+ Netflix continues to grow its subscriber base. Netflix looks to have worked through most of its subscriber challenges from 1H22 as the company reported 7.7mn membership additions for 4Q22, 3.2mn more than it guided, increasing for a 2nd straight quarter. Most of the growth came from EMEA, with 3.2mn additions, followed by LATAM and APAC which both contributed 1.8mn additions. Membership additions were supported by a strong schedule of content released in 4Q22, and positive incremental benefits from the new ad-supported plan.
+ “Basic with ads” plan showing early signs of promise. Netflix’s new ad-supported plan, dubbed “Basic with ads”, continues to show strong user engagement trends similar to the company’s non-ads plans, with solid growth trends, and lower-than-expected switches from higher premium plans. Additionally, early signs indicate that the unit economics of Basics with ads remains very strong and should generate incremental revenue and profits moving forward, although this impact would remain relatively modest in FY23e as Netflix continues to gradually roll out this plan to more regions.
+ US$1.6bn positive FCF showing improvements in operating efficiency. Netflix generated US$1.6bn in FCF for FY22, compared with -US$159mn in FY21. Content spend also moderated in FY22, down about US$900mn YoY, with the company building operating leverage from more disciplined content spend. Netflix also guided at least US$3bn in FCF for FY23e as it focuses on growing higher-margin ad revenue, and launching its paid sharing program which aims to reduce the leakage of revenue from users who share accounts outside a specific household. Operating income was US$220mn above company guidance as a result of higher-than-expected revenue, and slower-than-expected hiring.