Netflix shares dip after announcing changes in reporting

By Glenn Dyer | More Articles by Glenn Dyer

Even after another surge in subscriber numbers, revenue, and earnings, Netflix shares fell 4% in after-hours trading as the streaming video giant all but thumbed its nose at Wall Street analysts and their followers.

The reason? The company said it would be dropping its quarterly paid subscriber numbers from next year, though it would still report major milestones.

And why the decision? Well, from what the company said on Thursday, it is now big enough, profitable enough, and with rising cash flows that it feels it doesn’t need to spruik its success every quarter, which is curious because Apple, for instance, still provides quarterly sales and subscriber numbers.

Nor will it be reporting another closely watched measure – average revenue per user or ARPU – starting next year.

The news turned what should have been a post-trading close surge in the share price into a little bit of a tank. Netflix reported that total memberships rose 16% in the quarter, reaching 269.6 million, which was well above the 264.2 million Wall Street had forecast.

The company, however, warned that for now, usual ’seasonality,’ it expects much slower growth in the current June quarter.

Netflix reported first-quarter net income of $US2.33 billion, up sharply from $US1.30 billion in the March quarter of 2023.

The company posted revenue of $US9.37 billion for the quarter, up from $US8.16 billion a year ago.

“As we’ve noted in previous letters, we’re focused on revenue and operating margin as our primary financial metrics — and engagement (i.e., time spent) as our best proxy for customer satisfaction,” the company said in its latest quarterly letter to shareholders.

“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential.”

Netflix said now that it is generating substantial profit and free cash flow — as well as developing new revenue streams like advertising and a password-sharing crackdown — its membership numbers are not the only factor in the company’s growth. It said the metric lost significance after it started to offer multiple price points for memberships.

The company said it would still announce “major subscriber milestones as we cross them.”

Some analysts reckon the decision is designed to take the now regular pressure on the company as the quarterly reporting period approaches.

There’s also continuing rumors that it is planning some sort of live sports-entertainment content – starting with wrestling which might come under pressure if subscriber numbers do not grow quickly.

Analysts and investors are starting to speculate about other services Netflix might be offering in the not-too-distant future after winning the streaming video wars. It is now moving from building a base by targeting subscriber growth to focusing on profit, using price rises, the much-reported crackdown on password sharing, and an ad-supported tier to boost revenue.

Netflix sees a lot of room for growth though. “Today, our share of TV viewing is less than 10% in every country,” Netflix wrote in the letter. “So we have plenty of room to add value for our members and grow our share of viewing by broadening our slate, including with live events (comedy, sports, competition shows, music).”

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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