THR illustration; Image: Countess Jemal/Getty Images
In the stock market, stories are everything.
If you’re a public company, you’ll want to tell a story about your business. A story of growth and ambition, a story about your future and what your limits are.
If it works well, the stock could skyrocket (just look at Nvidia and its status as an artificial intelligence hardware company). Otherwise, you may retreat hastily to private property (see Endeavor).
It’s something Netflix knows all too well.
Towards the end of 2021, Netflix’s stock price rose to above $600 as consumers flocked to the platform during the COVID-19 pandemic. By the end of April 2022, the stock price fell below $200 after reporting an alarming decline in subscribers.
Since its launch, Netflix’s growth story has been driven by new subscribers. As more and more people continue to subscribe and the company advances its ambitious originals strategy (including early staples such as tower on the sand and orange is the new black) Their numbers continued to grow as they expanded to more countries. With each update, skepticism from Wall Street and rivals (“Is the Albanian army going to conquer the world?”) turned into a serious race to catch up (“Bob Iger puts streaming company behind and the future of Hollywood).
The pandemic has accelerated that growth (executives call this event a “pull forward,” as people who were more likely to subscribe at some point choose to pull the trigger, or stay homebound). ), but it will also crash in 2022 as the pandemic surge eases.
The company has since recovered from its lows (shares have climbed above $550), but co-CEOs Ted Sarandos and Greg Peters haven’t forgotten the lessons of the 2022 crash.
When looking at Netflix’s choice to stop reporting subscriber numbers and ARM (what other companies call ARPU, or average revenue per user) starting in the first quarter of 2025, it’s the context that matters.
They see the future coming and want to set up new stories they can tell.
Over the past year, the company’s crackdown on password sharing has led to a rapid increase in subscriber numbers. The work is not over yet, but it is no exaggeration to say that the end is in sight.
And subscribers are not what they used to be. Peters told analysts on Thursday: I think these price ranges will become increasingly different. ”
In other words, Netflix, which had hitherto priced its service roughly the same in every market, has changed its strategy, perhaps lowering the cost of its service in some countries, perhaps adding advertising, and losing more subscribers in the process. It would distort both ARMs. .
“All of this means that the historically simple calculation we have all made, multiplying the number of members by the monthly fee, is becoming an increasingly inaccurate picture of the health of the business. “We will not remain silent,” Peters said, adding: “We will not remain silent.” Regarding the members too. We update regularly and announce when we grow and reach certain major milestones. It just won’t be part of our regular reporting. ”
This is a line that goes back to Apple’s decision to stop reporting unit sales for iPhones and Mac computers in 2018, with CFO Luca Maestri telling analysts that “Units sold today are smaller than they have been in the past. “This is no longer material to us, given the breadth of our portfolio and the disparity in selling prices within certain product lines.”
At the same time, Netflix’s nascent advertising base is growing rapidly, with executives predicting it will become a major contributor to revenue starting in 2025.
Netflix wants Street to stop focusing on subscribers and focus on other metrics like revenue, operating profit, and engagement. Netflix stock fell more than 8% on Friday, suggesting the Street may not be that bullish on the idea just yet.
“It’s still early days, but a potential concern is that subscriber growth slowed significantly in 2022…and this could lead to future “This could be a sign of slowing subscriber growth,” Michael Morris of the Guggenheim Museum said in his post. -In the earnings report, it said: “It is not improbable that this change is aimed at reducing quarter-to-quarter fluctuations in sentiment associated with relatively small changes in true economic factors.”
If Netflix becomes a significant part of its business, it will also drive advertising revenue…and you can imagine an upward growth trajectory as new and existing subscribers opt into advertising.
You can also steal a hand from Amazon’s box of tricks. The tech giant is notoriously cagey about his company’s Prime membership numbers. But once every few years he reaches a certain number, he chooses to promote that number.
Netflix plans to do the same, but as the streaming industry’s biggest storytelling company, it knows how to keep people hooked.
So a year from now, when the crackdown on password sharing has probably run its course and subscriber growth has slowed or declined, the company will have a new story to tell.
And Sarandos, Peters and Netflix executives have spent a year in development honing that message, hoping Wall Street is ready to binge.
