Focus on revenue, profit, not subscriber additions


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netflix has a message for investors: start focusing on revenue and profit, and stop obsessing about growing subscribers.

Netflix made its case with several pointed comments in its quarterly letter to shareholders. The world’s largest streamer has said it will stop forecasting paid subscriber additions. The corporate rationale behind this change is to get investors to focus on revenue rather than customer growth.

“We are increasingly focusing on revenue as the primary measure of revenue,” Netflix wrote when reporting its third-quarter results on Tuesday. “This will become particularly important as we approach 2023 as we develop new revenue streams like advertising and paid sharing, where membership is just one element of our revenue growth.”

Netflix will continue to provide guidance on revenue, operating profit, operating margin, and net profit — traditional measures of profitability — and it will continue to report subscriber additions each quarter. He simply does not predict what will happen.

Part of the change is driven by the ever-widening range of revenue per user. A given subscriber could pay $6.99 per month for Netflix’s new ad tier, which debuts in the US on November 3, or $19.99 per month for Netflix’s ad-free premium service.

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

Theoretically, Netflix’s level of advertising and the upcoming crackdown on password sharing should kickstart subscriber growth. But Netflix, which gained 2.4 million subscribers in the third quarter on a “particularly strong” list of content, led by “Stranger Things 4”, could see quarters with 10 million subscribers or more as a relic of the past.

Focus on Netflix strengths

Instead of operating in a world filled with comparisons to a pandemic era fueled by skyrocketing growth, Netflix is ​​trying to draw investors’ attention to the fact that its streaming service is actually making money. Netflix directly addressed this point in the “Competition” section of its letter to shareholders.

“Building a large, profitable streaming business is difficult – our best estimate is that all of these competitors are losing money on streaming, with overall annual direct operating losses this year alone that could well exceed $10 billion. , compared to our +$5-6 billion in annual operating profit,” Netflix wrote.

In other words: Netflix claims to have built a great streaming business, while disney, Discovery of Warner Bros., Comcastfrom NBCUniversal, World Paramountand others want to to build a big streaming business. Netflix has acknowledged that some of its competitors could get there, thanks to consolidation and higher prices.

This is a clear competitive advantage for Netflix, unlike subscriber additions, 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.

Shares of Netflix surged after hours, rising 14%. The company is adding subscribers again after losing customers in the first and second quarters. In the next quarter, Netflix announced that it will add an additional 4.5 million customers.

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

Disclosure: Comcast’s NBCUniversal is CNBC’s parent company.

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