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21 January 2021

Netflix Results Make for Good Viewing

Netflix, the popular video streaming site, astonished analysts with strong Q4 results to finish off 2020. Although Netflix slightly missed profitability estimates in the most recent quarter, the overall results were extremely positive as analysts’ predictions for the full year were beaten across the board.

Netflix reported earnings per share (EPS) of US$1.19 in comparison to a Q4 2019 figure of US$1.30, falling short of analyst estimates of US$1.38. The lacklustre EPS figures came with an 8% fall in net income to US$542m in the same quarter of 2019, however, investors were reassured as revenue for the quarter was up 22% at US$6.64bn. The sustained increase in revenue, coupled with a decline in net income, could indicate that Netflix’s costs to gain new subscribers surged towards the end of 2020. As a result of this, Netflix has increased subscription prices while the company is able to capitalise on the public’s willingness to pay subscription fees, with demand for home video streaming at an all-time high.

The growth in paid subscriptions was overwhelmingly upbeat, both for Q4 and the full year. In Q4, Netflix recorded 8.5 million paid net additions to the service. This took subscriptions for the full year to 37 million, a 31% increase from the previous year and the highest influx of subscribers yet. Total subscriptions are now past 200 million, which is evidence of Netflix’s immense presence within the industry. The introduction of competitors such as Disney+, Apple TV and HBO Max provided customers with a range of often differing content, which placed pressure on Netflix to retain and attract new customers with exciting content. It is clear from the Q4 and full-year results that Netflix has succeeded in doing so and could continue to focus on customer satisfaction throughout 2021, with plans to release a new film every week.

Looking at the full year, revenues increased 24% in 2020 to US$25bn, while operating profit soared by 76% to US$4.6bn. On the back of these figures, Netflix soon expects to become free cash flow positive. The company has stated it would no longer need to raise external financing for daily operations and would even explore returning cash to shareholders. In addition, it intends to pay more of the US$15bn of debt incurred since 2011 with some of the US$8.1bn cash currently on the balance sheet. Overall, the results highlight a strong year for Netflix and great potential for investors in 2021. The share price was up 13% in pre-market since posting the results after the NY close on Tuesday.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Netflix Results Make for Good Viewing
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