Netflix executives’ interpretation of the fourth quarter financial report: it’s meaningless to acquire members through acquisition


Related news: Netflix’s fourth quarter revenue of $6.6 billion, net profit down 8% year on year
Netflix executives interpret the fourth quarter financial report: the growth effect of the epidemic has not disappeared
Sina Technology News on the afternoon of January 20, according to reports, the U.S. streaming media giant netlifx announced the company’s fourth quarter results after the U.S. stock market on Tuesday morning. Nai Frisbee rose 12% to $563 / share, up 48% in the past year.
Netflix disclosed in its after hours financial report on Tuesday that it had a net increase of more than 8.5 million subscribers in the fourth quarter of 2020, which exceeded the expectation. In 2020, Netflix’s subscriber growth reached a record 37 million, and the number of subscribers had reached 203.7 million by the end of the year. Since breaking through 100 million subscribers for the first time in the third quarter of 2017, the number of subscribers of Netflix has roughly doubled. Most of the subscribers in the fourth quarter came from outside the United States. Due to the impact of the epidemic, the demand for streaming media has soared, and Netflix and many competitors HBO Max and Disney + have become beneficiaries. According to Netflix’s financial report, revenue in the fourth quarter of 2020 was US $6.64 billion, higher than US $5.45 billion in the same period last year, exceeding analysts’ forecast. But profit fell to $542 million, or $1.19 a share, from $587 million, or $1.30 a share, a year earlier. According to FactSet, analysts forecast earnings per share for the latest period at $1.36.
Netflix said on Tuesday it would consider buying back shares for the first time since 2011. In the past decade or so, Netflix has borrowed $15 billion to support the production of original content. The company said this time that with the rapid growth of subscribers, Netflix has gained enough revenue to cover its operation and content expenses, and plans to turn its cash flow from negative to positive after 2021, so it no longer needs to rely on external financing to support its operation. Meanwhile, Disney suspended its dividend payments last year and listened to the call of activist investor Dan Loeb. The latter wants Disney to permanently stop paying shareholders $3 billion in annual dividends. Loeb pointed out that the market value of Netflix has risen from $11 billion to $220 billion, and Disney should follow the example of Netflix and invest these funds in the production of original content.
Netflix’s shares rose more than 12% after the announcement, while Disney’s shares rose more than 2% after hours.
After the results were released, Netflix co CEOs read Hastings and Ted sarandos, chief operating officer Greg Peters, CFO Spencer Neumann and vice president of investor relations Spencer Wang Wang) and other company executives attended the subsequent earnings conference call to interpret the key points of the earnings report and answer questions from analysts.
The following questions are about pay on demand:
What is the first mock exam? Kannan Venkateshwar: another aspect of the problem is that, considering the current size of the company, there may be a movie company wanting to release a movie on Netflix because the company can provide very effective distribution channels. Why is this mode not attractive to the company? Including pay on demand or what other modes are not attractive to you?
Ted sarandos: we don’t say it’s unattractive. We think the most attractive model is one that is attractive to both consumers and our business.
Greg Peters: you may be referring to a different model, a way of trading. We think that from the perspective of consumers, Netflix’s no advertising, no extra payment requirements, one-time registration and no worry use is a very powerful business model, which can meet the needs of global consumers. This is what we want to emphasize.
Ted sarandos: it’s not easy to build an excellent payment model. Once it’s done, consumers can watch content as they want, and they won’t worry about pits. We can imagine in advance which mode is easy to use and which is not, because those are conventional industry trends, which may not be the mode consumers want. I think this may happen, that is, consumers say that I don’t watch foreign TV dramas without dubbing, but I heard that there is such a drama that I really want to watch, and it happens to be in my paid subscription content, so consumers will like foreign TV dramas 10 minutes later. This change is dramatic. Feng Junhao (director of the 92nd best picture “parasites”) had a wonderful speech at the Academy Awards ceremony. He said that the audience needed to climb an inch high wall to enjoy the entertainment of another world. Wonderful stories and content from all over the world are gathered on Netflix for users all over the world to watch. The one inch high wall is subtitle or dubbing.
Kannan venkateshwar: in terms of the company’s current content volume and future release schedule, you have a very big pricing power, because users don’t need to spend $10 for a movie or $30 for a family, they just need to be paid users of Netflix, which means that the company’s pricing power has been increased.
Ted sarandos: we promote value for consumers and our own value proposition. Every time we watch more than 10 minutes of content on Netflix, the value of payment for consumers increases. We think that the more options Netflix provides, the more likely users are to click to play. After clicking to play, you will definitely fall in love with the content.

Reed Hastings: going out to the movies is similar to going out to eat. In fact, we could have cooked at home. It’s cheap, but we still like eating out because we feel different. Do not feel that there is a conflict between the two, or our users do not feel that there is a conflict between the two. But they do hope to enjoy unlimited number of films at a low price, and they can constantly try new content, such as Alice in the dying land and lupin. These interrelated elements together create a unique and incredible viewing experience.
Kannan venkateshwar: considering these factors, there are actually two ways to think about pricing in the current situation. On the one hand, the company is faced with a lot of competition, and the users may also choose to pay. In this environment, we can understand that the pricing power is limited. However, on the other hand, your share in user participation may continue to increase, your cakes may grow, and your products may be more, and the users may spare some from other places Money to pay for your services. Which is more likely? In other words, in the western market in the next few years, can the company’s pricing power accelerate growth? Can the growth of users’ average contribution revenue accelerate?
Greg Peters: I think the competition field is very extensive. Whether it’s the share of wallet, or the share of watching time or attention, or the share of entertainment or pleasure, we think the company has a very large growth space. We are very excited about the new dimension of value creation for users, such as adding foreign language films: “lupin” and “house of banknotes” on the platform, which have become the hot contents of the world, which is unimaginable in the past. We focus on these aspects of work, not to say that we will definitely go in this direction in the future, but we have been trying to think about what we can do to increase the value of users, increase the participation of users, make them feel happy, provide more exciting content and better product experience. If all of these can be done well, our business will grow and succeed.
Reed Hastings: we have been very cautious and will continue to be cautious. Spencer Wang, can you tell us the revenue per user in the past three years? What is the growth rate?
Spencer Wang: it used to be less than $10, about $9.9 per paying user per month, up from a little over $11 last quarter. I know you may know these figures, but you need to consider the adverse factors of exchange rate fluctuations.
Reed Hastings: so it’s about 10% growth in three years. It’s very prudent, but it’s very effective. It’s a huge contribution to the company.
Ted sarandos: we launched “the burkittons: Family Romance” during the Christmas period. Before that, there was “eternal night”, and a few days ago, there was “Cobra hall”, and later “lupin” and “women’s fragments”. They were all super good-looking. The number of viewers was unprecedented, and the rhythm was always good. This is what we call consumer value.
Spencer Newman: in the fourth quarter, we had price increases in the U.S. market. In December, in the U.K., revenue growth was not affected. Netflix’s content and value for users have been growing.
Kannan venkateshwar: there are some academic studies on price trends. But in essence, elasticity seems to be a function of price itself, which means that with the rise of price, when the price starts to rise potentially, demand elasticity may change. Has this effect been shown? Or has it not reached such a critical point yet? With the implementation of price increase in various regions, have you found any potential customer churn or user behavior change?
Greg Peters: we’re looking at this more realistically from an operational rather than an academic perspective. Our thinking is reverse, looking for some signals and signs from members, which can show that we have added more value. User participation, loss and acquisition are the key points we really focus on. These key points are the key to our value-added services.
Kannan venkateshwar: OK. Another problem. About strive masiyiwa joining the board. We haven’t talked about Africa in the past, but Disney has started to produce a lot of content in the region. Obviously, the appointment is very interesting. Will this be the next focus? How should we view this opportunity?
Reed Hastings: strive is on the global board. Although he knows Africa very well, he did not join the board as an African market consultant this time. He’s in charge of building a bigger subscription business. He is very good at dealing with the government. With our development, this is becoming more and more important. He can be our global voice. He also knows Europe very well and has a certain understanding of other countries and regions in the world. We’ve been expanding the number of board members around the world, and so has this appointment. Moreover, Africa has great potential. We are developing more content there and our membership is growing. But again, this is not strive’s position.
Kannan venkateshwar: I see a lot of small transactions happening in the rest of the world. This question is for Spencer Wang, and others are welcome to answer it. Several streaming media services in Southeast Asia have been acquired by Chinese Internet companies. Sony acquired crunchyroll. There are assets that may help you scale up, but obviously you’ve given them up or shown no interest. So, can you tell us which assets you will focus on? More like millarworld? Or why are you not interested in the assets just mentioned?

Spencer Wang: on the first question, we think that consumers subscribe to a variety of different streaming services. So it doesn’t make sense for us to buy another streaming media company just to get its members. We want to continue to focus on actually winning every user and their subscription, rather than just doing some form of M & A. The second point is about which assets we are interested in, which largely revolves around helping to enhance our core business, namely entertainment, especially content assets, including intellectual property rights, etc., which we hope to turn into excellent TV and film works.
Ted sarandos: add, we’ve always been creators, not buyers. A few years ago, I talked with the team about the vision, and mentioned that our business will be extremely strong, and we will appoint vice president of animation. And now, we have become one of the largest animation manufacturers in the world. Let’s look at these assets. They are mainly issuing assets, not IP assets. We have been using this method, such as script free programming, animation, large cost original film. It took us a few years to build, not through mergers and acquisitions.
Kannan venkateshwar: let me ask you one last question about the long-term prospects of the enterprise. Ted is also welcome to join us anytime. Do you have any regrets about what you could have done but didn’t? One example I think of is roku, if it’s not stripped. What do you think is the real competition? Is it a streaming service? Or from outside the industry, like fortnite? As you mentioned, fortnite is the driving force to attract consumers to participate.
Spencer Wang: I’ll say a few words first, and then I’ll ask reed or / and Ted to add. As Greg mentioned before, competition is very broad. We need to do a lot of work to continuously increase the share of viewing time, which is still relatively small at present. For members, our value will continue to improve. As for our regrets, compared with Greg, reed and Ted, I’ve only been here for five and a half years and they’ve been here a lot longer. Therefore, my regret window may be relatively small. I haven’t thought of anything to regret at the moment.
Reed Hastings: there is no real regret. I think our team management is working very well. If roku had been retained, it would not have been as successful as it is now. Anthony and his team focused on roku and put a lot of energy into it. It’s been a huge test for us to become a leader in streaming media, original programming, and the world. We are happy for their success and have no regrets about it.
Ted sarandos: it’s hard to regret the happy times we brought to thousands of people around the world and the returns we earned for our shareholders.
Reed Hastings: I think of one. We regret that we do not have a global license to buy house of cards in the first deal. However, we are very happy that we have invested in the production of such works.