Netflix | FY-24 Review & Call
Really, really strong
Overview.
This earning season is off to a great start after standout bank reports & a very strong TSM; we now have a blowout quarter for Netflix.
Revenue. $10.11B | $10.25B | +1.36% beat
EPS. $4.20 | $4.27 | +1.67% beat
$2.5B of buyback.
Everything is green.
Business.
The company is closing a strong quarter & year, both financially & fundamentally. I personally have been a big critic about their programs for some time, but I gotta admit that they are doing great work at targeting their audience & it shows in their achievements.
“Two of our Top 10 most popular ever English language TV seasons“ | “More view hours in the weekly Streaming Top 105 charts than all other streamers combined and nearly 3x the view hours of our next closest competitor.“ | “More No. 1 shows in the weekly Streaming Top 10 charts than all other streamers combined and more shows in the weekly top 10 than all other streamers combined.“ & more.
If you want some crazy stat, the second season of Squid Game was released 27 days ago and reached more than 165M views at the time management wrote their Q4-24 report… 6M views per day. I have not seen any streaming platform bet on Korean content, nor have such success with their own shows. Risks are rewarded.
Netflix is the streaming king and continues to push to grow its dominance with a very strong pipeline for 2025, including the last season of both Stranger Things & Squid Game - and much more.
Everything starts with great content & perfect market fit, and as Netflix delivered, its subscriber count grew really rapidly with 19M paid net adds this quarter alone, ending the year with 300M paid subscribers.
The regional breakdown paints an optimistic picture with a clear view on how strong the impact of the dollar strength was on the company, especially affecting the LATAM business. Hard to imagine how much better this quarter could have been with more stable currencies around the world.
In terms of business, we are talking about strong subscriber net adds all around the world and flat average revenue per user during the year - as displayed on the overview screenshot.
A rapid word about the ads plans which has been rolling out rapidly but are still not significant enough in terms of revenues as the company is building its advertising service & relations. Those plans will ramp up & I personally believe the growth spur will be strong & sudden when they reach their targets to properly monetize those users.
“In Q4, it accounted for over 55% of sign-ups in our ads countries and membership on our ads plan grew nearly 30%. We’re on track to reach sufficient scale for ads members in all of our ads countries in 2025. A top priority in 2025 is to improve our offering for advertisers so that we can substantially grow our advertising 5 revenue.”
The takeaway of this quarter & year is easy: Erything pleased the users & attracted more & more of them.
Incredible year.
Financials.
The financials show the exact same positive results.
Focusing on FY-24, revenues grew 15.6% YoY while costs stayed either flat or slightly increased, which results in rapidly expanding margins, the gross grew from 20.6% to 26.7% in a year… Outstanding optimization directly impacting net results - up a small 61.1% YoY, and net margins which expanded from 16% to 22.3%.
It’s very hard not to be in awe with those numbers.
In terms of cash, the company closes the year with $9.6B of cash & $15.6B of debt or a net debt of -$6B, which is more than negligible with their insane $6.9B of FCF. This strong financial position allowed the company to reduce its shares outstanding by 2.7% and the company still has $17B on its buyback plan.
Incredible year.
Guidance.
And Netflix's momentum is apparently not going to fade going into 2025 with a strong focus on… Everything which makes the platform great.
“We maintain a leadership position in engagement, revenue and profit. We’re focused on improving all aspects of our service.”
The FY-25 guidance is between $43.5B & $44.5B of revenues - a 12% to 14% YoY growth impacted by F/X, with continuous expanding margins.
Incredible FY-25?
My Take & valuation.
Once again, I have personally been a critic of Netflix but I gotta admit that I was dead wrong on this one… The company is becoming a cash machine, delivering great & market-fit content constantly and optimizing itself very rapidly.
The stock was priced for perfection & perfection it delivered. The only problem here is that, as usual, the market is now pricing more perfection.
I am very optimistic about Netflix's growth & margin expansion for the next years, but I am much less optimistic about buying at today’s price, which would require much higher ratios than its historical average to yield great returns.
Constant & strong growth deserves a premium, but we’re actually priced for perfection with a perfect premium…
Going for a F.P/S on the 10Y medium would need the stock to trade around $650. It depends on what premium you’d like to buy at or which valuation metrics you want to use but I personally am not buying today’s price. I’d hold my shares if I had any or maybe start trimming slightly depending on my returns.
For me to be a buyer, there’d be a great buying range between $620 & $700, both in terms of valuation & price action.
Would require a 40% drop from current prices which is far from nothing and seems impossible for now, but that’s when great opportunities arise. Being prepared for them is all we can do.
To conclude & repeat myself once more, Netflix showed a stellar quarter & a stellar year, shutting the mouth of naysayers - that’s me, and proving that they have been able to grow, monetize & find new revenue streams, all while growing margins & returning value to shareholders.
Besides how great this quarter & year is for the company, it also is a great indication of the actual consumer health & priorities. Netflix isn't a premium brand bought only by medium & high-income households. Those results & the strong demand for their product shows that consumers are resilient enough to keep paying for its content, or at worst, that they value Netflix services as a necessity… Great extra data for the economy at large & for how Netflix is perceived by consumers.
Incredible FY-24.