Netflix’s result for the 2022 financial year revealed disappointing earnings but impressed investors where it matters most – subscribers.
Netflix’s Q4 revenue was in line with consensus estimates at $7.85 billion. However, its 12 cents per share earnings were well below the expected 45 cents per share.
Despite the earnings miss, Netflix’s share price increased by almost 9% after it released its results.
The share price increased because Netflix performed well in one metric, which investors are highly focused on – subscriber growth.
In Q1 2022, Netflix announced that it lost 200,000 subscribers when it forecasted an already low increase of 2.5 million subscribers.
It marked the first time in a decade that Netflix lost subscribers, creating fears that the company has reached the end of its growth stage. It sent the share price down 35% in a day.
In the last quarter, Netflix reported a 7.66 million increase in global subscribers. It was much higher than Wall Street analysts’ 4.57 million consensus prediction.
The subscriber growth surprise reassured investors that the company still has growth potential.
Over the past few years, Netflix has made significant efforts to grow its own content library and move away from licensed content.
Licensed content is created by external content producers to which Netflix holds licensing rights to make it available in its library.
In 2016, Netflix still relied on 97% of its available content to be produced by external producers such as Disney, Paramount, and HBO.
Many of these external producers created their own streaming services and retracted their content from Netflix’s platform.
To counter this trend, Netflix has invested billions to produce its own content. Through this investment, it reduced the content from external parties in its library to 58%.
Netflix has also launched ad-supported services, bringing its service to consumers at a lower price point.
Netflix reported that the advertising revenue has been promising, although it would take time to make a meaningful contribution to global revenue.
Netflix stated that it expects to generate strong long-term revenue from this service.