Netflix Shares of streaming video giant NFLX fell sharply on Friday after the company said it expected second-quarter revenue to be lower than expected and would no longer release quarterly subscriber numbers next year.
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On the stock market today, Netflix stock fell 9.1% to close at 555.04. This move pushed the stock below its 50-day moving average, a key support level.
Late Thursday, the internet television network reported better-than-expected first-quarter results but gave a weaker revenue outlook for the current quarter.
The Los Gatos, Calif.-based company shocked analysts by announcing it would not disclose quarterly subscriber numbers or average revenue per member starting in the first quarter of 2025. These have become important indicators used by investors to evaluate a company’s performance.
Netflix defends concealing subscriber numbers
In a letter to shareholders, co-CEOs Ted Sarandos and Greg Peters said, “We use revenue and operating margins (rather than subscribers) as our primary financial metrics, as well as customer satisfaction. “We focus on engagement (i.e. time spent) as the best metric.”
They noted that subscriptions are only part of the growth story, as the company develops new revenue streams such as advertising.
Peters said in an investor webcast Thursday that subscriber totals are “increasingly inaccurate as a picture of the business.” “This change is really motivated by wanting to focus on the key metrics that we think are most important to the business.”
He said Netflix will continue to announce subscriber numbers as it reaches key milestones.
Netflix stock analyst answers
Wall Street analysts were not happy with the changes in the report.
“Netflix made the mistake of announcing that it would delete subscriber data starting in the first quarter of 2025,” CFRA Research analyst Kenneth Leung said in a note to clients. Investors and advertisers want to know the total size of the subscriber base and the size by region, he said.
Mr. Leon reiterated his decision to buy Netflix stock, but lowered his price target from 650 yen to 640 yen.
BofA Securities analyst Jessica Lief Ehrlich said in a client note that the lack of visibility into key performance metrics was the biggest reason for Netflix’s stock decline on Friday.
The report change “could be a harbinger of slower subscriber growth in the future,” he said. Still, Lief Ehrlich maintained a buy rating on Netflix stock and even raised his price target to 700 yen from 650 yen.
Lack of information disclosure is ‘stupid act’
Bernstein analyst Laurent Yun said Netflix’s reduction in disclosure is a sign that its business is maturing.
“Reducing disclosure is a rite of passage for big tech companies like Apple, Google, and Meta,” Yun said in a client note. “On the other hand, removing disclosures about growth signals that the business is maturing and gives shareholders even fewer data points on which to base their forecasts. Only time will tell.”
Yun reiterated his market performance rating for Netflix stock, but raised his price target to $600 from 490 yen.
Evercore ISI analyst Mark Mahaney said he understands why Netflix ends quarterly subscriber counts. “But it’s still a big move and little disclosure,” he said in a client note. He maintained an outperform rating on Netflix stock and raised his price target to $650 from 640 yen.
Wedbush Securities analyst Alicia Reese said in a client note that Netflix’s reporting changes mark the beginning of the company’s shift from a “high-growth, low-margin business to a low-growth, high-margin business.” He said that. She reiterated her Outperform rating on Netflix stock and set a price target of 725.
Follow Patrick Seitz on X (formerly Twitter). @IBD_PSeitz Check out more articles on consumer technology, software, and semiconductor stocks here.
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