Netflix Q4 2022 – Middle-aged.

Hastings ends on a bounce.

• Netflix announced good results at the same time that its long-term founder and CEO stepped down to be replaced with two co-CEOs which is never a good idea.
• Q4 2022 revenues / EPS were $7.85bn up 5% YoY (constant currency) / $0.12 below forecasts of $7.85bn / $0.5 but critically subscribers positively surprised.
• During Q4 2022, Netflix added 7.7m subscribers compared to the 4.5m that it had forecast due to a good slate of programming but also I suspect as a result of the cost of living which is keeping people at home more than before.
• The cost of Netflix for a month is not far away from a round of drinks at the pub making it a pretty good way to save money.
• At the same time, Reed Hastings, founder and CEO will be stepping aside to become executive chairman (read ambassador) with the COO and head of programming both taking over as joint CEOs.
• I suspect that this is going to cause problems as joint CEOs often disagree which can leave a company stranded strategically as big decisions get delayed or a messy compromise is reached.
• I have never seen this structure work well and I think that Netflix has probably got some tough decisions to make as it seeks to reignite growth and increase margins.
• I view this as a negative outcome as I think the quality of management execution will now fall from where it was before.
• Despite the jump, growth in revenues remains pretty slow and will remain so in 2023 with 3.9% YoY forecast for Q1 2023 with similar likely for the rest of the year.
• To combat this Netflix is digging deep to find extra revenue and has decided to target account sharing as a place to increase monetisation.
• Netflix estimates that around 100m households share logins with other households denying revenue to Netflix which is a problem the company has largely ignored as growth was excellent without having to fix this problem.
• Times are now much harder and so later in Q1 2023, Netflix will begin rolling out a new plan called paid sharing which will aim to monetise those households that currently get Netflix but don’t pay for it.
• Historically, such a large best on subscribers would have resulted in a big jump in the share price but only 7% was managed in after-hours trading.
• This is despite the company trading at roughly half of its previous valuation and gives an idea of how cautious the market is around companies that demand a high valuation in return for growth.
• The problem is that Netflix’s valuation remains pretty high but the growth has evaporated leaving me completely uninterested in entertaining a position in this stock.