Netflix, the world's largest video streaming service (OTT) company, has decided not to disclose its 'subscriber count' starting from its earnings announcement in the first quarter of next year. Analysts suggest this could be a major turning point in the so-called 'streaming war,' which is typically defined by subscriber acquisition battles. Netflix's first-quarter earnings this year far exceeded expectations, but its future outlook fell short of Wall Street's hopes. Currently, Netflix's stock price is showing a decline of over 4% in after-hours trading.
First-quarter subscribers increased by 9.33 million... surpassing market expectations
On the 18th (local time), Netflix announced after the market closed that its first-quarter subscriber count rose by 9.33 million year-over-year to 269.6 million. This increase far exceeded Wall Street's forecast of 4.8 to 5.1 million. During the same period, revenue reached $9.37 billion, and net income was $2.33 billion. These figures also surpassed Wall Street's projections ($9.28 billion and $1.98 billion, respectively). Earnings per share (EPS) stood at $5.28, and the operating margin jumped more than 7 percentage points year-over-year to 28.1%.
Netflix's performance exceeding expectations is attributed to efforts such as cracking down on password sharing and introducing a relatively affordable ad-supported plan. Popular content like "Griselda," "Avatar: The Last Airbender," and "American Nightmare" helped attract viewers. The company emphasized this as a "smooth start to 2024."
However, the future earnings guidance was disappointing. Netflix forecasted that due to seasonal factors, the increase in paid subscribers in the second quarter would slow compared to the first quarter. The second-quarter revenue outlook was also set at $9.49 billion, below Wall Street's expectation of $9.51 billion. Netflix CFO Spencer Neumann acknowledged during the earnings conference call that while advertising revenue in the second half of 2023 looks "really good," the pace of net subscriber growth will not be the same as before.
"Will no longer disclose subscriber count and average revenue per member"
Notably, Netflix announced it will stop disclosing quarterly subscriber numbers and average revenue per member (ARM) starting from the first quarter of 2025. The company explained the rationale, stating, "In the early days when revenue and profits were minimal, subscriber growth was a strong indicator of future potential, but now we generate significant revenue and free cash flow," adding, "We want investors to evaluate the company by the same standards as management." Going forward, Netflix plans to focus on key financial metrics such as revenue, operating margin, free cash flow, and Netflix viewing hours instead of subscriber counts.
Regarding this, economic media outlet CNBC described it as "an important change in the streaming war defined by subscriber acquisition." The outlet noted that Netflix has maintained its top position in the streaming war for about five years and that by shifting Wall Street's focus from subscriber numbers to revenue and profits, it demonstrates the company's maturation as a business.
On the other hand, some analysts interpret this as a signal that Netflix may be approaching a point where it can no longer sustain subscriber growth. Jamie Rumney of Third Bridge told MarketWatch, "This is a decision that raises questions about Netflix's subscriber base growth prospects." Forbes also pointed out, "While the streaming giant (Netflix) returned with explosive subscriber growth in the first quarter, some question how long the crackdown on password sharing will continue to be effective."
The market shows clear disappointment over the weak guidance. Netflix's stock price closed slightly down during regular trading on the day and is currently down nearly 5% in after-hours trading. The stock, which briefly surged immediately after the better-than-expected first-quarter earnings announcement, turned downward as more details were revealed.
Yahoo Finance noted that Netflix's stock price has been on a downward trend in recent months and is currently trading near its 52-week high, warning that Wall Street's expectations could pose risks embedded in the stock price. Over the past year, Netflix's stock price has risen by 85%.
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