Netflix is ​​driven by solid subscriber growth

While Netflix hasn’t given any specifics, we expect its plan to be similar to its Latin American trials.

So Netflix offered subscribers the ability to add additional users for a fee equal to about 20% of the plan’s cost, which is about $3 per month in the US.

While we believe this strategy will increase revenue, we do not see how this tactic will significantly increase new subscribers and believe it could increase losses.

To reflect this new approach, we raised our fair value estimate to $315 from $290, offset by a slight slowdown in international subscriber growth.

Change of leadership

The fourth quarter was also marked by a major management change for Netflix.

Longtime CEO Reed Hastings became chairman of the board. COO Greg Peters has been promoted to CEO alongside current COO Ted Sarandos.

Despite the change in titles, we expect Hastings to be heavily involved in Netflix’s long-term strategy as the company seeks to expand internationally and fend off increased competition from media players, traditional and new media.

Problematic management

We’re a bit confused about the need for two co-CEOs, as we think the reason Sarandos was promoted to CEO in 2020 was to give him the experience to lead the company.

We are not aware of any media or other big business that has succeeded with two equal pairs of hands at the wheel.

While the board may not want to lose Peters, the deal is unlikely to keep two senior executives at Netflix.

Subscriber growth

Netflix ended the quarter with 230.7 million paying subscribers worldwide, up from 223.6 million last quarter and 221.9 million a year ago.

All four regions saw customer growth in the quarter.

As previously noted, the company no longer provides specific guidance on net subscriber earnings, but will continue to provide guidance on revenue, operating income and net income.

Netflix expects a “modestly positive net profit” in the first quarter, compared to a subscriber loss in the first quarter of 2022.

Currency effect

Unfavorable currency effects continued to weigh on revenue, which rose 2% (excluding currency effects) to $7.9 billion, roughly in line with our estimates.

In the US and Canada, revenue rose 9% year-over-year, with average revenue per unit, or ARPU, up 10% to $16.23 due to higher 2022 prices.

The company added 0.9 million net new UCAN customers, but the region still lost 0.9 million net users in 2022.

Over the past 24 months, Netflix has added just under 360,000 subscribers in its most profitable region ever.

Given the high penetration and increased competition in the US, we expect subscriber acquisition to be difficult and make annual price increases a key driver of revenue growth in the US.

Advertising

Management provided minimal information on the first months of ad-supported plans, which have been launched in 12 countries, including the United States.

While the company seems pleased with the progress, we’d expect Netflix to provide more concrete information if the new plans exceed expectations. .

This lack of information and rumors of ad metrics not delivering on the company’s promises lead us to conclude that the new offering has yet to find its audience.

We believe this will continue until the company adds higher ad-supported prices, staying below the standard and premium subscriptions.

Europe is under pressure

Revenue in Europe, the Middle East and Africa, or EMEA, the company’s second-largest region by revenue and currently its largest by subscribers, fell 7%, still ahead of our estimate of an 8% decline.

The decline was partly due to the loss of the Russian market, as well as a 10% decline in ARPU against a weaker Euro.

The 3.2 million net additions were the highest of any region in the fourth quarter, and Netflix now has 76.7 million EMEA subscribers, compared to 74.5 million a year ago.

While we expect the region to maintain its lead over UCAN in terms of subscriber numbers, we expect that surcharges may hamper growth in some emerging markets in Eastern Europe and Europe.’Africa.

Asia-Pacific down

Revenue in Asia Pacific, the company’s much-touted growth engine, fell 2% from a year earlier.

ARPU fell 17%, or 4% in constant currency, indicating that new subscribers were directed to emerging markets such as India and Indonesia instead of more established countries such as South Korea for the third quarter in a row.

If the company wants to compete, we expect APRU to drop even further disney (“Wide Ditch”) and Amazon (“Wide Ditch”) is far ahead in India.

At the end of September, Disney+ Hotstar had 61.3 million subscribers, mostly in India, far more than the 38.0 million subscribers in the entire Asia-Pacific region for Netflix in December.

Pricing for Netflix in India remains significantly higher than its competitors at INR 499 per month for the standard plan compared to INR 299 per month for premium Disney+ Hotstar with 4K streaming or INR 1,499 per year.

On an annual basis, Netflix charges nearly 4 times more than Disney for a package with less local content and no major Hollywood blockbusters.

While we expect Disney to raise its prices, Netflix’s current plans leave it room to stay well below its streaming rival.

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