Netflix announced better-than-expected subscriber growth and revenues in the fourth quarter, adding 8.51 million new streaming customers for a total 203.66 million at year-end. Revenues rose 21.5 percent year-on-year to USD 6.64 billion. While the company expects a small slowdown in subscriber growth in Q1, it said the revenue outlook is positive and it aims to reach cash-flow breakeven this year.
Netflix added 2.5 million more customers than expected in Q4. Over the full year 2020 it gained 37 million new subscribers, up 31 percent from 28 million added in 2019. Over 80 percent of the customer growth in 2020 came from outside the US and Canada.
In the first quarter, subscriber growth is expected to slow to around 6 million new customers. That's down from Q4 and less than half the 15.8 million added in Q1 2020 when the company benefitted from the initial outbreak of the coronavirus. Revenues in Q1 are estimated at USD 7.1 billion, up 23.6 percent from a year earlier. Netflix said ARPU was largely flat in the pas quarter at just over USD 11.
While the operating margin dipped to 14.4 percent in Q4, it was still up five percent points over the full year to 18 percent. Netflix increased its target for 2021 to a margin of 20 percent, compared to a previous estimate of 19 percent, due to the more favorable revenue outlook.
The company said it had largely resumed its content production, with over 500 titles in post-production or preparing to launch. It's also working on more new features and will roll out in the first half an option for users to watch instantly a title recommended for them, rather than browse the catalogue.
While original production continues unabated, the company succeeded in reducing its cash burn to USD 138 million in Q4 from USD 1.5 billion a year earlier. Over the full year, free cash flow reached a positive USD 1.9 billion compared to a negative USD 3.3 billion in 2019.
Netflix said it's on track for sustainable cash flow, allowing it to finance its business from revenues rather than relying on external debt. For the full year 2021, it aims for free cash flow around break even (vs. a prior expectation for negative USD 1 billion to break even). With USD 8.2 billion in cash on hand and a USD 750 million undrawn credit facility, the company does not expect to raise external financing for day-to-day operations, and when its next bonds mature in February, it will pay with its cash, rather than refinance with new debt. As it generates excess cash, the plan is to maintain gross debt at around USD 10-15 billion and eventually return to regular share buybacks.
