Netflix Misses Q4 Earnings Expectations but Beats on Subscribers

The streamer added 7.66 million subscribers during the quarter, bringing its global total to 230.75 million

Netflix Earnings
Photo illustration by TheWrap

Netflix reported net income of $55 million, or earnings per diluted share of 12 cents, and revenue of $7.85 billion for its fourth quarter. The EPS figure came in below expectations, while revenue was in line with the company’s forecast.

The streaming behemoth’s average revenue per user came in at $16.23 in the United States and Canada, $10.43 in the Europe, Middle East and Africa (EMEA) region, $8.30 in Latin America and $7.69 in the Asia-Pacific region.

Netflix added 7.66 million subscribers during the fourth quarter for a total of 230.75 million globally, beating the 4.5 million projected by the company.

“2022 was a tough year, with a bumpy start but a brighter finish,” the company stated in its letter to shareholders. “We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering. As always, our north stars remain pleasing our members and building even greater profitability over time.”

In addition to the earnings results, Netflix announced that co-CEO Reed Hastings would step down from his role and transition to the position of executive chairman. The company’s co-CEOs will now be Ted Sarandos and Greg Peters.

“After 15 years together, we have a great shorthand and I am confident in their leadership. Twice the heart, double the ability to please members and accelerate growth,” Hastings tweeted. “Proud to serve as Executive Chairman for many years to come.”

In addition, Netflix’s former head of global television Bela Bajaria will become chief content officer
and Scott Stuber will become chairman of Netflix Film.

During the quarter, Netflix released “Wednesday,” its third most popular series ever, “Harry & Meghan,” its second most popular documentary series, “Troll,” its most popular non-English film, and “Glass Onion: A Knives Out Mystery,” its fourth most popular film.

It also launched its $6.99 Basic With Ads tier in 12 countries. While the offering is still in the early days, Netflix said it is pleased with the ad tier’s progress and that its engagement has been better than expected. They also said that there has been “very little switching from other plans.”

“Overall, the reaction to this launch from both consumers and advertisers has confirmed our belief that our ad-supported plan has strong unit economics (at minimum, in-line with or better than the comparable ad-free plan) and will generate incremental revenue and profit, though the impact on
2023 will be modest given that this will build slowly over time,” the company noted.

Looking ahead, Netflix predicts revenue growth in the first quarter 2023 will rise 4% year over year to $8.17 billion, driven by more paid memberships and more money per paid membership. Though the company no longer provides subscriber guidance, they predict “modest positive paid net adds” in the first quarter of 2023, but fewer than the fourth quarter of 2022. For full year 2023, the company anticipates free cash flow of at least $3 billion.

Netflix will also roll out paid sharing in the first quarter of 2023 as it looks to crack down on password sharing among an estimated 100 million households. The company expects some borrowers to stop watching as a result of not converting to extra or paid members.

“However, we believe the pattern will be similar to what we’ve seen in Latin America, with engagement growing over time as we continue to deliver a great slate of programming and borrowers sign-up for their own accounts,” the company said.

Netflix shares climbed approximately 6% in after-hours trading following Thursday’s announcements.