Netflix forces Wall Street to focus on profit and revenue with decision to stop reporting subscriber numbers in 2025

The
best
way
to
get
investors
to
stop
focusing
on
something
is
to
stop
telling
them
at
all.

Netflix
said
Thursday
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
by
the
same
metrics
executives
view
as “our
best
proxy
for
customer
satisfaction,”
the
company
said
in
its
quarterly

shareholder
letter.

Namely:
revenue,
operating
margin,
free
cash
flow
—
and
the
amount
of
time
spent
on
Netflix.

It’s
also
a
signal
Netflix’s
second
wave
of
subscriber
growth
may
be
ending.
The
company
announced
it
added
9.3
million
subscribers
in
its
first
quarter
as
its
global
password-sharing
crackdown
and

introduction
of
a
less
expensive
advertising
tier
took
hold.
(The
ad
tier
costs
$6.99
per
month
in
the
U.S.
as
opposed
to
its
$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
may
be
the
start
of
a
longer
period
of
slowing
subscriber
additions,
as
most
freeloading
password
sharers
are
now
paying
customers.

ARM,
which
Netflix
defines
as “streaming
revenue
divided
by
the
average
number
of
streaming
paid
memberships
divided
by
the
number
of
months
in
the
period,”
rose
just
1%
year
over
year
in
the
quarter.

Netflix
shares
fell
4%
in
after-hours
trading,
in
part
because
of
a
weaker
full-year
revenue
growth
outlook
than
some
analysts
estimated.
Netflix
forecast
revenue
growth
of
16%
in
the
second
quarter
but
just
13%
to
15%
for
the
full
year.

Investors
typically
don’t
like
less
transparency.
It’s
particularly
notable
Netflix
is
cutting
back
on
granular
membership
information,
which
the
company
used
to
pride
itself
on
—
including
offering
regional
breakdowns
that
were
more
specific
than
all
of
its
competitors.
Apple
and
Amazon
have
never
offered
quarterly
subscriber
information
for
its
streaming
services.

Still,
forcing
Wall
Street
to
focus
on
revenue
and
profit,
rather
than
user
growth,
is
also
evidence
of
Netflix’s
maturity
as
a
company.
For
more
than
a
decade,
the
streamer
has
been
viewed
as
a
disruptor
to
legacy
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’re
generating
very
substantial
profit
and
free
cash
flow
(FCF).
We
are
also
developing
new
revenue
streams
like
advertising
and
our
extra
member
feature,
so
memberships
are
just
one
component
of
our
growth.”

“In
addition,
as
we’ve
evolved
our
pricing
and
plans
from
a
single
to
multiple
tiers
with
different
price
points
depending
on
the
country,
each
incremental
paid
membership
has
a
very
different
business
impact,”
the
company
added.

Netflix
has
the
luxury
of
focusing
on
profit,
revenue
and
free
cash
flow
because
the
company’s
finances
are
far
healthier
than
most
legacy
media
companies.
For
example,
year-over-year
revenue
climbed
15%.

Operating
income
grew
by
54%,
and
operating
margin
rose
by
7
percentage
points
to
28%.
These
gains
far
outpace
companies
such
as

Warner
Bros.
Discovery,

Disney,

Paramount
Global
and

Comcast‘s
NBCUniversal,
which
have
money-losing
(or
barely
profitable)
streaming
services
and
declining
traditional
TV
businesses.

That
calls
into
question
whether
other
media
companies
will
follow
Netflix’s
lead
and
stop
reporting
subscriber
numbers
for
their
streaming
services.
Many
of
the
legacy
media
companies
haven’t
started
their
password-sharing
crackdowns
like
Netflix.
That
may
mean
they
have
more
growth
to
come,
which
investors
would
likely
want
to
see.

“We’ve
evolved
and
we’re
going
to
continue
to
evolve,”
said
Netflix
co-CEO
Greg
Peters
during
the
company’s
earnings
call. “It
means
that
the
historical
math
we
used
to
do
is
increasingly
less
accurate”
in
assessing
the
state
of
the
business,
he
added.

Disclosure:
Comcast
NBCUniversal
is
the
parent
company
of
CNBC.