Netflix Stock Soars 15% on Blockbuster Subscriber Growth and Price Hikes

Netflix (NASDAQ: NFLX) has once again demonstrated its resilience in the face of market challenges. The global streaming leader recently released impressive fourth-quarter results, which saw a significant increase in paid subscribers. This surge marks the last quarter in which Netflix will report paid user numbers after announcing a shift away from this practice beginning fiscal year 2025. The company's stock soared approximately 15% in after-hours trading, helping offset a weak start to the year and bringing its gains over the past year to more than 100%.

The principal strength for Netflix lies in the somewhat inelastic demand from consumers, especially around current pricing levels. Alongside the earnings data, the company's decision to raise subscription prices has caught investors' eyes. The monthly cost for Netflix's ad-supported plan has increased from $6.99 to $7.99, and the basic no-ads plan jumped to $17.99 from the previous $15.49. Notably, though international pricing varies when converted to USD and is generally lower, particularly in emerging markets, price hikes usually occur globally.

Netflix is forecasting fiscal 2025 revenues within the range of $43.5 billion to $44.5 billion, up by $0.5 billion from prior predictions, translating to an annual growth of 12-14%. This estimate suggests that Netflix can achieve this growth through announced double-digit price hikes, while keeping its user base steady.

There is optimism that continuous subscriber growth and favorable market conditions may propel further earnings growth into the first quarter and beyond. Netflix’s fourth-quarter revenue rose 16% year-over-year to $10.25 billion, exceeding the conservative $10.11 billion projection. This represents an acceleration from the 15% growth seen in the third quarter.

Notably, Netflix gained 18.9 million net new subscribers in the fourth quarter, almost quadruple the third quarter's 5.1 million increase, significantly surpassing expectations of 9.2 million. The new subscriber growth was broad-based across regions, with 4.8 million new subscribers in the US and Canada, dispelling concerns about increased competition leading to customer churn.

The company has also embraced a strategy of live events, which could help retain subscribers during off-seasons of their favorite shows. In the fourth quarter, Netflix broadcast high-profile events, including a boxing match featuring Jake Paul, and two NFL Christmas games, which were among the most-streamed events in its history.

In terms of profitability, the company's operating margin rose 530 basis points to 22.2% year-over-year. Despite significant revenue growth, Netflix managed to keep G&A expenses and tech/development spending growth within single-digit percentages. Earnings per share more than doubled to $4.27, surpassing expectations of $4.20.

A concern remains regarding Netflix's high valuation following the positive earnings release. With a stock price nearing $990 and a P/E ratio of 42 times the projected EPS for fiscal 2025, Netflix stands out even among large tech and media peers. While the company's fundamental prospects remain strong, valuation risk is a factor investors need to consider carefully.

Nonetheless, Netflix's recent performance, its ability to maintain strong subscriber growth amid price increases, and its evolving content strategy continue to impress.