Netflix is trying to prove to the world that it’s all grown up

Netflix is trying to prove to the world that it’s all grown up

In the early stages of life, the primary metric is growth. As children age, their parents measure exactly how much size they grow, using charts to monitor and document progress.

But as children mature into young adults, physical growth is no longer the barometer used to judge progress. Other metrics also come into play.

Netflix is trying to convince Wall Street that it’s now grown up. After squeezing millions of additional subscribers through its password-sharing crackdown and through the introduction of cheaper advertiser-supported plans, the streamer knows its growth spurt is coming to an end — and now it wants investors to stop obsessing over those pesky membership numbers and instead focus on other metrics.

“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” Netflix told shareholders on Thursday as it reported quarterly earnings. “But now we’re generating huge profits and free cash flow. We are also developing new revenue streams such as advertising and our additional member features, so membership is just one component of our growth.”

To that end, Netflix said that it will no longer report quarterly subscriber numbers, starting in 2025. Unfortunately, that’s the metric that Wall Street has judged Netflix forever — the metric that’s driven legacy media companies to burn through endless piles of cash in bids. them. compete with streamers – will retire. It’s going to be like a furry monster, says Netflix. goodbye!

The decision to close transparency on metrics represents a significant turning point in the streaming revolution. Over the years, Netflix has prided itself on being very transparent. Now it aims to hold its cards closer to its chest. And since the streaming giant is a trendsetter in the space, one can expect that other media companies will be inspired by the company’s move and also choose to stop reporting the data.

To be fair, what Netflix is saying isn’t necessarily off base either. As the company shifts its business model away from subscriptions and toward advertising and other revenue streams, it’s worth considering how much time users spend on the service. The more content users consume on Netflix, the more likely they are to continue paying for the service and the more money Netflix makes from that single customer (especially if they’re in the advertiser-supported tier).

“We focus on revenue and operating margin as our primary financial metrics – and engagement (i.e. time spent) as our best proxy for customer satisfaction,” Netflix outlined in its letter to shareholders.

In any case, lack of transparency in an already opaque industry is not appropriate. Walled streaming parks no longer have the same detailed audience data that Nielsen collects on linear television broadcasters. Now, visibility into the world of streaming will be even dimmer. Instead, Netflix said it will “announce key customer milestones” when it crosses them. But that’s a very general statement and it’s not clear what the company defines as a milestone.

The announcement from Netflix managed to overshadow an otherwise excellent quarter. The company easily beat the exceptions and added a staggering 9.3 million subscribers, meaning it now has nearly 270 million in total. Netflix also beat analyst expectations on both revenue and revenue.

But it’s not all good news. Netflix forecast its subscriber growth to be lower in the second quarter, describing it as “normally seasonal.” That sent shares down nearly 5% in after-hours trading.

Whether “typical seasonality” is solely to blame, or whether streamers are just starting to hit a ceiling, it’s hard to tell. Maybe it’s a combination of both. Whatever the cause, the stock’s slump on a less-than-ideal outlook is a prime example of why Netflix wants Wall Street to stop focusing on its subscriber numbers. And, within a year, investors will have no choice.