Netflix’s message to shareholders: Focus on revenue and profit, not subscriber adds

INDONESIAKININEWS.COM -  Netflix has a message for investors: start focusing on revenue and profit, and stop obsessing about subscriber grow...

INDONESIAKININEWS.COM - Netflix has a message for investors: start focusing on revenue and profit, and stop obsessing about subscriber growth.

Netflix made its argument with several pointed comments in its quarterly shareholder letter. The world’s largest streamer said it will stop forecasting paid subscriber adds. The company’s rationale behind the change is to get investors focused on revenue instead of customer growth.

“We are increasingly focused on revenue as our primary top line metric,” Netflix wrote as it reported third quarter earnings Tuesday. “This will become particularly important heading into 2023 as we develop new revenue streams like advertising and paid sharing, where membership is just one component of our revenue growth.”

Netflix will continue to provide guidance for revenue, operating income, operating margin and net income — traditional metrics of profitability — and it will still report subscriber adds each quarter. It just won’t forecast what’s to come.

Part of the change is motivated by the increasingly wide array of revenue per user. A given subscriber could be paying $6.99 per month for Netflix’s new advertising tier, which debuts in the U.S. on November 3, or $19.99 per month for Netflix’s premium, no-ad service.

“Focusing on subscribers in our early days was helpful, but now that we have such a wide range of price points and different partnerships all over the world, the economic impact of any given subscriber can be quite different,” Spencer Wang, Netflix’s vice president of finance, said during the company’s earnings call Tuesday. “That’s particularly true if you’re trying to compare our business with our streaming services.”

Theoretically, Netflix’s advertising tier and coming crackdown on password sharing should reinvigorate subscriber growth. But Netflix, which gained 2.4 million subscribers in the third quarter on an “especially strong” content slate, led by “Stranger Things 4,” may see quarters with 10 million or more subscriber adds as a relic of the past.

Focusing on Netflix’s strengths
Instead of operating in a world filled with comparisons to a pandemic era fueled by surging growth, Netflix is attempting to steer investor focus to the fact that its streaming service actually makes money. Netflix directly addressed this point in the “Competition” section of its shareholder letter.

“It’s hard to build a large and profitable streaming business – our best estimate is that all of these competitors are losing money on streaming, with aggregate annual direct operating losses this year alone that could be well in excess of $10 billion, compared with our +$5-$6 billion of annual operating profit,” Netflix wrote.

In other words: Netflix is saying it has built a great streaming business, while Disney, Warner Bros. Discovery, Comcast’s NBCUniversal, Paramount Global, and others want to build a great streaming business. Netflix acknowledged some of their competitors may get there, through consolidation and price hikes.

This is a clear competitive advantage for Netflix, unlike subscriber adds, where Disney — earlier in its growth cycle, having launched Disney+ in 2019 — has the upper hand. Disney added 14.4 million Disney+ customers last quarter while Netflix lost 970,000.

Netflix shares surged after hours, rising 14%. The company is once again adding subscribers after losing customers in the first and second quarters. Next quarter, Netflix said it will add 4.5 million more customers.

But Netflix says we’re not supposed to be focused on that anymore. The question is whether investors will listen.

S: cnbc


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IndonesiaKiniNews.com: Netflix’s message to shareholders: Focus on revenue and profit, not subscriber adds
Netflix’s message to shareholders: Focus on revenue and profit, not subscriber adds
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