The Netflix Q4 2023 earnings show the benefit of reinvention
Netflix (as of Jan 23, 2024) published it’s fourth quarter 2023 results with more than a little triumph. You can read all the details here, or focus the rather more accessible Letter to Shareholders (as most commentators seem to have done). Or, you could stay with us and we’ll bring some of the highlights. First a digression and an observation. Warning — this is a longer read than normal;-)
The need for continued reinvention of business as shown by Netflix
Many markets and industries do not stand still, and companies often need to innovate to move forward, or maintain their market share. We can imagine a learned study on recent Netflix history using it as an example of how the way you grow a business isn’t always the way you run it longer term. In the past year (or so) Netflix has taken two cores of it’s business, had a look at them and discarded them. These were account sharing and freedom from advertising. Both were treated as sacred, both have gone and with them the company shakes off the malaise that plagued it post-lockdown when the shares seemed to be headed as low as possible.
We’d also just like to take the opportunity to mention our 2021 piece that (essentially) said don’t worry, Netflix has every chance of getting past the bad news — how right we were!
Back to the latest numbers
Numbers
The update starts with a summary (which we’ve trimmed):
● Netflix achieved the key financial objectives set at the start of 2023. We’ve:
○ Accelerated our growth, exiting the year with 12% revenue growth, up from 6% in 2022
○ Grown our FY23 operating margin to 21% from 18% in 2022, ahead of our 20% target
○ Increased our free cash flow to $6.9B for 2023
● The year has shown the need for Netflix to balance consistency and continuous improvement with adaptability. In 2024, we see big opportunities to:
○ Increase our value to members by further improving the core (series and film), while broadening our offering (games, live and sports-adjacent programming)
○ Tap into a significant new long term revenue and profit pool by scaling our ads business
○ Deepen our connection with fans through our marketing, consumer products and innovative new live experiences.
● We believe there is plenty of room for growth ahead as streaming expands, and our north star remains the same: to thrill members with our entertainment. If we can continue to improve Netflix faster than the competition, we’ll have an increasingly valuable business – for consumers, creators and shareholders.
We’ve highlighted some interesting phrases.
The letter has lots of lists of past and future shows (too many to even skim here, but it’s not all Stranger Things, Squid Game and Bridgerton), but we want to look at some of the ways Netflix sees increasing its revenue.
Netflix 2024 — price rices and changes to service
In the section on Monetization [US spelling intentional], Netflix covers three key topics, which we can summarise as:
— prices will rise
— changes to the advertising tiers
— the success of the password sharing crackdown.
Price rises are endemic to all the streamers, and the password sharing crackdown is seen as a gateway to tapping into the ever-growing future market. We’d like to shine a little more light on the changes to advertising:
The ads plan now accounts for 40% of all Netflix sign-ups in our ads markets and we’re looking to retire our Basic plan in some of our ads countries, starting with Canada and the UK in Q2 and taking it from there
So, it looks like UK viewers have only a few months to retain the cheapest ad-supported tier (it’s already unavailable to new subscribers) before they have to pay more, and there’s every chance they might get hit again in the next round of price rises. We’ll be keeping a keen watch for more news on price rises, and will let you know more when we find it.