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(Bloomberg) – Netflix Inc. ended its biggest year in company history on a high, rocketing its stock to an all-time high after adding more customers than expected and saying it no longer needed ‘borrow money to build your entertainment empire.
The world’s leading paid streaming service attracted 8.51 million new subscribers in the last three months of the year, thanks to the popularity of blockbuster shows such as “Bridgerton” and “The Queen’s Gambit”. That exceeded Netflix’s own forecast and the 6.06 million projected by Wall Street, and its shares rose 15% – the most since October 2016 – in session Wednesday.
The earnings report after Tuesday’s close included two key milestones for Netflix: The company broke the 200 million subscriber mark for the first time and said its cash flow would allow it to stop relying on debt to fuel its growth. With $ 8.2 billion in cash – and a line of credit that hasn’t been drawn down – Netflix has said it no longer needs external funding. He is also considering share buybacks, which he has not done for ten years.
The pandemic has dramatically boosted Netflix’s business, forcing people to enter and limiting other entertainment options like cinemas and concerts. The company added 25.9 million customers in the first six months of last year and ended up adding 36.6 million customers in total – a record.
“It has sped up this big shift from linear to streaming entertainment,” said Spencer Neumann, the company’s chief financial officer, during a call with investors and analysts on Tuesday.
Netflix has repeatedly warned that the surge in the first half of 2020 will limit its growth in subsequent quarters – what it calls the “pull-forward” effect. Neumann has warned that this will continue to affect growth in 2021, and Netflix has given a conservative estimate for the current quarter. It plans to add 6 million new subscribers during the period, compared to an average analyst estimate of 7.45 million.
But Netflix has found more leads than expected in the last period.
Its growth over the past year has dispelled two common criticisms of the company. Netflix skeptics have long identified its debt as impending disaster, arguing that an economic recession would cripple the business and force customers to cancel subscriptions en masse.
Burn money
Although Netflix has consistently reported profits, it has had to borrow billions of dollars to fund its spending on new programs. It had negative free cash flow of $ 3.3 billion in 2019, its worst on record. He has since turned a corner. Free cash flow will be close to breaking even in 2021, Netflix said on Tuesday. Analysts had projected a negative amount of $ 619.7 million. In this context, Netflix’s debt frenzy looks like a worthy investment. It borrowed some $ 15 billion to increase its market capitalization by over $ 200 billion.
Critics have also argued that Netflix will suffer when rival media companies remove their most popular titles from the service and create their own competitors. Yet Netflix posted its best performance yet in the same year that several new competitors entered the fray and Disney + added 87 million paying subscribers.
What Bloomberg Intelligence says
“The bigger story was the free cash flow forecast for 2021 … We believe this should end bear concerns about endless cash consumption, especially after $ 3.3 billion in cash flow losses.” of free cash flow in 2019. The narrative appears to have shifted squarely to Netflix’s operational leverage with its investments in global content. “
–Geetha Ranganathan, Senior Media Analyst
Click here to read the research.
“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,” the company said in a letter to shareholders. “This past year is a testament to this approach.”
Netflix shares climbed to $ 577.77 in New York on Wednesday. The stock rebounded 67% last year, but concerns about slower growth had weighed on Netflix in 2021. Until Tuesday’s close, it was down 7.2% since the start of the year.
“Investors come out of the fourth quarter increasingly optimistic about the potential of a powerful developing shareholder return story for Netflix in the years to come,” Evercore ISI analyst Lee Horowitz wrote in a note. .
JP Morgan Securities analysts said the company is expected to start repurchasing shares in the second half of the year.
Global service
Netflix, based in the city of Los Gatos, in Silicon Valley, Calif., Is leaning more into international markets now that its North American domestic market is largely saturated. The service has relied on Europe and Latin America to supply most of its new customers in recent years, and is only just beginning to break into Asia. More than 60% of its customers now live outside the United States and Canada, and 83% of its new additions in 2020 came from abroad. Europe supplied 41% of its new customers – nearly 15 million people – while Asia added 9.3 customers, the second largest.
Netflix has thrived by creating pipelines of new programming from around the world that draw viewers outside of the native language. In the fourth quarter alone, Netflix released popular series in German, Korean, Japanese and French.
The English-language shows “Queen’s Gambit” and “Bridgerton” were both major hits for Netflix. “Queen’s Gambit” was viewed by 62 million households in its first 28 days on the service, while “Bridgerton” is on track to reach 63 million accounts.
But a new show, released this month, highlights Netflix’s global reach. “Lupine”, a French crime series starring Omar Sy, became the second biggest debut in the company’s history. It is set to be watched by 70 million homes in its first 28 days of using the service.
This diversity of shows is what will help Netflix continue to grow, both at home and abroad, in the face of increasing competition.
“We are still a very small share of pay-TV penetration, even only pay-TV, in most markets around the world and a small share of viewing,” Neumann said.
(Updates with shares from the first paragraph.)
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