Netflix made a surprise announcement in reporting its (very good) first-quarter 2024 results this week: The streaming TV powerhouse will stop reporting quarterly subscriber figures starting in 2025.
In response, Netflix shares have taken a hit: The stock is down 8.7% Friday on the news, as investors fret that the lack of visibility into the streamer’s customer numbers signals a looming slowdown in the company’s growth. Subscriber figures have been a coin of the realm in the streaming biz for years, serving as a key signpost of a platform’s growth and overall health.
But analysts pointed out that Apple made a similar move in 2018, when it stopped disclosing unit sales of iPhones and other product lines. “A unit of sale is less relevant to us today than it was in the past,” Apple’s CFO told investors then — messaging Netflix echoed, explaining its belief that subscriber totals aren’t as meaningful as user engagement or financial metrics like revenue and operating margin. At the time, there was handwringing about Apple’s change in reporting, and the stock took a dive after the tech giant reported that the number of iPhones sold in the September 2018 quarter came in flat.
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Wall Street, of course, adapted to Apple’s revised reporting scheme: The stock has increased more than fourfold since the end of 2018, making it one of the most valuable companies in the world (although shares are down 11% year to date on concerns including a drop in iPhone sales in China).
Netflix investors “will complain about lack of metrics to use, but we welcome the decision — recall Apple did this with iPhone units to focus the Street toward more important fundamental metrics,” Macquarie senior media tech analyst Tim Nollen wrote in note published Friday. The hope is that “Netflix will provide more meaningful engagement metrics and more ad tier-related info over time.”
Jeff Wlodarczak, CEO and internet, media and communications analyst at Pivotal Research Group, said “the lone disappointment” in Netflix’s Q1 earnings report that caused the stock to drop was the announcement to no longer disclose subscriber and average revenue per membership (ARM) figures, “which invites worry about the outlook for subscriber growth in ’25 and beyond.”
Wlodarczak, in a research note Thursday, also cited Apple’s decision to stop disclosing iPhone unit growth and noted that after “a short period of stock consolidation [Apple’s] stock materially outperformed the market.” While he believes Netflix’s 2025 subscriber growth will slow as its paid-sharing initiative runs its course, “we still see a long runway for subscriber/ARPU growth going forward.” The analyst reiterated his $800/share price target on Netflix stock.
Still, Netflix’s announcement that it will no longer report subscriber or average-revenue-per-membership metrics “can be read more cautiously that subscriber growth has indeed peaked — particularly in higher-ARM markets — and a deceleration may lie ahead,” MoffettNathanson’s Michael Nathanson said in an April 19 note. “Netflix may have room to grow its share of its subscribers’ content consumption, but we may be nearing saturation in terms of total number of subscribers in developed markets.” He speculated that “the lowest-hanging fruit has already been captured” by Netflix’s paid-sharing program to convert password-borrowers into paying customers.
Maybe Netflix is indeed getting out of the business of reporting subscriber metrics while it’s still generated red-hot numbers on that front: For Q1, Netflix netted 9.33 million new paid subscribers, well above Wall Street forecasts, to stand at 269.60 million subs as of March 31.
Netflix co-CEO Greg Peters, on the earnings call Thursday, boiled down the decision to withhold subscriber metrics thusly: The number of members times the monthly price is “increasingly less accurate in capturing the state of the business.”
“We’ve evolved, and we’re going to continue to evolve, developing our revenue model and adding things like advertising and our ‘extra member’ feature, things that aren’t directly connected to number of members,” he said. “We’ve also evolved our pricing and plans with multiple tiers, different price points across different countries… So, this change is really motivated by wanting to focus on what we see are the key metrics that we think matter most to the business.”
Netflix will now provide annual guidance for revenue in addition to operating-income margin. For the full year 2024, the company expects revenue growth of 13% to 15% (compared with 6.7% growth in 2022) and an operating margin of 25% (up from its prior forecast of 24%). Regarding subscriber numbers, Peters added, “When we grow and we hit certain major milestones, we’ll announce those. It’s just not going to be part of our regular reporting.”
Also on the call, co-CEO Ted Sarandos said Netflix is focused on engagement “because we believe it’s the single best indicator of member satisfaction with our offering, and it is a leading indicator for retention and acquisition over time. So, happy members watch more. They stick around longer. They tell friends, which all grows engagement, revenue and profit — our North Stars. And we believe that those are the measurements of success in streaming.”
Netflix’s decision to stop reporting subscriber and ARM numbers “is consistent with our oft-repeated assertion that Netflix would inevitably pivot from a high-growth, low-profit business to a slow-growth, high-profit business,” Wedbush Securities analyst Alicia Reese wrote in a research note released Friday, although she added that that pivot “is far from complete.”
“We think Netflix has reached the right formula with global content creation, balancing costs and increasing profitability,” Reese wrote. “We think Netflix can meet expectations for EPS to more than double between 2023 and 2026, supporting its premium valuation.”
