The best way to get investors to stop focusing on something is to stop telling them in any respect.
Netflix said Thursday it should now not report quarterly membership numbers and average income per membership starting in the primary quarter of 2025.
This is a big change for the corporate and the so-called “streaming wars”, which have been largely defined by the race for purchasers. Netflix wants investors to evaluate the corporate on the identical metrics that executives consider “our best measure of customer satisfaction,” the corporate said in its quarterly report shareholder’s letter.
Namely: revenue, operating margin, free money flow – and the period of time spent on Netflix.
It can also be a signal that the second wave of growth in the variety of Netflix subscribers may end. The company announced that it added 9.3 million subscribers in the primary quarter as a part of a worldwide crackdown on password sharing introducing a less expensive one the promoting level remained. (The promoting tier costs $6.99 per 30 days in the US compared to the usual plan of $15.49).
The growth in the variety of subscribers in the second quarter might be lower than in the primary quarter due to “seasonality”, the corporate said in the letter. This may very well be the start of an extended period of subscriber slowdown, as most of those providing free passwords at the moment are paying customers.
ARM, which Netflix defines as “streaming revenue divided by the average number of paid streaming subscriptions divided by the number of months in a given period,” grew just 1% yr over yr in the quarter.
Netflix shares fell 4% in after-hours trading, partly due to weaker full-year revenue growth prospects than some analysts had estimated. Netflix forecasts revenue growth of 16% in the second quarter but 13% to 15% for the complete yr.
Investors typically do not like less transparency. What’s particularly noteworthy is that Netflix limits the membership details that the corporate prided itself on, including offering more detailed regional breakdowns than all its competitors. Apple and Amazon have never offered quarterly details about subscribers to their streaming services.
Still, forcing Wall Street to focus on revenue and profits relatively than user growth can also be an indication of Netflix’s maturity as an organization. For over a decade, the streamer was seen as a disruptor of legacy media.
Now, about five years into the “streaming wars,” Netflix is the dominant operator.
“In our early days, when revenues and profits were low, membership growth was a strong indicator of our future potential,” Netflix said in its letter to shareholders. “But now we are generating very significant profit and free cash flow (FCF). We are also developing new revenue streams such as advertising and an additional membership feature, so membership is just one part of our growth.”
“Additionally, as our pricing and plans evolve from a single tier to multiple tiers with different price points depending on the country, each additional paid membership has a completely different business impact,” the corporate added.
Netflix has the posh of focusing on profits, revenue and free money flow because the corporate’s funds are much healthier than most traditional media corporations. For example, year-over-year revenues increased by 15%.
Operating revenue increased 54% and operating margin increased 7 percentage points to 28%. These profits far outpace corporations resembling Warner Bros. Discovery, Disney, The most significant global one AND ComcastNBCUniversal, which has loss-making (or barely profitable) streaming services and ailing traditional TV businesses.
This calls into query whether other media corporations will follow Netflix’s lead and stop reporting subscriber numbers to their streaming services. Many legacy media corporations have not launched crackdowns on password sharing like Netflix has. This could mean they’ve more growth ahead of them, which is something investors would probably want.
“We have evolved and we will continue to evolve,” Netflix co-founder Greg Peters said on an earnings call. “This means that the historical mathematics we have used is becoming less and less accurate” in assessing the state of the corporate, he added.
Disclosure: Comcast NBCUniversal is the parent company of CNBC.
Credit : www.cnbc.com
