Earlier on Friday, global film and entertainment giant Netflix released its quarterly report as of the end of March. Holding an excellent financial report in all aspects, the management of Netflix personally stepped forward, creating a significant negative impact on investors.
As of press release, Netflix fell nearly 6% before Friday trading.
(Source: TradeView)
It should have been a happy financial reporting season
From all aspects, Netflix has completed a commercially successful first quarter. The company achieved revenue of $9.3 billion and net profit of $2.3 billion, with a year-on-year increase of 60% in earnings per share of $5.28, both of which far exceeded market expectations.
(Source: Netflix Financial Report)
The most exciting thing for the market is that Netflix welcomed 9.3 million new subscribers in the first quarter, almost double Wall Street's expectations, with a record high of 269.6 million subscribers at the end of the quarter.
There are multiple factors supporting this achievement. Firstly, Netflix continued to release several popular works that attracted global user attention in the first quarter - Q1 reports showed that the crime biographical mini series "Griselda" received 66.4 million views (note: Netflix's statistics refer to the total viewing time within 91 days after release divided by the length of the series), "The Three Body Problem" released at the end of March received 39.7 million views, and "Avatar: The Last Airbender" received 68.3 million views.
In addition, Netflix's multiple works produced locally in the UK, South Korea, and Spain have also performed well in terms of viewing data.
At the same time, the change in Netflix's business strategy has also driven more users to switch to paying. Since last year, Netflix has taken measures to crack down on the practice of sharing accounts, with the company estimating that 100 million people are using someone else's Netflix account. The company is also launching a subscription level that offers lower fees but requires viewing advertisements, encouraging more "free" users to start paying.
However, just after the hot financial report was released, the management of Netflix announced that it will stop disclosing its total number of subscribers starting from the first quarter of 2025. For investors in the streaming media industry, this has also been the core indicator determining the rise and fall of companies in the past few years.
Why did you suddenly make adjustments
Netflix also stated in its performance forecast that it will maintain a similar revenue growth rate in the second quarter of this year, but the net growth of subscribers will slow down.
Regarding the cessation of public subscription numbers, the company explained that the focus will shift to user engagement, which is the time spent by subscribers on the service. At the same time, new pricing points and revenue sources will also be developed, including advertising.
During the financial report conference call, Greg Peters, co-CEO of Netflix, attempted to explain that the impact of each incremental member on the business is different, which means that the simple mathematical problem of multiplying the number of members by subscription fees in the past is increasingly unable to accurately reflect the situation of the business. Greg also promised investors that the company will regularly update the number of subscribers when it reaches major milestones in the future.
Regarding this change, PP Foresight analyst Paolo Pescatore stated that the company's decision to stop publicly disclosing the number of subscribers will not receive positive feedback. Paolo believes that no matter how Netflix tries to shift the focus of the market from the number of subscribers to financial data, the net growth of subscribers remains a key indicator that everyone wants to see.
Ross Benes, senior analyst at eMarketer, also believes that the measure to stop publishing subscribers can allow Netflix to take advantage of its position as the "world champion in subscription numbers". Benes said that Netflix is emphasizing things that are beneficial to them, and the growth brought about by cracking down on shared accounts will eventually decline. It will be very difficult for the company to continue adding new users like in the past few quarters.
Various signs indicate that in recent months, Netflix has also been taking continuous actions, attempting to increase profits by expanding or even changing its business model. The company has recently started investing heavily in live streaming, sports, and gaming, purchasing content from other suppliers, and has transitioned from ad free subscription services to a streaming platform supported by advertising.
In February of this year, the Netflix platform broadcasted the Screen Actors Guild Awards ceremony, marking the first attempt of this kind by the platform. In addition, in January this year, Netflix also announced with WWE that it had obtained exclusive rights to the live broadcast of WWE Raw, with a total ten-year contract value exceeding 5 billion US dollars.
In the gaming industry, the introduction of Rockstar Games' "Grand Theft Auto Remastered Trilogy" by the Netflix platform at the end of last year sparked market discussions. This has brought some surprises to this business direction that has been questioned by investors.