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Greetings from San Francisco!

Netflix (NFLX) reported its Q4 FY22 earnings.

Many surprises were in store, from a blowout subscriber gain to a major leadership change. So let’s dig in!

Today, we’ll cover the following:

1. Netflix Q4 FY22.

2. Recent business highlights.

3. Key quotes from the earnings call.

4. What to watch looking forward.

Reed Hastings co-founded Netflix in 1997. Fast forward 25 years and the platform is now at the top of the streaming world. But it's not just about the numbers. It's about the impact Netflix had on our culture. Hastings changed the way we binge-watch, the way we talk about TV shows, and the way we “chill.“

After over two decades in the corner office, Hastings stepped down from the CEO role to become Executive Chairman. To replace him, Greg Peters stepped up from COO to become Ted Sarandos’ co-CEO.

Reed Hastings @reedhastings

Succession going smoothly

9:19 PM ∙ Jan 20, 2023

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Wall Street has used the total paid memberships as the best proxy for the company’s performance and execution, and for his last quarter as co-CEO, Hastings is undoubtedly leaving with a bang.

Paid subscribers reached 231 million, adding 7.7 million in Q4 FY22.

Netflix smashed its subscriber forecast by 3.2 million. It was the largest subscriber beat by far if we exclude Q1 2020, which was significantly impacted by shelter-in-place orders worldwide.

To illustrate, below is a look at the net subscriber additions by quarter in the five years leading to 2022 (forecast vs. actuals).

So what was behind this massive outperformance?

Management attributed it primarily to the successful content slate released in Q4 powering robust acquisition and retention.

Let’s summarize the subscriber additions in FY22 (negative numbers in brackets). I’m using emojis to summarize how investors have reacted after each report:

• Q1: (0.2) million (vs. +2.5 million guidance). 😱

• Q2: (1.0) million (vs. (1.5) million guidance). 🫣

• Q3: +2.4 million (vs. +1.0M guidance). 🤗

• Q4: +7.7 million (vs. +4.5M guidance). 🥳

Subscriber additions won’t be as crucial moving forward (more on that in a minute).

How bad was the start of 2022?

So bad that Bill Ackman, who had just bought millions of shares in January 2022, decided to sell his entire position at a 40% loss in April.

After an awful start to the year, Netflix has resumed its path forward.

So, what exactly happened in Q4?