partnerships to drive sign-ups, etc.

Eric Jhonsa
Eric Jhonsa

Editor

Question about future ARPU and revenue growth.

Peters: We're proud of our sustained $4B-$5B/year in revenue growth. But we have to find ways to improve the accessibility of Netflix, which at times spells trade-offs between subscriber growth and ARPU. However, we pay close attention to revenue optimization.

Neumann adds that the APAC region, where Netflix has rolled out cheap mobile-only plans in some markets, was the second-largest contributor to growth in Q4.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Netflix's learnings from experiments such as providing Netflix for free to all Indian subs for a weekend.

Peters: We saw tremendous interest in the Indian test. Now we have to glean learnings from this data, and that will inform how we act in the future.

Adds that Netflix is also trying to come up with new ways to improve content discovery among customers who aren't sure what to watch. One example: Letting customers click one button to instantly begin streaming something without having to browse.

Eric Jhonsa
Eric Jhonsa

Editor

Question about whether the launch of new streaming services opens up new distribution options.

Peters: We're seeing a big macro shift towards streaming, and the pandemic has accelerated it. We're looking to be innovative in terms of how we accelerate growth, improve distribution, etc., as well as better pleasing existing customers.

Eric Jhonsa
Eric Jhonsa

Editor

Co-CEO Ted Sarandos: Our goal is to make everyone's favorite show. Other companies will try to do that as well, and people will supplement their Netflix subscriptions with other ones. That's a healthy dynamic.

COO Greg Peters: It's also worth comparing Netflix and Disney+ in terms of revenue, rather than just subscribers.

IR chief Spencer Wang: It's worth keeping in mind that about 30% of Disney+ subs are Disney+Hotstar subs, which is a very different service. Throw in the fact that we're coming from a higher level of penetration, and we feel very good about where we stand.

Eric Jhonsa
Eric Jhonsa

Editor

Question about whether Netflix has to work harder than Disney to achieve comparable scale.

Hastings: What Disney has done is super impressive. It shows how large of a market there is for great content and stories. We're "fired up" about competing against Disney and catching up in animation. The competition will be great for consumers.

Hastings also hints at the fact that Disney+'s family-oriented approach to content means that some popular Netflix material will be very different than what appears on Disney+.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Netflix's 2021 FCF guidance and buyback commentary. Also a question about Netflix using an absolute debt target ($10B-$15B) rather than a debt leverage target.

Neumann: We're proud of where we now are from an FCF standpoint. We plan to remain "disciplined stewards" of shareholder capital, but we've reached a turning point in our story and want to return excess cash to shareholders. We'll continue investing aggressively in growth opportunities, but will return cash that we don't need.

Eric Jhonsa
Eric Jhonsa

Editor

Question about regional subscriber trends.

Neumann: The story is pretty similar around the world, even if every place is a little different. We're seeing growth everywhere, though some markets are more mature than others. We're roughly 60% penetrated in the U.S./Canada. We still have a lot of headroom to grow.

Reed Hastings: We're still at less than 10% of TV viewing time in the U.S.. There's still a lot more viewing time that we'd like to earn.

Eric Jhonsa
Eric Jhonsa

Editor

Next question is about Netflix's 2021 subscriber add expectations, and how much demand was pulled forward in 2020.

Neumann: We're not going to provide full-year guidance. It's hard projecting the next 90 days, never mind the next 12 months. Viewing is up Y/Y in every region, user retention is stronger than it was a year ago and acquisition remains strong.

Eric Jhonsa
Eric Jhonsa

Editor

First question is about Q1 paid net add guidance. Typically Q1 paid net adds are higher than Q4's, but this time the guidance implies a drop.

CFO Spence Neumann: We guided for 6M Q1 paid net adds. That's still a big number. We're not necessarily done with the pull-forward effect of strong 1H20 net adds. Also, there's still a lot of uncertainty that makes it difficult to forecast future growth. The long-term growth trajectory is as strong as ever, there's just more short-term uncertainty.

Eric Jhonsa
Eric Jhonsa

Editor

As was the case for the Q3 interview, Barclays' Kannan Venkateshwar is the interviewer.

Eric Jhonsa
Eric Jhonsa

Editor

The interview is up.

Eric Jhonsa
Eric Jhonsa

Editor

Netflix has held onto its AH gains over the last hour: Shares are currently up 12.1% to $562.40.

Eric Jhonsa
Eric Jhonsa

Editor

The interview will be uploaded via the Netflix IR YouTube channel.

Eric Jhonsa
Eric Jhonsa

Editor

Hi. I'm back to cover Netflix's earnings interview, which should be made available in a few minutes.

Eric Jhonsa
Eric Jhonsa

Editor

I'm taking a short break, but will be back to cover Netflix's earnings interview, which is set to be uploaded at 6PM ET.

Shares are currently up 12.8% after hours to $566.00 after Netflix beat its Q4 paid net add guidance by 2.5M, slightly hiked its 2021 op. margin guidance, forecast roughly breakeven FCF for 2021 and left the door open to future stock buybacks. Those positives are overshadowing below-consensus (and possibly conservative) Q1 paid net add guidance.

Eric Jhonsa
Eric Jhonsa

Editor

As usual, Hastings & Co. maintain a diplomatic approach to talking about the competition...and don't define it as consisting merely of rival subscription streaming services.

Netflix: "It’s a great time to be a consumer of entertainment. There are a wealth of options ranging from linear TV to video gaming to user generated content on YouTube and TikTok. We continue to work hard to grow our small share of screen time against these major competitors."

...

"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. This past year is a testament to this approach. Disney+ had a massive first year (87 million paid subscribers!) and we recorded the biggest year of paid membership growth in our history."

Eric Jhonsa
Eric Jhonsa

Editor

Netflix ended 2020 with $8.21B in cash and $16.3B in debt. Its Q4 diluted share count was up about 1% Y/Y to 455.3M.

Eric Jhonsa
Eric Jhonsa

Editor

Boosting EPS some: Netflix's GAAP marketing spend fell 13% Y/Y in Q4 to $762.6M. Reduced TV/outdoor promotional spend could be a factor.

Tech/development (R&D) spend rose 19% to $486.9M, and G&A spend rose 8% to $275.5M.

Eric Jhonsa
Eric Jhonsa

Editor

FCF was negative $284M in Q4, but (thanks to content push-outs) still positive to the tune of $1.9B for the whole of 2020. Netflix says it thinks it's "very close to being sustainably FCF positive."

Eric Jhonsa
Eric Jhonsa

Editor

With COVID leading some content spend to be pushed out, Netflix's 2020 cash content spend totaled $12.6B, down from $14.6B in 2019. Look for the 2021 figure to be higher.

Eric Jhonsa
Eric Jhonsa

Editor

Some Google search data shared within Netflix's letter. The company had 9 of the 10 most-searched TV series' globally last year.

Eric Jhonsa
Eric Jhonsa

Editor

Netflix's Q4 regional numbers. Some things that stand out:

  • EMEA's paid sub count is closing in on the U.S./Canada's.
  • Forex remains a major headwind for Latin America's ARPU.
  • Asia-Pac ARPU is holding up fairly given the rollout of mobile-only plans in the region.

Eric Jhonsa
Eric Jhonsa

Editor

Netflix on content production: "Our productions are back up and running in most regions - we have learned that flexibility and adaptability are paramount in this fast-changing environment. With over 500 titles currently in post production or preparing to launch on our service and plans to release at least one new original film every week in 2021 with extraordinary talent, we’re confident we’ll continue to have a great content offering for our members."

Eric Jhonsa
Eric Jhonsa

Editor

Netflix also projects that 72M member households will watch The Midnight Sky during its first 4 weeks, and that 70M will watch Lupin.

Eric Jhonsa
Eric Jhonsa

Editor

Some stats for how many "member households" watched Netflix originals during their first 4 weeks of availability:

Over the Moon: 43M
Holidate: 68M
The Christmas Chronicles: Part Two: 61M
Barbarians: 37M
The Queen's Gambit: 62M

Eric Jhonsa
Eric Jhonsa

Editor

With many investors previously on edge about competition as well as the potential impact of price hikes on churn, Netflix's Q4 subscriber beat is going over well.

The FCF and buyback commentary also seems to be well-received. And given how often Netflix has beat its sub guidance in the past, as well as how paid sub growth accelerated in Q4, the Q1 outlook might be seen as conservative.

Eric Jhonsa
Eric Jhonsa

Editor

Netflix has added to its after-hours gains: Shares are now up 10.4% to $553.75, putting them once more within 5% of an all-time high of $575.37.

Eric Jhonsa
Eric Jhonsa

Editor

Weighing on Q4 EPS: Netflix recorded a $258M non-cash loss related to a forex remeasurement for its euro-denominated debt.

While Q4 EPS was below consensus, Q1 GAAP EPS guidance of $2.97 is above a $2.10 consensus. Netflix's EPS can fluctuate a lot quarter-to-quarter due to one-time gains/losses and the timing of content amortization expenses.

Eric Jhonsa
Eric Jhonsa

Editor

ARPU (now referred to by Netflix as average revenue per membership, or ARM) was flat Y/Y in both dollars and constant currency.

That compares with a 1.6% drop in dollars and a 1% increase in CC in Q3. Price hikes and customer upgrades to more expensive plans are ARPU tailwinds, while the adoption of cheap mobile-only plans in India and certain other emerging markets is a headwind.

Eric Jhonsa
Eric Jhonsa

Editor

Altogether, Netflix ended 2020 with 203.66M global paid subs, up 21.9% Y/Y.

Eric Jhonsa
Eric Jhonsa

Editor

Q4 paid net adds by region:

U.S./Canada: 860K
EMEA: 4.46M
Latin America: 1.21M
Asia-Pac: 1.99M

EMEA was a clear standout, accounting for a little over half of all paid net adds.

Eric Jhonsa
Eric Jhonsa

Editor

Netflix's weekly paid net add growth. This chart suggests growth accelerated some in December.

Eric Jhonsa
Eric Jhonsa

Editor

Netflix adds that it intends to maintain $10B-$15B in gross debt and "will explore returning cash to shareholders through ongoing stock buybacks, as we did in the past (2007-2011)."

Eric Jhonsa
Eric Jhonsa

Editor

Notably, Netflix is also guiding for 2021 free cash flow to be "around break even," in spite of content spending originally planned for 2020 being pushed out into 2021.

"Combined with our $8.2 billion cash balance and our $750m undrawn credit facility, we believe we no longer have a need to raise external financing for our day-to-day operations," the company says.

Eric Jhonsa
Eric Jhonsa

Editor

Netflix: "For FY21, we’re now targeting a 20% operating margin, up two percentage points from 2020 and higher than our previous 19% forecast, due to a more favorable revenue outlook."

Eric Jhonsa
Eric Jhonsa

Editor

Here's the shareholder letter:

Eric Jhonsa
Eric Jhonsa

Editor

Q4 revenue of $6.64B slightly tops a $6.62B consensus. GAAP EPS of $1.19 is below a $1.36 consensus.

Eric Jhonsa
Eric Jhonsa

Editor

Shares are up 5.6% after hours.

Eric Jhonsa
Eric Jhonsa

Editor

For Q1, Netflix is guiding for 6M paid net adds, below an 8.49M consensus.

Eric Jhonsa
Eric Jhonsa

Editor

The report is out. Netflix added 8.51M paid net adds in Q4, topping guidance of 6M and a consensus of 6.19M.


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