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Netflix (NFLX +12%) is making a big move following its impressive Q4 earnings report last night. NFLX reported a decent EPS and revenue beat, but not huge upside. NFLX hit a milestone by recording its first-ever $10 bln revenue quarter in Q4 and expects to do that again in Q1. NFLX also slightly raised its 2025 revenue guidance to $43.50-44.50 bln despite FX headwinds. The one blemish was downside EPS/revs guidance for Q1.

• The other big news was Netflix announcing price increases in the US and Canada. Its standard monthly membership without ads will go to $17.99 from $15.49, this tier's first hike in three years, while its standard account with ads will rise by $1 to $7.99. Its highest-priced premium tier, which includes 4K video, will increase to $24.99 from $22.99.
• Let's dig into the Q4 results. The metric that jumped out was Q4 global streaming paid net adds coming in at +18.91 mln, well above prior guidance of "higher than Q3's +5.07 mln." Q4 marked Netflix's largest-ever quarter for net adds growth in company history. Membership growth in Q4 was driven by broad strength across its content slate, improved product/market fit and typical Q4 seasonality.
• Unfortunately, beginning with its Q1 report in April, Netflix will no longer report paid memberships and ARM on a regular quarterly basis, however, it will announce paid memberships as it crosses key milestones. And starting in Q2, Netflix will publish a bi-annual engagement report in tandem with its Q2 and Q4 earnings results.
• Advertising was a bright spot in Q4 with ads membership up 30% quarter on quarter. Of note, ads plan accounted for over 55% of sign-ups in its ads countries (has not been rolled out everywhere yet). NFLX is even more excited that engagement from its ads members remains healthy with view hours per member similar to engagement on non-ads plan. Netflix doubled its ads revenue in 2024 and expects to double again in 2025.
• Importantly, Netflix described 2025 as the year when its ads segment transitions from crawl to walk. A big part of that is standing up its own ad stack. It has launched in Canada and will get rolled out across the rest of its 12 ads countries in 2025, starting with the US in April. The biggest initial benefit of using its own ad server is the ability to offer more flexibility, more ways of buying for advertisers, fewer activation hurdles etc. This should drive sales and the ease of transacting with Netflix.
• Another metric that stands out is operating margin, which we think will become a more important measuring stick as NFLX phases out reporting its net add metric in 1Q25. In Q4, it came in at 22.2% vs 21.6% prior guidance, primarily due to higher-than-forecasted revenue. NFLX also increased 2025 operating margin guidance to 29% from 28%, a slight improvement from 27% in 2024. NFLX expects Q1 operating margin to be 28.2%.

Overall, Netflix's huge net adds number is the main driver of today's big move. It is a shame that reporting on this metric is going away in Q1. Nevertheless, it shows that expanding its offering with an ads tier was the right move and NFLX expects its ads segment to transition to walk from crawl in 2025. Also, Netflix's decision to raise prices demonstrates its confidence in its offering. It's is quite remarkable how successful Netflix has become even as other streamers struggle to make a profit.