Netflix (NFLX) will stop reporting subscriber numbers early next year. That’s not good for Wall Street.
The news, which was revealed as part of the company’s first-quarter earnings report the previous day, sent shares down as much as 9% on Friday. This is a surprising announcement, especially for an industry where corporate performance has historically been tied to subscriber gains and losses.
As well as subscribers, the company will also stop reporting average revenue per member (ARM), a key revenue metric.
Netflix’s first-quarter earnings beat across the board, but the results were overshadowed by disappointing second-quarter and full-year revenue estimates. This, combined with the streamer’s plans to eliminate membership metrics, has increased investor uncertainty about whether recent growth momentum can be sustained in the long term.
“Although still in the early stages, a potential concern is that enrollment growth slowed significantly in 2022 (prior to the implementation of the policy). [Netflix’s password sharing crackdown]”This could portend slower subscriber growth in the future,” Bank of America analyst Jessica Lief Ehrlich said in a note to clients on Friday. Stated.
It’s been about a year since Netflix first cracked down on passwords for the 100 million users around the world who share their accounts. Analysts said the move contributed to much of the streamer’s new subscriber growth in recent quarters, as viewers who had been using friends and family accounts suddenly had to get their own accounts. states that it did.
So far, the efforts have paid off, with the company adding 9.3 million subscribers in the first quarter after adding 13 million in the fourth quarter.
But Wall Street seems convinced that the benefits of the crackdown are starting to diminish.
“We believe the lowest hanging fruit has already been captured,” Moffett Nathanson analyst Michael Nathanson said Friday. “Netflix has talked about extending enforcement to previously untouched mobile users, but it’s unclear how large this opportunity is and whether this effort will yield similar results. still unknown.”
In other words, the move to no longer report subscriber numbers “further signals that subscriber growth, especially in the premium ARM market, has actually peaked and may be in for a slowdown.” “It can be read with caution,” he cautioned.
Nathanson maintained his rating on the stock at “neutral,” but raised his price target by $5 to $505 per share.
Citi analyst Jason Bazinet agreed, telling Yahoo Finance, “The stock really worked because the company was outperforming net additions. People knew there was a problem with password sharing. What they want to know is, when do we start wrapping this part of password sharing? What’s the benefit? How do you get these net gains? ”
“That’s why there’s so much anxiety,” he continued. “This is implying to someone that there really isn’t a natural transition to continue sub-growth. [post-password sharing.]”
“Netflix made a mistake”
Netflix said it came to this decision as an evolution of its revenue model. Essentially, the company’s management believes that membership growth no longer reflects success or failure.
New developments such as advertising space and “additional membership” fees “are not directly related to membership numbers,” Netflix co-CEO Greg Peters explained on an earnings call.
In addition, the company has “evolved its pricing and plans with multiple tiers and different price points in different countries,” Peters said. Therefore, “each incremental member has a different impact on the business,” he said.
CFRA analyst Ken Leung disagreed, saying he believes “Netflix made a mistake” in deleting the data.
Netflix says its “business is broader with other revenue streams. Still, advertisers and other investors want to know what its total/regional subscriber base is.” Stated. Leon maintained his Buy rating, but lowered his price target by $10 to $640 per share.
Still, some are optimistic that the changes could be beneficial as the company matures.
Macquarie analyst Tim Nolen said: “While investors will complain about the lack of metrics being used, we welcome this decision – Apple did this with the iPhone unit to draw attention to more important fundamental metrics. Remember – Netflix collects engagement metrics and ad tier-related information over time in hopes of providing more meaningful metrics. ”
alexandra canal I’m a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, Email alexandra.canal@yahoofinance.com.
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