Netflix image

Netflix
(NFLX)
reported
significant
fourth-quarter
subscriber
additions
with
strength
across
all
regions,
and
average
revenue
per
member
(ARM)
was
up
after
several
quarters
of
decline,
resulting
in
significant
sales
growth
acceleration.
We
see
further
tailwinds
to
ARM
over
the
next
few
years
but
believe
subscriber
growth
will
slow.
We’re
raising
our
fair
value
estimate
to
$425
from
$410
after
incorporating
the
results
and
management’s
2024
outlook,
but
we
believe
the
stock
has
gotten
ahead
of
itself
even
as
we
expect
Netflix
to
remain
dominant.


Can
Netflix
Sustain
its
Subscriber
Growth?

Fourth-quarter
revenue
grew
13%
year
over
year
as
Netflix
added
over
13
million
net
global
subscribers,
the
most
since
the
first
quarter
of
2020,
and
every
region
added
more
net
subscribers
than
it
had
since
the
first
or
second
quarter
of
2020
when
pandemic-related
lockdowns
had
just
begun.

The
firm
added
2.8
million
net
subscribers
in
the
US
and
Canada.
While
we
project
subscriber
growth
will
remain
relatively
high,
we
think
the
catalysts
that
led
to
outsize
growth
last
year
will
significantly
subside
in
2024.
Netflix
began
to
crack
down
on
password
sharing
at
the
beginning
of
2023
and
gradually
rolled
out
the
policy
throughout
different
markets
while
simultaneously
offering
new
options
for
lower-priced
ad-supported
subscriptions
or
member
additions
to
existing
plans.

Key
Morningstar
Metrics
for
Netflix

• Fair
Value
Estimate:
$425


Morningstar
Rating:
★★;

• Morningstar
Economic
Moat
Rating:
Narrow;

• Morningstar
Uncertainty
Rating:
High.


Subscription
Price
Increases

ARM
grew
1%
year
over
year
in
the
fourth
quarter,
helped
by
price
increases
in
the
US,
the
UK,
and
France,
and
we
think
Netflix
has
room
to
increase
ARM
materially
over
the
next
few
years
on
the
back
of
its
advertising
revenue
stream.

Netflix
continues
to
realise
significant
operating
leverage.
The
firm’s
operating
margin
was
17%
in
the
fourth
quarter
and
over
20%
for
the
full
year,
up
nearly
three
percentage
points
from
2022.
Management
expects
a
margin
of
24%
in
2024.
Free
cash
flow
was
about
$7
billion
in
2023,
but
about
$1
billion
in
anticipated
content
spending
was
delayed
due
to
the
strikes.
We
project
over
$6
billion
in
free
cash
flow
in
2024.

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