Netflix announced that it will no longer report quarterly membership numbers and average revenue per membership starting in the first quarter of 2025. This decision is a significant change for the company and the streaming industry, which has been focused on acquiring customers. Netflix wants investors to assess the company based on metrics such as revenue, operating margin, free cash flow, and time spent on the platform, which they believe are better proxies for customer satisfaction. The company also hinted that its second wave of subscriber growth may be slowing down, as it added 9.3 million subscribers in the first quarter due to a crackdown on password sharing and the introduction of a cheaper advertising tier.
Despite the positive subscriber growth in the first quarter, Netflix’s forecast for lower subscriber additions in the second quarter and beyond suggests a potential slowdown in growth. The company’s decision to stop providing detailed membership information has affected investor confidence, with the stock falling 4% in after-hours trading. Netflix’s shift towards focusing on revenue and profit rather than user growth signals its maturity as a company. This move reflects the company’s evolution from a disruptor to the dominant player in the streaming industry, with a strong emphasis on profitability and new revenue streams like advertising.
Netflix’s decision to prioritize profit, revenue, and free cash flow over subscriber numbers is made possible by its strong financial performance compared to legacy media companies. The company reported substantial revenue growth, operating income growth, and operating margin expansion in the latest quarter. This contrasts with legacy media companies, many of which are struggling with money-losing streaming services and declining traditional TV businesses. The question remains whether other media companies will follow Netflix’s lead and stop reporting subscriber numbers for their streaming services, especially as they may have different growth strategies and financial health.
Netflix’s co-CEO, Greg Peters, emphasized the company’s ongoing evolution during the earnings call, acknowledging that historical metrics may not accurately reflect its current state. The decision to focus on more traditional financial metrics like revenue and profit signals Netflix’s confidence in its business model and long-term growth prospects. As the streaming industry continues to evolve and competition intensifies, Netflix’s shift towards profitability and a more mature approach to reporting financial metrics may set a precedent for other companies in the industry. Overall, Netflix’s decision to stop reporting quarterly membership numbers marks a significant shift in the company’s investor communication strategy and reflects its position as a leader in the streaming market.
