The best way to get investors to stop paying attention to something is to stop telling them entirely.
Netflix It said Thursday it will no longer report quarterly membership numbers and average revenue per member starting in the first quarter of 2025.
It’s a big change for the company and the so-called “streaming wars,” which are largely defined by the battle for customers. The company said in its quarterly report that Netflix wants investors to evaluate the company based on what senior executives consider “the best indicator of customer satisfaction.” Shareholder Letter.
Namely: revenue, operating margin, free cash flow, time spent on Netflix.
It also suggests that Netflix’s second wave of subscriber growth may be coming to an end. The company announced it added 9.3 million new subscribers in the first quarter amid a global crackdown on password sharing. launch cheaper The advertising layer dominates. (In the US, the Advertising plan costs $6.99 per month, while the Standard plan costs $15.49).
The company said user growth in the second quarter will be lower than in the first quarter due to “seasonality.” This could be the start of a longer period of slower user growth, as most free password sharers are now paying customers.
Netflix, which defines ARM as “streaming revenue divided by the average number of streaming paid members divided by the number of months in the period,” grew just 1% year over year in the quarter.
Netflix shares fell 4% in after-hours trading, in part because full-year revenue growth prospects were weaker than some analysts expected. Netflix expects second-quarter revenue to grow 16%, but full-year revenue growth is only 13% to 15%.
Investors generally don’t like less transparency. In particular, Netflix is cutting back on the detailed membership information the company once prided itself on, including providing more specific regional breakdowns than all its competitors. Apple and Amazon have never provided quarterly subscriber information for their streaming services.
Still, forcing Wall Street to focus on revenue and profits rather than user growth is also a testament to Netflix’s maturity as a company. Netflix has been viewed as a disruptor of traditional media for more than a decade.
Now, five years into the “streaming wars,” Netflix has emerged as the dominant player.
“In our early days, when we had virtually no revenue or profits, membership growth was a strong indicator of our future potential,” Netflix said in its shareholder letter. “But now we are generating very substantial profits and free cash flow (FCF). ). We are also developing new revenue streams such as advertising and additional membership features, so membership is just one component of our growth.”
“Additionally, as we evolve pricing and plans from single to multi-tier, each incremental paid membership will have a very different business impact at different price points based on country,” the company added.
Netflix is able to focus on profits, revenue, and free cash flow because the company is in a much healthier financial position than most traditional media companies. Revenue increased by 15% year-on-year.
Operating income increased by 54%, and operating profit margin increased by 7 percentage points to 28%.These benefits far exceed those such as Warner Bros. Discovery, disney, Paramount Worldwide and ComcastNBCUniversal’s streaming service is in the red (or nearly profitable), and its traditional TV business is also declining.
This raises questions about whether other media companies will follow Netflix’s lead and stop reporting subscriber numbers for their streaming services. Many traditional media companies haven’t started cracking down on password sharing the way Netflix has. This could mean more growth for them in the future, which is something investors might want to see.
“We have grown and we will continue to grow,” co-CEO Greg Peters said on the company’s earnings call. He added, “That means the historical math that we have done in the past is becoming increasingly important in assessing the state of the business.” The less accurate it is.”
Revealed: Comcast NBCUniversal is the parent company of CNBC.
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