January 19, 2023
Netflix is full of surprises. In addition to beating subscriber forecasts in the fourth quarter of 2022, the company also announced big changes in its executive lineup.
Ted Sarandos and Greg Peters are now Netflix's co-CEOs, with Reed Hastings taking the role of executive chairman. Netflix co-founder Hastings previously served as a co-CEO with Sarandos. Netflix said the move completes its succession process, noting that the announcement formalizes how things have been operating at the company.
Among other moves, Bela Bajaria, formerly Netflix's head of global TV, is now the company's chief content officer, and Scott Stuber has been named chairman of Netflix Film.
Figure 1: (Source: Netflix)
Netflix added 7.66 million subs worldwide, extending its total to 231 million. While it added fewer subscribers than a year ago, the result beat guidance that Netflix would add 4.5 million subs in Q4 2022. Netflix shares were up $13.18 (4.17%) to $328.96 in after-hours trading on Thursday.
Netflix saw subscriber growth across all regions: US and Canada (+910,000, up 10%), Europe Middle East and Africa (+3.2 million, up 2%), Latin America (+1.76 million, up 2%) and Asia Pacific (+1.8 million, up 17%).
Ad plan performance
The company didn't offer much commentary on its new ad-supported tier. It said the new offering isn't cannibalizing its customer base and the plan is expected to have only a "modest" impact on incremental revenue and profit in 2023.
"While it's still early days for ads, and we have lots to do (in particular, better targeting and measurement), we are pleased with our progress to date across every dimension: member experience, value to advertisers, and incremental contribution to our business," Netflix said in its Q4 2022 investor letter (PDF). "Also, as expected, we've seen very little switching from other plans. Overall the reaction to this launch from both consumers and advertisers has confirmed our belief that our ad-supported plan has strong unit economics (at minimum, in-line with or better than the comparable ad-free plan) and will generate incremental revenue and profit, though the impact on 2023 will be modest given that this will build slowly over time."
Netflix launched that plan, called Basic with Ads, in a dozen countries last November. The ad-supported tier sells for $6.99 per month in the US but doesn't initially support Netflix's entire library or downloads.
Netflix said quarterly revenues rose 1.9% to $7.85 billion, just ahead of an expected $7.77 billion. Netflix expects Q1 2023 revenues of $8.17 billion.
Paid sharing set to expand
Netflix no longer forecasts paid subscriber numbers as revenue becomes its "primary top-line metric" as it develops new revenue streams tied to advertising and a relatively new paid sharing initiative.
"As we roll out paid sharing, members in many countries will also have the option to pay extra if they want to share Netflix with people they don't live with. As is the case today, all members will be able to watch while traveling, whether on a TV or mobile device," Netflix said.
Though Netflix did not provide any specific subscriber guidance, it expects that expanding paid sharing will alter paid subscriber patterns in 2023. The company says it's "likely" that paid net adds will be greater in Q2 2023 than in Q1 2023.
That notion is drawn from the company's experience with paid sharing in test markets such as Latin America, where it saw some "cancel reaction" early on but later saw "borrower households" start to activate their standalone accounts and extra member accounts.
— Jeff Baumgartner, Senior Editor, Light Reading
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