Netflix Q4 - Shares Look Cheap!

Netflix released its earnings last week Thursday after the market closed, and warned of slowing subscriber growth. The following day, the share price of the streaming giant tumbled by 21.8%, even though it beat on profits, and revenues were in line with expectations.

The company reported revenue of $7.71 billion and 8.28 million new global paid net subscribers in the fourth quarter. This was fewer than the 8.5 million subscribers added in the last quarter of 2020 when quarantine was the word of the day, and global lockdowns were commonplace.

The headliner was that Netflix expects to add 2.5 million in the first quarter of 2022, far below the 3.9 million it added in the first quarter of 2021. "Competition has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering. . ." Netflix said. "While this added competition may be affecting our marginal growth, we continue to grow in every country and region in which these new streaming alternatives have launched."

Some context is needed here. Netflix began its transition from DVD-by-mail to a subscription video-on-demand model in 2007. Since then, its revenues have grown from $1.36 billion to $29.7 billion in just 14 years. The number of subscribers followed a similar trend, increasing from less than 22 million in 2011 to over 222 million at the end of 2021.

So what now? After so many years of success, investors may have to reboot their expectations of this company. They will continue to produce great content like "Squid Game", "Don't Look Up", "You", "Red Notice", and "Emily in Paris", but it could be harder to move the needle on subscriber growth. We shall see. Management's goal is to get to 400 million subs in the medium term, which is still very impressive. Keep in mind that they are also raising prices, so margins are improving. We are still buyers of this stock. You will find more infographics at Statista