NFLX & Squid Game| Netflix Proves Content is King

Netflix gained 19 million subscribers in Q4 2024, marking the largest quarterly increase in its history and more than doubling Wall Street’s projections. This milestone surpassed the previous record of 16 million new members in Q1 2020, which was driven by pandemic lockdowns

So, how did Netflix achieve this impressive growth? Let’s break it down

Today we will talk about
-Netflix Q4 FY24 Performance
-Drivers Behind the Subscriber Surge
-Key Quotes from the Earnings Call
-Outlook for the Future

1.Netflix Q4 FY24 Performance
Netflix’s revenue growth hinges on two main factors:
Paid Memberships: The number of paying users.
ARM (Average Revenue per Membership): Revenue generated per subscriber.

In Q4, total paid memberships surged 16% year over year, reaching a record 302 million

The password-sharing crackdown launched in Q2 2023 was a significant driver of member growth . However, even with this initiative providing a boost, the Q4 growth stands out as an extraordinary result compared to historical trends.

Regional Breakdown
APAC: Added 4.9 million members, leading growth globally with a 27% year-over-year increase, significantly outpacing mid-teen growth rates in other regions.
LATAM: Gained 4.1 million members, recovering from a Q3 slowdown, thanks to price adjustments and a strong content lineup.
EMEA: Added 5.0 million members, maintaining performance levels consistent with last year’s Q4.
US/Canada: Surged by 4.8 million members, far surpassing estimates of ~1.8 million and notably outperforming last year’s Q4 addition of 2.8 million.

ARM and Membership Trends
Average Revenue per Membership (ARM) grew 1% year-over-year, or 3% in constant currency. While Netflix's ad-supported plan continues to gain traction, ad monetization is still in the early stages, limiting ARM growth for now. Membership growth remains the primary driver of revenue gains.

Income Statement Highlights
Revenue : $10.2 billion (+16% year-over-year), beating expectations by $140 million.
Operating Margin: 22%, up 5 percentage points year-over-year, beating forecasts by 1 percentage point.
EPS: $4.27, a 102% year over year increase, exceeding estimates by $0.07.

Netflix’s strong performance across regions and its ability to convert membership growth into financial gains reinforce its position as a leader in the streaming market.

Cash Flow (TTM)
Operating Cash Flow: $7.4 billion, representing a 19% margin, down 3 percentage points YOY
Free Cash Flow: $6.9 billion, with an 18% margin, also down 3 percentage points YOY

Balance Sheet Highlights
Cash and Short Term Investments: $9.6 billion.
Debt: $15.6 billion.

FY25 Guidance
Revenue: Expected to reach $43.5-$44.5 billion, a 12%-14% year over year increase (guidance raised by $0.5 billion).
Operating Margin: Targeted at 29%, a 1 percentage point improvement YOY.

1.Best Quarter Ever
Netflix outperformed across revenue, operating margin, and earnings, with constant currency revenue growth at 19% YOY. The record addition of new members could unlock future growth opportunities through price adjustments and ad monetization, reflected in an ambitious FY25 guidance.

2.Shift in Focus
Netflix plans to stop reporting subscriber numbers, signaling a strategic pivot toward emphasizing revenue and operating margin. This reflects a maturing business model where engagement and monetization, rather than raw subscriber growth, are the primary metrics of success.

3.Ad Tier Driving Growth
Ad supported memberships grew 30% sequentially, with 55% of new sign-ups in available markets choosing the ad-supported plan. Netflix’s first-party ad tech platform, launching in the US this April, positions the company to double its ad revenue in 2025.

4.Operating Leverage
The scalability of Netflix’s business model is fueling margin expansion. With minimal incremental costs for new members, the company is leveraging additional revenue to boost operating margins, targeting 29% for FY25.

Netflix is transitioning into a more mature and diversified business, with a focus on engagement, monetization, and profitability, setting the stage for sustained growth.

Content Remains King
Netflix continues to dominate engagement through a powerful lineup of original programming and live events:
Original Hits: Blockbusters like Squid Game S2 and CarryOn drove significant viewership.
Live Events: High profile events like NFL games on Christmas Day and the Jake Paul vs Mike Tyson fight brought record-breaking engagement.
Content Investment: Netflix spent $17 billion on content in 2024 and plans to increase that to $18 billion in 2025, focusing on marquee titles such as Squid Game S3, Stranger Things S5, Wednesday S2, and Knives Out 3.

Big Picture: Strong Momentum into 2025
Netflix is entering 2025 with considerable momentum:
Revenue Growth: FY25 revenue guidance increased by $1.5 billion despite headwinds from a strengthening US dollar.
Ad Business Scaling: The rapidly expanding ad-supported tier is fueling growth.
Engagement and Margins: Engagement has reached record highs, and margins are steadily improving, solidifying Netflix's position as a leader in the streaming space.

What Caused this mania ?

Netflix’s success is driven by programs that captivate audiences, as demonstrated by their performance on Nielsen's Top 10 view hours list. Key highlights from 2024 include:
- The most streamed sporting event ever
- The two most streamed NFL games ever
- More #1 shows than all other streaming platforms combined.
- Higher total view hours than all competitors combined.
- Six of the 10 most-searched TV shows globally, including in the US and UK.

Netflix’s ability to consistently deliver content that attracts massive viewership underscores its dominance in the streaming market. From live events to global hits, the platform’s strategy of combining scale and quality continues to pay dividends.

Key Drivers of Q4 Engagement

Top TV Shows
Squid Game S2: Reached 166 million views in December, making it Netflix's third most-watched season ever, trailing only Squid Game S1 (265M views) and *Wednesday* (252M views).
Black Doves: Garnered 47 million views.
Outer Banks S4: Attracted 37 million views.

Top Movies
Carry On: Achieved 160 million views, leading the quarter's film lineup.
Our Little Secret: Amassed 84 million views.
The Six Triple Eight: Recorded 64 million views.

Live Events
Major live events were pivotal subscriber magnets during Q4:
NFL Games: Delivered massive engagement, further boosting membership.
Paul vs Tyson Boxing Match: Attracted significant attention and contributed to the record-breaking quarter.

Context and Impact
Squid Game 2's early success underscores Netflix’s continued dominance in delivering globally resonant original content. Live events complemented the scripted lineup by drawing in diverse audiences and driving subscriber growth. With a mix of record-setting TV seasons, blockbuster films, and high-profile events, Netflix maintained its momentum and delivered one of the most successful quarters in its history.

Top Q4 Live Events
-Jake Paul vs Mike Tyson: 65M concurrent streams, breaking records.(I definitely will judge your IQ just base on this metric)
-Beyonce Bowl: 50M views.
-NFL Christmas Day Games: 31M views combined, further driving engagement.

Future Live Event Outlook
- Netflix plans to expand live programming, with 52 weeks of WWE scheduled for 2025.
- The company has secured US rights for FIFA Women’s World Cup in 2027 and 2031, showcasing a commitment to high-profile global events.

Ads at Scale
The ad-supported tier continues to grow as a key driver for Netflix:
-Membership Milestone: Crossed 70M members in November 2024, accounting for nearly 25% of Netflix’s global user base.
-SignUp Trends: Over 55% of new memberships in available markets chose the ad-supported plan in Q4, up from 50% in Q3.
-Growth Rates: Ads tier memberships grew 30% quarter-over-quarter.
-Pricing Changes: Recent US price hikes ($7.99 for the ad plan and $17.99 for standard) make the ad tier even more appealing.
-Ad Tech Rollout: Following success in Canada, Netflix will launch its in-house ad platform in the US in April, improving advertiser targeting, reporting, and revenue.

Key Quotes from the Earnings Call

Co CEO Greg Peters
On Membership Growth
“While big hits like Squid Game S2 and major events contributed, they represent a small portion of our overall subscriber growth. It’s the entire service that’s driving our momentum.”
New members attracted by blockbuster events tend to stay engaged, reinforcing retention metrics.

On the Ad Plan
“Engagement on the ad-supported plan matches that of our standard plan in key markets. We exceeded ads revenue targets in Q4 and doubled ad revenue year-over-year. We aim to double it again in 2025”
This underlines the growing importance of ads as a revenue driver

On Games
“Though still a small part of our budget, games positively impact retention and acquisition. We’ll scale investment as benefits grow, with bigger titles launching annually.”
Gaming remains an experimental but promising area

Co CEO Ted Sarandos
On Live Sports
“The economics of full season sports remain challenging, but we’re excited about initiatives like WWE and our success with NFL games.”
Live events like WWE have outperformed legacy TV benchmarks, validating Netflix’s selective approach to live sports.

On Marketing Efficiency
“Carry-On* reached 160M views with modest marketing efforts, showing how we leverage Netflix and social channels to drive awareness.”
Netflix’s in-house promotional tools reduce reliance on traditional marketing

Engagement Metrics to Watch
Netflix measures success by view hours per member, which rose to 2 hours daily in 2024.
This drives key performance areas:
- Retention: Happy members keep coming back.
- Acquisition: Strong engagement boosts word of mouth and award recognition.
- Monetization: Higher engagement translates to more ad impressions and pricing power.

Broader Streaming Trends
Streaming Dominance: Streaming captured 43.3% of US TV time in December 2024, up from 35.9% the year prior, hitting an all time high.
Netflix’s Role: With leading content and ad scalability, Netflix is poised to capture an even larger share of engagement and revenue in the streaming market.

Netflix’s blend of original content, live events, and ad-supported growth sets the stage for continued leadership in 2025 and beyond.

Netflix's TV Market Performance and Growth Opportunities

US Market Share
Netflix accounted for 8.5% of US TV time in December 2024, up from 7.7% a year earlier.
This figure rivals the combined share of Prime Video, Hulu, and Disney+, thanks to hits like Squid Game2 and live NFL games

Competitor Trends
YouTube rose to 11% market share (up from 8.5%), excluding YouTube TV.
YouTube’s gains primarily came at the expense of Cable TV, whose share fell to 24% (from 28% a year earlier). Despite YouTube’s growth, Netflix’s engagement remains resilient, reflecting complementary viewer habits

Global Market Potential
Netflix holds less than 10% of TV viewing time in every country, indicating significant room for expansion. Management estimates the broader entertainment market—TV/streaming, theatrical, and gaming (excluding China and Russia) at $650 billion, of which Netflix captured only ~6% in 2024

Netflix’s Strategic Advantages
Single-Minded Focus
Unlike Big Tech (juggling cloud, AI, and hardware) or legacy media (facing debt and linear TV decline), Netflix prioritizes top-tier content and effective monetization

Content Leadership
With 302M members streaming 2 hours daily, Netflix dominates engagement. Hits like Squid Game and NFL live events underscore its ability to attract global audiences

Scalable Monetization
Innovations like the ad-supported tier and global licensing rights are unlocking new revenue streams while retaining subscribers

Big Picture
Netflix’s blend of focused strategy, strong content lineup, and untapped global markets positions it for long term growth. With an expanding share of TV time and a proven ability to innovate, the company is well equipped to capture a larger piece of the entertainment market in 2025 and beyond.