LOS GATOS, Calif.—Netflix ended the year with financial results and subscriber counts that greatly exceeded its expectations as its executives issued positive comments about its new ad supported tier, saying it had not cannibalized other tiers and “will generate incremental revenue and profit.”
Netflix shares fell during the day by 10.5% in the runup to the earnings announcement but rose in after hours trading by 21.2% at 6:12 p.m. ET as the much better than expected results were released.
“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 letter to shareholders said.
The company also announced that as part of its succession plans Reed Hastings has become executive chairman, and Greg Peters has stepped up from COO to become Ted Sarandos’ co-CEO, and a member of the Netflix board.
For Q4 2022, Netflix added 7.66 million global paid memberships and added 2022 with 230.75 million global paid memberships. Growth was slower in the U.S. and Canada, its most lucrative regions, where it added 0.91 million subs for a total of 74.30 million subs at the end of 2022. Even so, total sub counts were down 0.88 million from Q4 2021.
In a letter to shareholders the company noted that Q4 2022 revenue, operating profit and membership growth exceeded its forecast.
The company did not provide any sub counts for its new ad supported tier which was launched to reverse subscriber losses in 2022 amid much fanfare in Nov. of 2022.
“In November, we successfully launched our new, lower priced ad-supported plan in 12 countries,” the company explained in a letter to shareholders. “We believe branded television advertising is a substantial long term incremental revenue and profit opportunity for Netflix, and our ability to stand up this business in six months underscores our commitment both to give members more choice and to reaccelerate our growth.”
“While it’s still early days for ads and we have lots to do (in particular better targeting and measurement), we are pleased with our progress to date across every dimension: member experience, value to advertisers, and incremental contribution to our business,” the letter noted. “Engagement, which is consistent with members on comparable ad-free plans, is better than what we had expected and we believe the lower price point is driving incremental membership growth. Also, as expected, we’ve seen 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.”
