Netflix Records Biggest Quarter of Net Adds in Its History

Image Source: Netflix

By Brian Nelson, CFA

On January 21, Netflix (NFLX) reported better than expected fourth quarter results with revenue and GAAP earnings per share coming in ahead of the consensus forecasts. In the quarter, revenue advanced 16% on a year-over-year basis (19% on a foreign exchange neutral basis), while the firm leveraged that top-line growth into a 52% increase in operating income.

Its operating margin expanded 5 percentage points to 22% in the quarter. Diluted earnings per share came in at $4.27 versus $2.11 in last year’s period. Netflix added 19 million global streaming paid memberships in the quarter, the biggest quarter of net adds in its history, and finished 2024 with 302 million memberships.

Netflix continues to deliver with content. Squid Game season 2 is on pace to become one of the most watched original series seasons, Carry-On became one of Netflix’s all-time top 10 films, the Jake Paul vs. Mike Tyson boxing match was one of the most-streamed sporting events ever, while it delivered two of the most-streamed NFL games in history on Christmas Day.

Net cash provided by operating activities came in at $1.54 billion in the quarter, while free cash flow came in at $1.38 billion. For the full year, net cash provided by operating activities was $7.4 billion versus $7.3 billion in 2023, while free cash flow totaled $6.9 billion in both 2024 and 2023. Free cash flow of ~$8 billion is targeted for 2025. At the end of the year, total debt was $15.7 billion with net debt of $6.1 billion. During 2024, Netflix repurchased 9.9 million shares of stock for $6.2 billion and now has total buyback authorization of $17.1 billion.

Looking to 2025, Netflix expects revenue to be between $43.5-$44.5 billion (12%-14% year-over-year growth), up $500 million from its prior forecast (despite foreign currency headwinds) and an operating margin of 29%, up one percentage point from its prior forecast and two percentage points higher than the 27% operating margin in 2024. Management noted that the return in 2025 of its biggest shows (Squid Game, Wednesday and Stranger Things) gives it optimism heading into the new year.

Management’s priorities for 2025 are to add more series and films that members love and further develop newer initiatives such as live programming and games. Advertising revenue is expected to roughly double in 2025. Netflix estimates that there are more than 750 million broadband households and $650+ billion of entertainment revenue in the markets in which it operates, of which it has only captured 6% in 2024. Netflix accounts for less than 10% of TV viewing in every country in which it operates, suggesting a long runway of future growth. We continue to like Netflix’s fundamentals, but we fall short of including the company in any of the newsletter portfolios on the basis of valuation.

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