October 7, 2022


Skillful Business Crafters

Netflix Earnings Preview: The Most Important Metric to Watch

With banks kicking of 2022’s first earnings season last week, quartelry reports will continue this week. Perhaps one of the most closely watched companies reporting earnings this week will be Netflix (NASDAQ:NFLX). The streaming service specialist is scheduled to report its fourth-quarter earnings on Thursday.

There will be a handful of metrics for investors to check on when Netflix reports its latest quarterly results. But one of the most important metrics to watch will be the company’s guidance for subscriber growth in Q1. This metric will be particularly telling given that the company announced price increases for its service on Friday. By the time the company reports its latest results, management may have some insight into whether or not the higher prices are deterring subscriber growth.

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What you should know about Netflix’s price hike

Netflix announced on Friday that it’s raising the prices to all of its subscription tiers in the U.S. Its basic subscription increased by $1 to $9.99 a month; the standard subscription rose from $13.99 to $15.49; and the premium subscription jumped from $17.99 to $19.99. Prices for two of its tiers are increasing in Canada.

In a statement to the media, Netflix noted that the prices reflect the company’s efforts to continue its ongoing expansion of its content library so that users have plenty of options. 

While the price increases are effective immediately for anyone who signs up for Netflix today, they won’t be rolled out to existing customers until later this year. Specifically, the company said it will notify Netflix subscribers about the price increases in the coming weeks; and subscribers will be given 30-days’ notice.

Investors are hoping for strong subscriber growth in 2022

In 2021, Netflix faced a lull in subscriber growth in the first and second quarter of the year due to a pull-forward in demand in 2020 when more people were sheltering at home to help curb the spread of COVID-19. Total subscriber additions in the first half of the year were about 5.5 million. But subscriber growth picked up in Q3, with about 4.4 million customer additions in the three-month period. And in the fourth quarter of 2021, Netflix expects 8.5 million new customers.

Investors are likely hoping that management provides robust guidance for Q1 subscriber growth. After all, Netflix has been rolling out lots of new content as its production capabilities are ramping back up. A strong slate of new content should help draw in new subscribers.

But with the company throwing in a curveball of a price increase, some investors may wonder if subscriber growth could be dampened.

Of course, a price hike will likely still be a good thing for investors even if subscriber growth slows some. But a best-case scenario would be that the company has the pricing power to both raise prices and keep growing subscribers rapidly.

To get an idea of how subscriber growth is trending so far in 2022, investors should look to management’s guidance for net new subscriber additions in the first quarter of 2022.

Netflix reports its fourth-quarter results after market close on Thursday, Jan. 20. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.