The best way to get investors to stop focusing on something is to stop telling them about it at all.
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 major 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 on the same metrics that executives see as “our best proxy for customer satisfaction,” the company said in the quarter. shareholder letter.
Specifically: revenue, operating margin, free cash flow — and time spent on Netflix.
It’s also a sign that Netflix’s second wave of subscriber growth may be over. The company said it added 9.3 million subscribers in the first quarter as a global crackdown on password sharing introducing a less expensive one the advertising tier prevailed. (The advertising tier costs $6.99 per month in the US as opposed to its standard plan of $15.49).
Subscriber growth in the second quarter will be lower than the first quarter due to “seasonality,” the company said in the letter. This may be the start of a longer period of slowdown in subscriber additions as most freeload password users are now 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 the period,” rose just 1% year over year in the quarter.
Netflix shares fell 4% in after-hours trading, partly on a weaker full-year revenue growth outlook than some analysts had estimated. Netflix forecast revenue growth of 16% in the second quarter, but just 13% to 15% for the full year.
Investors usually don’t like less transparency. It’s particularly notable that Netflix is cutting back on the granular subscription information 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.
But 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 disrupting 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 significant earnings and free cash flow (FCF). We’re also developing new revenue streams like advertising and enabling our additional members, so memberships are just one element of our growth.”
“Furthermore, as we’ve evolved our pricing and plans from one to multiple tiers with different price points by country, each tiered paid subscription has a very different business impact,” the company added.
Netflix can afford to focus on profit, revenue and free cash flow because the company’s finances are much healthier than most legacy media companies. For example, year-over-year revenue was up 15%.
Operating income increased 54%, and operating margin increased 7 percentage points to 28%. These profits far exceed companies such as e.g Discovery by Warner Bros, Disney, Paramount Global and Comcastof NBCUniversal, which have money-losing (or barely profitable) streaming services and declining traditional TV businesses.
This 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 crackdowns on password sharing like Netflix. This may mean they have more growth to follow, which investors would likely 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 math that we’ve done is becoming less and less accurate” in assessing the state of the business, he added.
Disclosure: Comcast NBCUniversal is the parent company of CNBC.