Netflix (NFLX) Q4 Earnings Beat, User Growth Misses Estimates

Netflix NFLX reported fourth-quarter 2021 earnings of $1.33 per share, beating the Zacks Consensus Estimate by 62.2% and the company’s guidance of 80 cents. The figure increased 11.8% year over year.

Revenues of $7.71 billion increased 16% year over year and beat the consensus mark by 0.09%. Average revenue per membership increased 7% year over year both on a reported basis and on a foreign-exchange neutral basis.

The streaming giant added 8.28 million paid subscribers globally against the addition of 8.51 million in the year-ago quarter, missing its guidance of 8.5 million paid-subscriber additions.

At the end of the fourth quarter, Netflix had 221.84 million paid subscribers globally, up 8.9% year over year, missing management’s expectation of 222.06 million.

The miss reflects growing competition from services launched by Apple AAPL, Disney DIS and Comcast CMCSA. However, the year-over-year growth benefited from Netflix’s solid content portfolio.

Netflix, Inc. Price

Netflix, Inc. Price

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Netflix now expects first-quarter 2022 paid net additions to be 2.5 million compared with the year-ago quarter’s 3.98 million, reflecting lack of new content, stiff competition and macro-economic impact of COVID in several parts of the world.

Netflix expects to end the first quarter of 2022 with 224.34 million paid subscribers globally, indicating growth of 8% from the year-ago quarter.

Shares of this Zacks Rank #3 (Hold) company were down almost 20% in after-hours trading following the results. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past year, Netflix shares have underperformed Apple and Comcast, while outperforming Disney.

While Netflix shares fell 12.3%, Apple and Comcast returned 20.2% and 2.2%, respectively. Disney shares dropped 13.8% in the past year.

Segmental Revenue Details

United States and Canada (UCAN) reported revenues of $3.31 billion, which rose 11% year over year and accounted for 42.9% of total revenues. ARPU grew 9% from the year-ago quarter on a foreign-exchange neutral basis.

Paid-subscriber base increased 1.7% from the year-ago quarter to 75.22 million. The company added 1.19 million paid subscribers, up 38.4% year over year.

Europe, Middle East & Africa (EMEA) reported revenues of $2.52 billion, which climbed 18.1% year over year and accounted for 32.7% of total revenues. ARPU grew 6% from the year-ago quarter on a foreign-exchange neutral basis.

Paid-subscriber base increased 11% from the year-ago quarter to 74.04 million. The company added 3.54 million paid subscribers, down 20.6% year over year.

Latin America’s (LATAM) revenues of $964 million increased 22.2% year over year, contributing 12.5% of total revenues. ARPU grew 17% from the year-ago quarter on a foreign-exchange neutral basis.

Paid-subscriber base rose 6.4% from the year-ago quarter to 39.96 million. The company added 0.97 million paid subscribers, down 19.8% year over year.

Asia Pacific’s (APAC) revenues of $871 million soared 27.2% year over year and accounted for 11.3% of total revenues. Netflix witnessed strong growth in both Japan and India.

ARPU increased 2% year over year on a foreign-exchange neutral basis.

Paid-subscriber base jumped 28% from the year-ago quarter to 32.63 million. The company added 2.58 million paid subscribers, up29.6% year over year.

Content Details

Netflix’s fourth-quarter content slate included returning seasons of The Witcher (484 million hours viewed), You (468 million hours viewed), Emily in Paris (287 million hours viewed), Cobra Kai (274 million hours viewed) and Maid (469 million hours viewed).

Korean thriller Squid Game was viewed for 1.65 billion hours in its first four weeks and is now Netflix’s biggest TV season ever. The fourth quarter also featured the conclusion of La Casa de Papel aka Money Heist (6.7 billion hours viewed over its lifetime).

Hit movies in the reported quarter included Red Notice (364 million hours viewed in its first four weeks), The Unforgivable (215 million hours viewed), Army of Thieves (158 million hours viewed), Love Hard (134 million hours viewed), Back to the Outback (105 million hours viewed) and The Harder They Fall (122 million hoursviewed).

Don’t Look Up, released on Christmas Eve, was viewed for 353 million hours, making the movie the second most popular movie ever in Netflix’s history.

In November, Netflix launched mobile games on Android and iOS. Currently, ten games are available within the Netflix mobile app.

Operating Details

Marketing expenses increased 4% year over year to $792.7 million. As a percentage of revenues, marketing expenses decreased 120 basis points (bps) to 10.3%.

Operating income declined 33.8% year over year to $631.8 million. Operating margin contracted 620 bps on a year-over-year basis to 8.2%.

Balance Sheet & Free Cash Flow

Netflix had $6.03 billion of cash and cash equivalents as of Dec 31, 2021, compared with $7.52 billion as of Sep 30, 2021.

Long-term debt was $14.7 billion as of Dec 31, 2021, unchanged from Sep 30, 2021.

Streaming content obligations were $23.16 billion compared with $22.4 billion as of Sep 30, 2021.

Netflix reported free cash outflow of $569 million compared with free cash flow outflow of $106.3 million in the previous quarter.

Guidance

For the first quarter of 2022, Netflix forecasts earnings of $2.86 per share, indicating 23.7% decline from the figure reported in the year-ago quarter.

The Zacks Consensus Estimate for the same is pegged at $3.43 per share, currently higher than the company’s expectation, indicating decline of 8.53% from the figure reported in the year-ago quarter.

Total revenues are anticipated to be $7.903 billion, suggesting growth of 10.3% year over year. The consensus markfor revenues stands at $8.11 billion, higher than the company’s expectation and indicating 13.29% growth from the figure reported in the year-ago quarter.

Operating margin is projected at 25.5% compared with 22.1% in the year-ago quarter.

For 2022, Netflix expects operating margin between 19% and 20% compared with 21% reported in 2021. Operating margin is expected to suffer from unfavorable forex (roughly 2% negative impact).

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