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Netflix tops 200 million subscribers with year-end flourish, stock jumps 8%

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Netflix Inc. topped 200 million streaming subscribers for the first time at the end of 2020, as sign-ups surged despite higher prices in the U.S. and Canada.

On Tuesday afternoon, Netflix
NFLX,
+0.76%
reported 8.5 million net new subscribers in its fourth quarter, a dramatic uptick from the 2.2 million reported in the previous quarter. Netflix lured 25.9 million new subscribers in the first half of the year, as shelter-in-place orders related to the COVID-19 pandemic spread globally, for an annual net gain of 36.6 million subscribers to 203.7 million total.

The No. 1 streaming service reported net earnings of $542 million, or $1.19 a share, compared with net income of $1.30 a share in the year-ago quarter. Revenue improved to $6.64 billion from $5.47 billion a year ago. Analysts surveyed by FactSet had expected adjusted earnings of $1.36 a share on sales of $6.6 billion.

The news sent Netflix shares up more than 8% in after-hours trading Tuesday, despite profits being lower than expected.

After Netflix reported modest gains in the third quarter, there were fears that demand for Netflix was cooling amid intensifying competition, and content, from the likes of Walt Disney Co.’s
DIS,
+0.48%
Disney+ and Hulu, Apple Inc.’s
AAPL,
+0.54%
Apple TV+, AT&T Inc.’s
T,
-0.75%
HBO Max, Amazon.com Inc.’s
AMZN,
+0.53%
Prime Video, and Comcast Corp.’s
CMCSA,
+0.32%
Peacock. Netflix began increasing the price of popular streaming tiers in the U.S. and Canada near the end of last year as a way to counteract slowing subscriber growth.

Importantly, Netflix executives said in a letter to shareholders that Netflix was approaching sustainable free cash flow after massive debt spending to develop content in recent years.

“We believe we are very close to being sustainably [free-cash-flow] positive,” they wrote “For the full year 2021, we currently anticipate free cash flow will be around break even (vs. our prior expectation for -$1 billion to break even).”

“Combined with our $8.2 billion cash balance and our $750m undrawn credit facility, we believe we no longer have a need to raise external financing for our day-to-day operation,” the executives wrote.

Netflix shares are up 47% over the past 12 months, while the S&P 500 index
SPX,
+0.81%
has risen 13%, but had fallen over the past six months on concerns about slowing growth.

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