The best way to get investors to stop focusing on something is to stop telling them altogether.
Netflix said Thursday that it will no longer report quarterly membership numbers and average revenue per membership starting in the first quarter of 2025.
This is a significant change for the company and for the so-called “streaming wars,” which have largely been defined by a race for customers. Netflix wants investors to judge the company based on the same metrics that executives consider “our best measure of customer satisfaction,” the company said in its quarterly report. letter from the shareholders.
Namely: revenue, operating margin, free cash flow – and the amount of time spent on Netflix.
It's also a signal that Netflix's second wave of subscriber growth may be coming to an end. The company announced it added 9.3 million subscribers in the first quarter as a result of the global crackdown on password sharing introduction of a cheaper one advertising level was maintained. (The Ad tier costs $6.99 per month in the US, as opposed to the $15.49 Standard plan).
Subscriber growth in the second quarter will be lower than in the first quarter due to “seasonality,” the company said in the letter. That could be the start of a longer period of declining subscribers, as most free password sharers are now paying customers.
ARM, which Netflix defines as “streaming revenue divided by the average number of paid streaming memberships divided by the number of months in the period,” rose just 1% year over year in the quarter.
Shares of Netflix fell 4% in after-hours trading, partly due to a weaker full-year revenue growth outlook than some analysts had estimated. Netflix forecasts revenue growth of 16% in the second quarter, but only 13% to 15% for the full year.
Investors generally do not like less transparency. It's especially notable that Netflix is cutting back on detailed membership information, which the company used to pride itself on, including offering regional breakdowns that were more specific than any of its competitors. Apple and Amazon have never offered quarterly subscriber data 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. For more than a decade, the streamer has been seen as a disruptor of traditional media.
Now, about five years into the “streaming wars,” Netflix is the dominant incumbent.
“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” Netflix said in its shareholder letter. “But now we are generating very substantial profit and free cash flow (FCF). We are also developing new revenue streams such as advertising and our additional membership feature, so memberships are just part of our growth.”
“In addition, as we have evolved our pricing and subscriptions from single to multiple tiers with different price points depending on country, each incremental paid membership has a very different business impact,” the company added.
Netflix has the luxury of focusing on profits, revenue and free cash flow because the company's finances are much healthier than those of most traditional media companies. For example, on an annual basis, turnover increased by 15%.
Operating profit grew by 54% and operating margin increased by 7 percentage points to 28%. These profits surpass companies such as Warner Bros. Discovery, Disney, Big global And Comcast's NBCUniversal, which has money-losing (or barely profitable) streaming services and declining traditional TV businesses.
That raises the question of whether other media companies will follow Netflix's lead and stop reporting subscriber numbers for their streaming services. Many of the older media companies have not yet begun their crackdown on password sharing, like Netflix. That could mean they're in for even more growth, which investors would probably like to see.
“We have evolved and we will continue to evolve,” Netflix co-CEO Greg Peters said during the company's earnings call. “It means that the historical calculations we used to do are becoming less and less accurate” in assessing the company's condition, he added.
Disclosure: Comcast NBCUniversal is the parent company of CNBC.
