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Netflix’s User Growth May Rely on International Markets From Here on Out

With the launch of several new video streaming platforms late last year, all eyes were on Netflix (NASDAQ: NFLX) -- the current leader in the media streaming industry -- earlier this month as the tech company released its fourth-quarter and full-year earnings report on Jan. 21. Naturally, investors and analysts were curious to see just how Netflix would perform given the increasingly competitive nature of its industry.

The results were mixed, but while the company's shares slipped slightly following the release, they have since recovered. With that in mind, here are some of the highlights from the report:

  • Revenue for the fourth quarter was $5.5 billion, up 30.6% year over year.
  • Operating income for the quarter was $459 million, which more than doubled from the prior-year period.
  • Operating margin expanded 320 basis points, coming in at 8.4% for the quarter.
  • Net income soared 338% year over year to $587 million, while earnings quadrupled to $1.30 per share.
  • Average revenue per user (ARPU) grew 9% year over year (12% excluding currency effects).

The metric that was on everyone's mind, though, was Netflix's subscriber growth, and the company's data indicates that international markets are becoming increasingly important to its ability to grow its user base.

Image source: Netflix

Netflix's user growth beats expectations, but there's a catch

During the fourth quarter, Netflix added 8.76 million net subscribers. This was better than the company itself had anticipated as management previously guided to 7.6 million additions for the quarter. However, net additions in North America were less than impressive -- the company added 420,000 subscribers in the U.S. and Canada, falling short of the 600,000 subscribers the company previously forecast.

Is this a result of the new competition from Disney and Apple? The company seems to think so. In its letter to shareholders, the company said, "Our low membership growth in UCAN is probably due to our recent price changes and to U.S. competitive launches." With that said, Netflix's user growth abroad more than made up for this. The company added 8.33 million new subscribers in international markets.

In particular, Netflix added 4.42 million new subscribers in Europe, Middle East, and Africa (EMEA). Note that Netflix already released some data at the end of last year showing that it was growing tremendously in international markets, and with the competition from Disney+ and other platforms heating up, investors have to get used to the fact that the company's global ambitions may become one of its most important growth drivers.

Looking forward

Perhaps the biggest takeaway from Netflix's fourth-quarter earnings report is that despite the competition, the company continues to find ways to deliver growth. No wonder several analysts reiterated their buy ratings for Netflix stock, which helped the company's shares climb higher. Of course, the new Disney+ and Apple TV+ streaming services are here to stay, and the upcoming quarters will tell us more about Netflix's ability to coexist -- and thrive -- in this new environment.

But if its most recent earnings report is any indication, Netflix is far from being dead in the water. Of course, the company's management had predicted this. In its third-quarter letter to shareholders, the company said it expected the new competition to create "modest" near-term headwinds but to have little impact on the company's growth trajectory given the "large market opportunity."

In my view, Netflix is largely correct in its assessment, and despite the increased competition, it remains one of the top tech stocks to buy.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Netflix, and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short April 2020 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.


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