THB #304a: Netflix Q4 2022

I don’t know what to tell you.

As usual, the response to a Netflix quarterly is irrational.

After explaining last quarter that they weren’t going to prioritize sub growth, the only really good number here is… sub growth.

They added 7.66 million subscribers, most notably in Europe (EMEA), where they added 3.2 million. U.S. is still flat, under 1 million subs added. Europe had 1.2 million ads. Both Latin America and Asia Pacific added 1.8 million.

On the flip side, Average Revenue Per User (ARPU) and Revenue is down in all 4 regions. And overall revenues are down $74 million from last quarter and up only 1.9% ($143m) from this quarter last year, when, as you may recall, the company came tumbling down.

We’ll see if there are any answers (or even any questions) in “the call” about what this specifically means. Is it that the ad-level offering is cannibalizing non-ad levels and that they haven’t made up for it with ads yet? Or are they at a place where “even” is really the best that can be expected as they cut back on costs to create free cash flow?

The thing is, this is all against the background of the company crowing about the success of their content. Content isn’t likely to get any better. They added a new ad tier that is the worst version of Netflix, but still… who is left to mine at that tier? So far, they don’t seem to have enough ad revenue on that tier to match full-price sub ARPU… so do they add more tiers, where it might cannibalize higher spenders for real?

Operating income is the lowest it has been in a quarter since Q4 2019, pre-COVID. Net income for the quarter was the company’s lowest since Q3 2016.

So the answer, for this quarter, is that adding subscribers meant making less money. Literally less money.

Free cash flow exists… $332 million… last year it was - $569 million… so that is good. And their Q4 is their weakest quarter in this category… so that is good.

The opening note in the Stockholder’s Letter says they project Free Cash Flow of $3 billion or more in 2023… which is almost double the 2022 number. So we will see.

But then you have Always Wrong Rich Greenfield popping onto CNBC and drooling as he talks about a return to the 20% annual revenue growth era of Netflix moving forward… which there is no sign of, at all. It was under 2% growth this Q4 from last Q4. Delusional.

But that crazy was matched by the notion of Reed Hastings going to Disney to succeed Bob Iger, with the claim that Hastings is the best possible future steward of Disney. (that one wasn’t Rich) I have nothing against Reed Hastings and I have enormous admiration for what he did at Netflix, twice, in terms of leading a new paradigm in content delivery… but that skill set is not what Disney needs. Hastings has no experience in running a company with this many distinct pieces of a corporate puzzle that both conflict and depend enormously on the other divisions.

But I digress.

Truth is, this is a remarkably mediocre quarterly. Another one. Netflix is now a mature media company with a fanboy base that will keep buying like Pavlov’s dogs unless they take a bad beating… and they recover pretty quick from even that.

I think I have gotten all I can out of the Shareholder’s Letter. Not going to push “publish” until after listening to and analyzing the “call,” which is due at 3p pacific.

(pause)

3:50p pacific

Well, that was a worthless exercise.

You know how people reference the “painting” of dogs playing poker?

Netflix Investor Calls are like a video of dogs lying on their backs and licking themselves.

Jessica Reif Ehrlich really laid it on thick on this one. She did the opposite of “when did you stop beating your wife?” It seemed like every question started, “You guys are geniuses, better than anyone else ever has been at all things… could you tell me about why you are successful doing X?”

• FAST? Not ruling anything out… not this year.

• Live TV? Not ruling anything out… nothing we haven’t announced this year.

• Ad Tier Expansion? Not ruling anything out… nothing we haven’t announced this year.

• Why is your revenue down when your subs are up? Not asked.

• Why is ARPU down in every region when you just raised prices? Not asked.

• Are you cutting content costs by $1 billion a year? More? Not asked.

• You talk about “just getting started, so why haven’t you started really expanding internationally again? Not asked.

• You are projecting doubling Free Cash Flow next year and by 30% or more the year after… where is this FCF coming from? Not asked.

• Ted, you acknowledge that you are stuck at about 8% of TV time in the U.S. But you are nearly fully saturated with U.S. households. So as traditional linear fades, why would you get any more of the market share when other choices are not going away, but just readjusting to streaming? Not asked.

Not a follow-up question in the 47 pre-taped minutes.

I learned one thing from this call… they remain a very happy group. Nothing negative. Ever. It’s like a Broadway musical…

The closest thing to information was the idea that they have a “crawl, walk, run” methodology.

They are still living in the delusion that they managed Glass Onion perfectly. No follow-up.

Anyway… nothing to see here.

At 5p pacific, the stock is up 23 points after hours, 7%. Why? Because fans are fans.

Netflix is not going to tell anyone enough to actually figure out what these numbers mean. So it will take a couple more quarters to look at the small variations and determine what they might mean. Very, very Netflix.

And you know… that’s fine. Successful company. Not going away. Not getting bought. Mature and spending a little more time each morning doing its hair and make-up.

There is no benefit to dumping on this company. Many will overpraise it to the high heavens in the days to come… but Wall Street is more like a Trump rally than a room filled with green-shaded numbers crunchers, more the Harlem Globetrotters than the NBA.

Until tomorrow…