Netflix, shrugging off its startup image, has grown up and wants the market to concentrate on revenue and not subscriber numbers.
The streaming giant, founded in 1997 as a DVD rental and then moved into streaming content, says it will no longer provide quarterly updates on subscribers. ‘
These ever increasing numbers are what market analysts had been concentrating on, driving movements in share price.
A hallmark of startups is: Never mind the revenue, just look at the eyeballs, the numbers of new clients, the subscribers.
Now Netflix has hit a point where subscriptions will still grow but probably not at an amazing place and revenue is surging along at 15%.
Currently it has two subscription boosting plays: Cracking down on password sharing; and offering an advertising supported subscription tier.
Netflix's advertising supported membership grew 65% in the March quarter.
The streaming platform says more than 40% of all signups in markets where the advertising subscription is available are coming from the ads plan.
"Our two priorities in ads are to scale our member base and to build out our capabilities for advertisers," Netflix told shareholders in a letter.
"For advertisers, we continue to focus on measurement solutions."
With less focus on subscriptions, Netflix says it will use revenue and operating margin as primary financial metrics and engagement as a best proxy for customer satisfaction.
“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” Netflix told shareholders when releasing March quarter results. “But now we’re generating very substantial profit and free cash flow (FCF).
“We are also developing new revenue streams like advertising and our extra member feature, so memberships are just one component of our growth.
“In addition, as we’ve evolved our pricing and plans from a single to multiple tiers with different price points depending on the country, each incremental paid membership has a very different business impact.
“It’s why we stopped providing quarterly paid membership guidance in 2023 and, starting next year with our Q1 2025 earnings, we will stop reporting quarterly membership numbers and ARM (average revenue per member) .
“We’ll continue to provide a breakout of revenue by region each quarter and the F/X impact to complement our financials.
“For guidance, we’ll add annual revenue guidance on top of what we already provide today.”
The company reported overall revenue up almost 15% to $US9.37 billion in the March quarter and forecasts growth of 13% to 15% for the full year.
Global streaming paid memberships grew by 9.33 million, or 16%, to 269.6 million.
Mike Proulx, VP, research director at consultancy Forrester, says Netflix remains in the lead of the streaming marathon.
“Advertisers care about scale and reach, and Netflix is demonstrating continued and steady growth to its ad-tier — now with four in ten new users choosing to see ads, up from 30% last quarter,” said Proulx.
“Compelling content is what ultimately matters to subscribers and as more and more linear TV becomes streaming TV, live events is where it’s at.
“Once bearish on live sports, Netflix is now seemingly bullish on the kinds of live programming that fits the company’s brand. To capitalise on cultural moments, Netflix must be bullish on live events.”
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