It has been about a month since the last earnings report for Netflix (NFLX). Shares have added about 9.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Netflix due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Netflix Q4 Earnings Beat, Revenues Rise Y/Y on Subscriber Gain
Netflix reported fourth-quarter 2024 earnings of $4.27 per share, which beat the Zacks Consensus Estimate by 1.67%. The figure jumped 102.4% from the year-ago quarter.
Revenues of $10.24 billion increased 16% year over year and beat the consensus mark by 1.29%.
The company has maintained healthy engagement levels in the fourth quarter, with about two hours of viewing per member per day, indicating strong member retention.
In November, Netflix rolled out its first-party ad tech platform in Canada to better deliver critical capabilities to advertisers, including expanded programmatic availability, enhanced targeting and additional measurement and reporting. The company plans to launch the first party ad platform in the remaining ad countries in 2025, starting with the United States in April.
NFLX will stop reporting paid quarterly membership and revenue per subscriber, starting with the first quarter of 2025. While tech giants like Apple and Amazon do not reveal subscriber figures for their respective streaming services, other media companies do. Disney separately breaks out Disney+, Hulu and ESPN+ figures.
Starting with the second quarter of 2025 results, Netflix will publish its bi-annual engagement report, which accounts for 99% of all viewing on Netflix, in tandem with our second and fourth-quarter earnings results.
Subscriber Growth Drives Revenues in Q4
Netflix has estimated that there are now more than 750 million broadband households (excluding China and Russia) and over $650 billion of entertainment revenues in the four markets it operates in, of which the streaming giant has only captured ~6% in 2024.
Average paid memberships increased 15% year over year. In the fourth quarter, ad-supported plans accounted for more than 55% of sign-ups in ad countries. Membership on the ads plan grew nearly 30% quarter over quarter. Netflix announced that it is introducing an Extra Member with Ads offering in 10 of the 12 countries where the streaming giant has an ads plan to give members additional choice and flexibility.
The company added 18.91 million subscribers during its fourth quarter (the biggest quarter of net adds in the company’s history) compared with 13.12 million net new subscribers in the year-ago period.
The average revenue per membership (ARM) was up 1% year over year and 3% on foreign-exchange neutral basis in the fourth quarter.
At the end of the fourth quarter, Netflix had 301.63 million paid subscribers across more than 190 countries globally, up 15.9% year over year.
The company credited fourth-quarter gains to the strength of its intellectual property, including a wide variety of hit series like The Diplomat S2 (21.4 million views ), Senna from Brazil (16.2 million views), The Empress S2 from Germany (21.06 million views), One Hundred Years of Solitude from Colombia (11.2 million views), Black Doves from the United Kingdom (46.8 million views), Outer Banks S4 (36.8 million views), The Cage from France (24.4 million views), The Lincoln Lawyer S3 (33.9 million views), Virgin River S6 (27.5 million views) and the highly anticipated Squid Game S2 from Korea (165.7 million views).
Audiences were enthralled by films, including Carry-On (160.1 million views) starring Jason Bateman and Taron Egerton, Family Pack from France (43.5 million views), Richard Curtis’ That Christmas (63.8 million views), Our Little Secret (84.4 million views) and Tyler Perry’s The Six Triple Eight (54.5 million views). NFLX also licensed more films for audiences like It Ends with Us, Lucky Baskhar from India and Godzilla x Kong: The New Empire.
In the fourth quarter, Netflix had the Jake Paul-Mike Tyson boxing match, which became the most-streamed sporting event ever with more than 108 million global viewers, while the Taylor-Serrano undercard became the most-watched professional women’s sports event in U.S. history. The company followed that up with the NFL on Christmas Day, which gathered around 30 million viewers on average. Beyoncé Bowl drove peak viewing on Christmas Day. Building on that momentum, NFLX recently announced that it has secured the U.S. rights for FIFA’s Women’s World Cup in 2027 and 2031.
In the fourth quarter, Netflix launched Squid Game: Unleashed, which became the No. 1 free game in the Apple App Store in 107 countries and is on pace to be the company’s most downloaded game.
Netflix’s Segmental Revenue Details
The United States and Canada (UCAN) reported revenues of $4.51 billion, which rose 14.9% year over year and accounted for 44.1% of total revenues. ARPU increased 3.7% from the year-ago quarter.
The paid subscriber base for UCAN increased 11.9% from the year-ago quarter to 89.6 million. The company gained 4.82 million paid subscribers compared with the year-ago quarter’s gain of 2.8 million.
Europe, Middle East & Africa (EMEA) reported revenues of $3.28 billion, which increased 18.1% year over year and accounted for 32.1% of total revenues. ARPU increased 3.3% from the year-ago quarter.
The paid subscriber base for EMEA climbed 13.9% from the year-ago quarter to 101.1 million. Netflix gained 5 million paid subscribers compared with the year-ago quarter’s net gain of 5.05 million.
Latin America’s (LATAM) revenues of $1.22 billion grew 8.6% year over year, contributing 12% of total revenues. ARPU decreased 7% from the year-ago quarter.
The paid subscriber base for LATAM rose 15.9% from the year-ago quarter to 53.3 million. It gained 4.41 million paid subscribers in the reported quarter, while the company gained 2.35 million subscribers in the year-ago period.
Asia Pacific’s (APAC) revenues of $1.21 billion jumped 25.9% year over year and accounted for 11.8% of total revenues. ARPU decreased 4.1% year over year.
The paid subscriber base for APAC jumped 26.9% from the year-ago quarter to 57.54 million. The company added 4.93 million paid subscribers in the quarter.
Operating Details
Marketing expenses increased 6.5% year over year to $976.2 million. As a percentage of revenues, marketing expenses contracted 90 basis points (bps) on a year-over-year basis to 9.5%.
Operating income increased 51.9% year over year to $2.27 billion. Operating margin expanded 520 bps on a year-over-year basis to 22.2%.
Balance Sheet & Free Cash Flow
Netflix had $7.8 billion of cash and cash equivalents as of Dec. 31, 2024, compared with $7.45 billion as of Sept. 30, 2024.
Total debt was $15.57 billion as of Dec. 31, 2024, compared with $15.98 billion as of Sept. 30, 2024.
Streaming content obligations were $23.24 billion as of Dec. 31, 2024, compared with $22.7 billion as of Sept. 30, 2024.
Netflix reported a free cash flow of $1.4 billion compared with a free cash flow of $2.19 billion in the previous quarter.
During 2024, NFLX repurchased 9.9 million shares for $6.2 billion and used $12.9 billion to repurchase shares since the program’s inception. The company’s board has approved an incremental $15 billion for the program, which brings the total buyback authorization to $17.1 billion.
Guidance
For the first quarter of 2025, Netflix forecasts revenues to increase 11%, which equates to 14% growth on an F/X neutral basis, which is modestly below the full-year guidance due to the timing of price changes and the seasonality of ads business.
The company anticipates total revenues to be $10.416 billion, suggesting growth of 11.2% year over year. The consensus mark for revenues is pinned at $10.5 billion, higher than the company’s expectation.
NFLX has projected earnings of $5.58 per share. The Zacks Consensus Estimate for the same is pegged at $5.96 per share, currently higher than the company’s expectation.
For 2025, based on F/X rates as of Jan. 1, 2025, NFLX has forecasted revenues in the range of $43.5-$44.5 billion, $0.5 billion higher than our prior forecast range. This updated guidance reflects improved business fundamentals and the expected carryover benefit of our stronger-than-forecasted fourth-quarter 2024 performance, net of headwinds from the strengthening of the U.S. dollar over the past few months.
The company’s 2025 revenue forecast equates to 12-14% year-over-year growth or 14-17% F/X neutral growth. This reflects an expectation of continued healthy member growth, modest F/X neutral ARM growth and a rough doubling of ad revenues (consistent with prior ad revenue guidance).
The company is targeting a 2025 operating margin of 29% (also based on F/X rates as of Jan. 1, 2025), up from the previous forecast of 28% and two points higher than the 27% operating margin in 2024.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Netflix has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Netflix has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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