Netflix Surges On Record Subscriber Growth

Shares in US streaming titan Netflix are trading firmly higher pre-market on Wednesday. Netflix has seen its stock price jump 13% out of hours in response to yesterday’s Q4 earnings release.

While earnings per share were below estimates, the company reported strong revenues and new subscribers growth. This fuelled the sharp move higher ahead of the US open on Wednesday.

Earnings Miss But Revenues Jump

Netflix reported fourth-quarter earnings per share of $1.19, undershooting analyst expectations for a $1.36 EPS. However, revenues rose by $6.64 billion over the quarter, above the projected $6.26 billion Wall Street was looking for.

Additionally, Netflix reported an 8.5 million increase in new subscribers, comfortably surpassing Wall Street’s expectations for a 6.5 million increase.

Notably, Netflix has now jumped above the 200 million paid subscribers mark for the first time, having broken above 100 million back in 2017.

Close to Free Cash Flow Positive

The fourth-quarter report was also noteworthy in that Netflix announced that it is now close to turning free cash flow positive. The company has been free cash flow positive for each of the last three quarters, though this has been mostly attributed to scaled-down production during the COVID pandemic.

Expectations of turning free cash flow positive are highly significant and mean that the company would no longer need to source external financing.

Commenting on the potential buybacks the company is considering, CEO Spencer Neumann said:

“We put a premium on balance sheet flexibility, so we’re going to continue to invest aggressively into the growth opportunities that we see and that’s always going to come first. But beyond that, if we have excess cash, we’ll return it to shareholders through a share buyback program.”

Netflix noted that it intends to increase the amount of debt it pays down. They have raised $15 billion since 2011 with $8.2 billion on hand at the present time.

Netflix Unfazed by Rivals

The company was also keen to point out that its performance over 2020 came despite increased competition. Rivals included Disney, which launched its streaming service, Apple TV+, HBP Max, and others.

Noting that while Disney had a strong first year (87 million paid subscribers) Netflix had recorded its biggest year of paid membership growth in the firm’s history. This keeps the company’s outlook firmly positive.

Netflix Approaching Key Resistance

Shares in Netflix surged above the 510.70 level overnight, which now turns support. Price is now sitting just below the major 574.70 level. A break of here would be a solid bullish signal for Netflix shares.

To the downside, should price slip back below the 510.70 level, the next support to watch is down at the 475.17 level.

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