Netflix, Inc.

Technology Services
Written By Candy Cowan

Netflix is one of the world's leading entertainment services with 231 million paid memberships in over 190 countries enjoying TV series, films and games across a wide variety of genres and languages.

Members can play, pause and resume watching as much as they want, anytime, anywhere, and can change their plans at any time.

Employees: 12,800 +

Revenue: $31.6 billion in FY22

HQ Location: Los Gatos, California, U.S.

What they do:

  • They are a global streaming entertainment service offering movies, TV series, and games, with unlimited viewing on any internet-connected screen for an affordable, no-commitment monthly fee.

  • They are focused passion brand, not a do-everything brand.

  • They are a movie, TV series, and games entertainment service.

  • Netflix members can leave when they want and come back when they want.

  • They are about the freedom of on-demand and the fun of binge-viewing.

  • Netflix is available virtually everywhere except in China and Russia.

Their vision and priorities:

‘We promise our customers stellar service, our suppliers a valuable partner, our investors the prospects of sustained profitable growth, and our employees the allure of huge impact’

  • The statement resounds what the company is best known for – providing outstanding and unparalleled video entertainment services.

Financial and Business Goals for Q1 FY23

  • They forecast Q1’23 revenue growth of 4%.

  • They expect their F/X neutral revenue growth to be driven by a combination of year-over-year growth in average paid memberships and ARM (Average Revenue per membership). This translates into modest positive paid net adds in Q1 ‘23.

  • Their expectation of fewer paid net adds in Q1’23 vs. Q4’22 is consistent with normal seasonality and factors in their strong member growth in Q4’22.

  • They expect to roll out paid sharing more broadly later in Q1’23. They anticipate that this will result in a very different quarterly paid net adds pattern in 2023, with paid net adds likely to be greater in Q2’23 than in Q1’23.

  • They expect some cancel reaction in each market when they roll out paid sharing, which impacts near-term member growth.

Outlook 2023

  • Their long-term financial objectives remain unchanged:

    • sustain double-digit revenue growth

    • expand operating margin

    • deliver growing positive free cash flow

  • As they continue to improve their service, grow their advertising business, and launch paid sharing, they expect constant currency revenue growth to accelerate over the course of the year.

  • They expect year-over-year operating profit growth and operating margin expansion for the full year.

Things to know right now

  • Changes to Management

    • Reed Hastings has become Executive Chairman, and Greg Peters has stepped up from COO to become Ted Sarandos’ co-CEO and a member of the Netflix board. Reed, Greg, and Ted have been working closely together for 15 years.

    • Bela Bajaria, formerly Head of Global TV, has become Chief Content Officer and Scott Stuber has become Chairman of Netflix Film

  • Launch of lower-priced ad-supported plan

    They successfully launched their new, lower-priced ad-supported plan in 12 countries. They believe branded television advertising is a substantial long-term incremental revenue and profit opportunity for Netflix. This business was launched in order to give people more choices when it comes to price as well as greater control over their Netflix account.

Operating Business Segment:

They operate as one operating segment. Their revenues are primarily derived from monthly membership fees for services related to streaming content to their members.

Streaming Revenues: They offer a variety of streaming membership plans, the price of which varies by country and the features of the plan.

Competitors

  • Amazon Prime Video

  • YouTube TV

  • Disney+

  • Paramount+

  • HBO Max

  • Hulu

  • Showtime

  • Apple TV+

Their financial calendar

Q1: January - March - 19th April 2023

Q2: April - June - Around 19th July 2023

Q3: July - September - Around 18th October 2023

Q4: October - December - Around 19th January 2024

Next Earnings Report:

Around 19th April 2023

Positives from the last earnings report Q4FY22:

  • Year-over-year revenue growth of 2% in Q4 was driven by a 4% increase in average paid memberships.

  • Revenue was slightly above their beginning-of-quarter projection, as paid net adds of 7.7M came in higher than the 4.5M forecast, due to both strong acquisition and retention, driven primarily by the success of their Q4 content slate.

  • The US dollar depreciated vs. most other currencies during the quarter, which resulted in slightly higher than projected Average revenue per membership

Challenges from the last earnings report Q4FY22:

  • Average Revenue per membership declined 2% year over year

  • Operating income of $550M in Q4 was down vs. $632M in Q4 ‘21. This was above their guidance forecast of $330M primarily due to higher-than-expected revenue as well as slower-than-forecasted hiring.

  • The operating margin for Q4 amounted to 7% compared to 8% in Q4’21. This year-over-year decline was due to the appreciation of the US dollar.

Highlights in FY22:

  • They launched:

    • Five of the Top 10 most popular English language TV seasons ever

    • Four of the Top 10 most popular English language films ever

    • Seven of the Top 10 most popular non-English films ever

    • Two of the Top 10 most popular non-English TV shows ever

  • Members watched more Netflix returning seasons and sequels in 2022 than ever before across a broad range of genres.

Candy Cowan
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