Why Netflix stock jumped to an all-time high today

The streaming giant turned in a strong quarter and had another surprise announcement for investors.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Netflix Inc (NASDAQ: NFLX) were flying higher today after the company topped expectations in its fourth-quarter earnings report, and offered strong guidance for the year ahead. It also said it was done taking on debt, projecting break-even free cash flow for 2021, and putting to rest concerns about its cash burn, a favorite bugaboo of Netflix bears.

As a result, the stock was up 14.4% as of 11:19 a.m. EST today.

So what

Netflix added 8.5 million subscribers in the fourth quarter, much better than its forecast in October of 6 million, thanks to a strong content slate and the pandemic still gripping much of the world.

Revenue jumped 21.5% to $6.64 billion, outpacing its guidance at $6.57 billion and analyst expectations at $6.63 billion. Operating margin came in at 14.4%, also ahead of guidance at 13.5% due to higher-than-expected revenue, and the company posted $1.19 in earnings per share (EPS), down from $1.30 a year ago, though that result includes an accounting loss on euro-dominated debt of $258 million. Adjusting for that, EPS would have been above $1.50. Analysts had expected EPS of $1.39.

What also delighted Netflix investors was that the company said it would no longer have to take on debt to fund operations. It also forecast break-even free cash flow for 2021, better than its prior expectation of negative $1 billion in FCF.

Now what

For the current quarter, Netflix expects to add 6 million new subscribers, and sees revenue growth accelerating to 23.6% as it benefits from recent price hikes in the United States and other regions. 

Netflix also lifted its operating-margin guidance for the year from 19% to 20%, a sign that its growth plan is delivering results faster than expected, and management said it continues to expect its operating margin to improve by an average of 3 percentage points each year.   

More than any prior quarter, this report makes clear the company's transition from a risky growth stock to a stable profit generator. It just wrapped up a year with 18% operating margin and it's done burning cash. That, along with another round of better-than-expected subscriber growth, is reason for investors to celebrate.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Jeremy Bowman owns shares of Netflix. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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