In an unpredicted move on Thursday, Netflix said that it no longer report quarterly subscriber numbers and average revenue per membership starting in the first quarter of 2025. This is a decision interpreted as a signal that the streaming giant may be reaching a plateau in its years-long battle for customers in the streaming landscape.
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.
Netflix wants Wall Street to judge it on the basis of its earnings: revenue, operating margin, free cash flow and the amount of time spent on Netflix.
Netflix subscriber numbers
It’s also a signal Netflix’s Q2 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).
Netflix subscriber numbers in the Q2 will be lower than in the Q1 due to “seasonality,” the company said in the letter. That may be the start of a longer period of slowing subscriber numbers, as most freeloading password sharers are now paying customers.
Netflix ad supported plans
Netflix’s move towards ad-supported plans, introduced in November 2022, has proven successful, accounting for 40% of all sign-ups in markets where the option is available.
Netflix revenue
Financially, Netflix exceeded analyst expectations for earnings per share in the Q1 of 2024, reporting $5.28 against predictions of $4.52. Revenue climbed by 14.8% to nearly $9.4 billion, with operating income reaching $2.6 billion, a 54% increase year-over-year.
Netflix forecast revenue growth of 16% in the second quarter but just 13% to 15% for the full year.
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.
Netflix strong finance
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.
Netflix shares
Following the announcement, shares of the streaming video pioneer Netflix experienced a decline. Despite reporting a substantial influx of new customers in the first quarter, Netflix fell short of analyst revenue forecasts. Netflix shares fell 4% in after-hours trading value of $585.41, in part because of a weaker full-year revenue growth outlook than some analysts estimated.
