Netflix share price had already been on the slide even as we were getting ready for the latest Q4 earnings release.

As far as its share of the streaming market is concerned it is still the market leader, although its market share has declined as the likes of HBO Max, Apple TV+ and Disney+ have upped their own user base.

Having hit a record high in November of $700 last year the shares were already under pressure, and even if we’d seen decent numbers across the board, one can’t help the shares would have fallen sharply in any case.

As things turned out, the Q4 numbers came in broadly as expected with $7.71bn in revenues and profits beat expectations of $0.81c a share, coming in at $1.33c a share, which was actually above the Wall Street estimates back in Q3.

On subscribers, Netflix fell short of its own estimates of 8.5m, adding 8.28m, although it was above Wall Street forecasts of 8.13m.

The company’s undoing appears to be the guidance for the upcoming quarter which has truly upset the proverbial apple cart and has sent the shares sharply down by over 15% after hours.

For Q1 Netflix said it expects to add 2.5m new subscribers against an expectation of 6.26m, while it also nudged its operating margin for the year down to between 19% to 20%.

On Q1 revenues Netflix said it expected to see $7.9bn, and profits of $2.86c a share, both of which fell shy of what markets were hoping for, with forecasts of $8.12bn and $3.37c a share.

Total subscribers at the end of Q4 came in at 221.8m, while the hope that the company would be able to become free cash flow positive by year end came up short at -$159m. 

Netflix now says it will be free cash flow positive in 2022.

In its investor letter Netflix said the stronger US dollar over the past six months cost them roughly $1bn in revenue, which it said would be expected to knock 2% off its operating margins.

This is likely to be a concern longer term given that its future growth opportunities are going to be in its overseas markets, as such its overseas revenues are likely to increase further. To put that in context Netflix has 75.2m US and Canadian subscribers, which means that 146.6m subscriber revenue numbers are subject to currency headwinds.

Growth in the US is unlikely to butter too many parsnips in the longer term, with international subscribers now set to be the main growth area.

This is borne out by the numbers with 90% of Netflix’s subscriber adds in 2021 were outside the US and Canada, which means in the absence of hedging their overseas earnings, they are exposed to a lot of currency risk, and that is only likely to increase.

With the addition of streaming video games on mobile devices in November last year, and the recent acquisition of the Roald Dahl Company the potential for management to grow and diversify the business towards a younger cohort, as well as existing users means that the outlook continues to remain promising.  

As Netflix increasingly focusses on its international markets there appears little sign that revenues are slowing, and the scope for user growth still looks fairly decent in this area, even when measured against 2019 subscriber growth numbers.

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