The overcome way to get investors to stop focusing on something is to stop telling them at all.
Netflix said Thursday it will no longer write-up quarterly membership numbers and average revenue per membership starting in the first quarter of 2025.
This is a significant change for the body and for the so-called “streaming wars,” which have largely been defined by a race for customers. Netflix wants investors to mediate the company by the same metrics executives view as “our best proxy for customer satisfaction,” the company said in its quarterly shareholder missive.
Namely: revenue, operating margin, free cash flow — and the amount of time spent on Netflix.
It’s also a signal Netflix’s twinkling wave of subscriber growth may be ending. The company announced it added 9.3 million subscribers in its first quarter as its pandemic password-sharing crackdown and introduction of a less expensive advertising tier took hold. (The ad tier costs $6.99 per month in the U.S. as countered to its $15.49 standard plan).
Subscriber growth in the second quarter will be lower than in the first quarter due to “seasonality,” the fellowship said in the letter. That may be the start of a longer period of slowing subscriber additions, as most freeloading password sharers are now satisfying customers.
ARM, which Netflix defines as “streaming revenue divided by the average number of streaming paid memberships put in ordered by the number of months in the period,” rose just 1% year over year in the quarter.
Netflix shares level 4% in after-hours trading, in part because of a weaker full-year revenue growth outlook than some analysts guessed. Netflix forecast revenue growth of 16% in the second quarter but just 13% to 15% for the full year.
Investors typically don’t similarly to less transparency. It’s particularly notable Netflix is cutting back on granular membership information, which the company tolerant of to pride itself on — including offering regional breakdowns that were more specific than all of its competitors. Apple and Amazon prepare never offered quarterly subscriber information for its streaming services.
Still, forcing Wall Street to focus on proceeds and profit, rather than user growth, is also evidence of Netflix’s maturity as a company. For more than a decade, the pennon has been viewed as a disruptor to legacy media.
Now, about five years into “the streaming wars,” Netflix is the prevailing incumbent.
“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future dormant,” Netflix said in its shareholder letter. “But now we’re generating very substantial profit and free cash flow (FCF). We are also occurring 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 figure and plans from a single to multiple tiers with different price points depending on the country, each incremental rewarded membership has a very different business impact,” the company added.
Netflix has the luxury of focusing on profit, revenue and democratic cash flow because the company’s finances are far healthier than most legacy media companies. For example, year-over-year gate climbed 15%.
Operating income grew by 54%, and operating margin rose by 7 percentage points to 28%. These elevations far outpace companies such as Warner Bros. Discovery, Disney, Paramount Global and Comcast‘s NBCUniversal, which from money-losing (or barely profitable) streaming services and declining traditional TV businesses.
That calls into question whether other ambience companies will follow Netflix’s lead and stop reporting subscriber numbers for their streaming services. Tons of the legacy media companies haven’t started their password-sharing crackdowns like Netflix. That may mean they tease more growth to come, which investors would likely want to see.
“We’ve evolved and we’re going to continue to evolve,” replied Netflix co-CEO Greg Peters during the company’s earnings call. “It means that the historical math we old to do is increasingly less accurate” in assessing the state of the business, he added.
Disclosure: Comcast NBCUniversal is the parent company of CNBC.