Video streaming giant Netflix (NFLX -0.58%) recently reported a blowout fourth quarter thanks to strong subscriber growth, proving the company can continue to lead a saturated streaming market. The stock surged roughly 10% immediately following the news, and Netflix now has a nearly $415 billion market cap.
Obviously, shareholders love to see a company beat earnings, and analysts were impressed by the performance with one calling it a “near flawless” quarter. However, beyond the headline numbers, co-CEOs Ted Sarandos and Greg Peters also shared fantastic news regarding its new subscribers and the stickiness of its platform.
Subscriber growth
Not only did Netflix beat analysts’ estimates on earnings and revenue, it also grew its global paid memberships to over 301 million, up 18.9 million from the prior quarter and nearly double what analysts had expected.
This was a bullish signal that the company can continue to grow its subscriber count at a rapid rate. Many surmised the strength came from live events during the quarter, including Christmas Day NFL games and the Jake Paul vs. Mike Tyson boxing match. However, Sarandos and Peters suggested the live events only played a small part in subscriber growth. In response to an analyst’s question during the earnings call, Peters said:
Our estimates for subscriber adds driven by those titles combined represent a small minority of our total member acquisition in the quarter. So it’s really the whole service that’s working that delivered the upside that we saw this quarter. The vast majority of our net adds were driven by our broad slate in our portfolio globally.
Sarandos added further details:
So we’re thrilled that some folks came in for the fight and some folks came in for the games, but they stuck around for Squid Game and for Carry-On and for Black Doves and for Six Triple Eight and Nate Bargatze’s new comedy special […] And what’s really been most encouraging is that the retention behavior of those folks who did come in for those events who look a lot like the folks who’ve come in for all of our other big titles.
That’s good news for several reasons. For one, Netflix reportedly paid $150 million for the rights to the Christmas NFL games. Such popular live events aren’t cheap, and shareholders want to see a good return on investment. The NFL match-ups reportedly reached 65 million U.S. viewers, while the Paul-Tyson fight attracted a global audience of 108 million.
Could this be a winning strategy?
Given the retention Sarandos described, the live-event strategy seems to be working so far, and Netflix has plans to keep it going. Last year, the company inked a $5 billion deal to give the streaming platform exclusive rights to World Wrestling Entertainment’s Raw programming. It’s hard to grow subscriber numbers forever, so investors want to see Netflix further monetize its massive subscriber base.
The company also continues to raise prices in many of its markets. The U.S. ad-supported plan increased $1 to $7.99 per month, while its premium plan rose $2 to nearly $24.99 per month. The fact the company has been able to continue adding millions of new subscribers while hiking prices shows that audiences value the service.
Ultimately, Netflix is bringing in subscribers with the help of live events and holding onto them with the rest of its content. This could prove to be a potent, long-term growth strategy for the company, even if the results won’t be quite as clear going forward as Netflix will stop reporting subscriber figures starting this year.
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
