Why Netflix Stock Jumped to a 2-Year High Today

Shares of subscription-streaming service Netflix (NFLX 1.73%) jumped to two-year highs on Wednesday after the company reported its completed financial results for 2023. The company ended the year with a big surge in growth and higher-than-expected profits. And this is why Netflix stock was up 12% as of 11:20 a.m. ET.

Netflix’s huge bounce-back year

In late 2022, Netflix introduced a subscription tier supported by advertising. And in mid-2023, the company cracked down on users sharing passwords. Both moves seem to have stimulated incredible user growth. It ended 2023 with 260 million paid memberships, an increase of nearly 30 million from the end of 2022. For perspective, it added fewer than 10 million new memberships in 2022.

Thanks to a higher membership base and operational discipline, profits for Netflix skyrocketed. The company had a full-year operating margin of 21% in 2023, up meaningfully from its 18% margin in 2022. Moreover, its free cash flow surged from $1.6 billion in 2022 to a whopping $6.9 billion in 2023.

For a company as mature and large as Netflix, these are impressive numbers and explain why the market celebrated the report.

The forecast for 2024 is good too

Of course, investors are also excited because of Netflix’s forecast for 2024. The company expects its first-quarter revenue to be up more than 13% year over year, which is its best quarterly growth rate since the fourth quarter of 2021. Moreover, for the year, it expects an operating margin of 24%. As the chart below shows, its margin has never been that high on a trailing-12-month basis.

NFLX Revenue (TTM) Chart

NFLX Revenue (TTM) data by YCharts

Netflix’s ability to break out of its slump with renewed growth is certainly impressive. And the company’s margins are really reaching head-turning levels. Therefore, it’s understandable that the stock is hitting two-year highs today. And its profitability will allow it to invest in additional growth opportunities, so this story might not be over yet.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.

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