Netflix Plans to Withhold a Key Metric from Shareholders: Is Streaming Titan Hiding Something?
By many indications and most metrics, it’s pretty clear that Netflix “won” the streaming wars.
Earlier this year, Netflix touted record growth and a rosy outlook that was a stark departure from many of its (struggling) peers.
Netflix, for all of its faults and crackdowns on password sharing, appeared to be sitting pretty after a bit of tumult.
A big reason for that?
The streaming titan, aforementioned warts and all, has actually churned out a number of shockingly quality shows that fans are gravitating toward, like “3 Body Problem” and “Testament: The Story of Moses.”
(The former is a sci-fi thriller that actually has the intestinal fortitude to address the horrors of communism, while the latter is as straightforward of a Biblical tale as it gets.)
Again, everything appears to be coming up Netflix, and that tone largely didn’t change in the company’s latest quarterly earnings report for 2024 Q1.
“We’re off to a good start in 2024. Compared to Q1‘23, our revenue was up 15%, our operating income grew by 54% and our operating margin rose by seven percentage points to 28%,” the letter to the company’s shareholders boasts.
That optimism translated to Netflix actually raising its own expectations for the year: “For FY24, we forecast revenue growth of 13% to 15%. We’re raising our FY24 operating margin forecast to 25%, based on F/X rates as of January ‘24, up from 24%.”
That all sounds grand for an entertainment conglomerate, but there’s an interesting tidbit tucked away in the section denoting “Paid Membership Reporting.”
“As we’ve noted in previous letters, we’re focused on revenue and operating margin as our primary financial metrics — and engagement (i.e. time spent) as our best proxy for customer satisfaction,” the letter states. “In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential.
“But now we’re generating very substantial profit and free cash flow (FCF). We are also developing 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 pricing and plans from a single to multiple tiers with different price points depending on the country, each incremental paid membership has a very different business impact.
“It’s why we stopped providing quarterly paid membership guidance in 2023 and, starting next year with our Q1’25 earnings, we will stop reporting quarterly membership numbers and ARM.” (Emphasis added).
No matter how much the company has diversified, Netflix was literally built on and from a subscription-based model.
A key metric like membership numbers seems like a rather important bit of information, no?
According to the report, Netflix added 9.33 million new members in Q1 2024, bringing its global total to a whopping 269.6 million members.
Those seem like figures that shareholders would care about, but alas, this writer is not Netflix.
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