3 Things You can Learn from Netflix Q4 Results

What can you learn from Netflix Q4 results?

As an SMB owner (and avid student of good investments), the public markets offer an excellent source of lessons and benchmarks for us small-time pikers.

Let's take a look at Netflix Q4 results to find some nuggets of wisdom:

Beyond Netflix’s impressive quarter (massive subscriber growth, outstanding cash flows, etc.), their quarterly letter offered 3 valuable takeaways for the average business owner.

1) Condensed financial view

When I get financial statements from a client, my first advice is always to reformat and condense those figures into an easy-to-read format. It's hard to see the big picture or spot trends with 50-75 lines on your P&L. Zoom out before you zoom in.

Here, Netflix gives us revenue, COGS, sales & marketing, technology, and general & admin expenses. Interest expense and "other" items live below operating income. This view is easy to read and we could run some high level ratios from here.

To recap, in this view we have:

Condensed view of the numbers
Current quarter vs. previous quarter
Current quarter vs. same quarter last year (year-over-year trends)
Full year vs. last year

2) Pricing

As a customer, I'm bummed to see prices go up. As a follower, these comments around pricing and reinvestment are pure gold.

For the uninitiated, we have price hikes coming with a well-communicated rationale for those price increases (...because we're re-investing to improve our product).

Get on a regular cadence of modest price increases. It's January 2025 and as you review your 2024 performance, you'll likely find increased expenses, inflation impacts, and likely some new/different offerings you've launched; those are excellent reasons to adjust pricing going into the new year.

3) Dashboard view

This is a great summary view of historic financial trends and forecasted results. It's an easy to read view with only the most important figures included (revenue, operating income/margin, net income, memberships, cash flow, shares outstanding).

I'm a big advocate of scorecards and dashboard-style views with financial results and KPIs. Every business should have some form of dashboard or scorecard.

Takeaway — Most earnings reports have a similar look and feel, some are better than others. Use these principles of condensed financials, pricing focus, and dashboards especially when reviewing your annual financial results. Don't discount the "shareholder letter" format either. Even if you're a solopreneur, writing out a few bullets or paragraphs highlighting 2024 results and accomplishments can be powerful!

What about the financial results?

Here's a quick summary of what I see when reading these limited financial snippets:

High revenue growth (mid-teens growth is excellent for a big company)
Revenue is growing faster than expenses so profits and margins are expanding
That trend reversed in Q4 and profits were down compared to Q3 (looks like marketing expenses were way up, but it could also be seasonality)
Profits are quite a bit higher than cash flow (perhaps going into those content investments they referenced)
Share count is declining so they're likely spending heavily on share buybacks (a form of equity distribution)
Forecasted revenue growth is a bit slower than recent quarterly trends

Overall, this is a profitable and fast-growing business with healthy conversion of profits into cash flow. No surprise it has a cult-like following and fetches a high multiple in the stock market!

Note: I don't own shares of Netflix and this isn't investment advice.