文|BT财经数据通,作者 | Rickzhang
Streaming giant Netflix has reported its earnings report.
In the early morning of April 19, Netflix, the world's leader in film and television entertainment, released its quarterly report for the quarter ended March as scheduled. In this earnings report, revenue and earnings per share exceeded Wall Street analysts' expectations, net income increased by 79% year-on-year, and diluted earnings per share climbed to $5.28.
However, behind this glossy number, Netflix's management has dropped a bombshell on investors.
While the FY2024 revenue outlook was a bit bleak in the eyes of some analysts and did not quite meet their expectations, the market did not overreact to it. After all, Netflix expects second-quarter revenue growth of 15.9%, net income is expected to reach a staggering $2.063 billion, and diluted earnings per share will jump to $4.68, all of which have steadily exceeded market expectations.
But then the management's announcement was like a boulder dropped on the calm surface of the lake. Starting in the first quarter of 2025, Netflix will no longer publish the number of users and the amount paid per person. This decision immediately sent waves through the investment community. Management tried to explain that the future focus will be more on overall revenue and profitability, and with the introduction of new advertising models and regional differentiation of operating plans, the disclosure of the number of users and the amount paid per person is gradually weakening to guide revenue expectations.
However, investors are starting to worry about whether this means a significant slowdown in subscriber growth in the future, and Netflix's ambition to reach 500 million households and 1 billion users is now just halfway through the process, and the company's decision to stop disclosing the data has undoubtedly cast a shadow over the market's long-term growth confidence.
Although Netflix's earnings per share increased by 83% year-over-year, and revenue and profit both beat Wall Street's expectations, the market is beginning to feel uncertain about the future. This uncertainty was further exacerbated especially when Netflix gave second-quarter revenue guidance of $9.49 billion, slightly below analysts' expectations of $9.51 billion. As a result, the company's stock price fell by 8% in post-earnings trading.
This means that Netflix seems to be adjusting its strategy on the road to profitability, and the market needs time to digest the impact of this change.
In this game of numbers and strategy, Netflix's future is still full of uncertainties.
Behind the stellar financial report
In the field of global film and television entertainment, the name of Netflix has become a resounding signboard. And this time, with the release of the first quarter financial report, Netflix once again attracted the attention of global investors with its amazing performance.
In this eye-catching financial report, Netflix's revenue in the first quarter was as high as $9.37 billion, a year-on-year increase of 14.8%, and it was $90 million higher than market expectations. Net profit surged 78.7% year-on-year to $2.332 billion. Earnings per share also far beat expectations, reaching $5.28, a figure that certainly shook the market.
So, how exactly does Netflix do all this, and what's the story behind it?
First of all, we have to mention Netflix's continuous investment and precise vision in content creation. In the first quarter, Netflix launched a number of popular works that attracted the attention of users around the world. The crime biographical miniseries "Griselda" attracted 66.4 million views with its gripping plot, while "The Three-Body Problem" and "The Avatar: The Last Airbender" also performed well. The continuous output of these high-quality content has attracted a large number of new users to Netflix and maintained the loyalty of old users.
In addition to global hits, Netflix has also put a lot of effort into localizing content. In the United Kingdom, South Korea, Spain and other places, a number of works produced by Netflix have also received extremely high viewing data. This localization strategy has not only allowed Netflix to build a broad user base around the world, but also further enhanced its brand presence.
Of course, in addition to the output of high-quality content, Netflix's business strategy also contributed to it. Since last year, Netflix has taken steps to crack down on "account sharing" and introduced subscription tiers that charge less but require ads to be watched. This strategy effectively converted more "free" users into paying users, further boosting Netflix's revenue and profits.
In the post-earnings call, Netflix executives further elaborated on the company's future growth strategy. They said they would improve the diversity and quality of the entertainment offerings offered, such as TV shows, movies and games. This includes not only continuing to deliver high-quality original content, but also increasing the purchase of licensed content. For example, the nine-season drama "Suits" on CNN-TV quickly broke the viewing record after landing on Netflix last year, proving the huge value of licensed content. At the same time, Netflix also plans to enter new business areas such as advertising, gaming and live sports to seek more growth points.
In addition, in the field of games, Netflix has also begun to lay out, not only spending huge sums of money to buy game studios and building businesses, but also adapting some successful series into games, such as "Squid Game". In the future, Netflix also plans to further generate revenue from games through in-app purchases, charging for more complex games in development, and offering games with ads.
In general, Netflix's brilliant financial report is the result of its precise content strategy, flexible business strategy and forward-looking market layout. These factors will continue to drive Netflix to stay ahead of the curve and create more business value in the future.
Data that is no longer disclosed
In the world of digital streaming, Netflix has always been a leader. However, at the same time as the release of this financial report, Netflix dropped a "bombshell" on the market. This bomb is not about revenue and profit, but about the information disclosure strategy they are about to change.
Netflix's subscriber growth has always been the focus of the market. In the fourth quarter of last year, Netflix added 13.1 million new paying subscribers, and in the first quarter of this year, this growth momentum continued, adding another 9.33 million paying subscribers. So far, Netflix's total paid membership reached a staggering 269.6 million in the first quarter, a year-on-year increase of 16%, which even exceeded market expectations of 264.52 million.
However, behind this stellar financial report, Netflix announced a surprising decision. Beginning in the first quarter of 2025, the company will stop reporting on paid membership growth and average user revenue, and will only disclose when certain user "milestones" are reached. This change quickly sparked a lot of discussion in the industry.
The Hollywood Reporter argues that Netflix's stop disclosing subscriber numbers marks the end of the era of streaming wars. In the early days of the streaming wars, profits were uncertain, and subscribers were always the focus of Wall Street's attention. And now, with Netflix's profits and free cash flow creation, the importance of this metric seems to be decreasing.
Netflix's explanation for this is that as the company has grown, membership growth is no longer the only indicator of future potential. Co-CEO Greg Peters said on the earnings call: "We've evolved, and we'll continue to evolve. We're also developing new revenue streams, such as advertising and our additional membership features. "So, membership is just one component of Netflix's growth.
However, the market reaction was strong. Some investors are concerned that the change could signal a slowdown in Netflix's subscriber growth. In particular, Netflix also warned that subscriber growth in the second quarter could be lower than in the first quarter due to "seasonality". On the news, Netflix's stock price fell 9% after the U.S. stock market hours.
While tech giants such as Apple and Amazon have never disclosed user data for their streaming services, others such as Disney+, Warner Bros. Discovery and Paramount Global have insisted on disclosing data. Therefore, this decision of Netflix undoubtedly breaks the norm in the market.
To compensate, Netflix began disclosing an increased disclosure of annual revenue guidance this quarter. However, analysts said it was a sign that Netflix didn't want to be led by the number of users anymore. By stopping regular disclosure of the number of users, Netflix wants to force outsiders to judge itself by metrics such as revenue, profitability and free cash flow.
Market watchers disagree on this change. Some people see this as a sign of Netflix's maturity, while others see it as Netflix hiding the fact that user growth is slowing. In any case, this decision has undoubtedly brought new challenges and uncertainties to the market.
During the earnings call, Netflix's co-CEO Greg Peters tried to explain the logic behind the decision to investors. He emphasized that the impact of each incremental membership on the business is different, and that the simple math of the past – the number of members multiplied by the subscription fee – is increasingly inaccurate in reflecting the business. At the same time, he promised that the company would "regularly update" subscriber counts in the future when "major milestones" were reached.
The market remains wary of this. Paolo Pescatore, an analyst at PP Foresight, said the company's move to stop making the number of subscribers public "won't get a good review." He believes that no matter how Netflix tries to shift the market's focus from subscriber numbers to financial data, net subscriber growth is still a key metric that everyone wants to see.
What could happen next
Behind the stellar performance in the first quarter, Netflix seems to be facing unprecedented challenges. The net increase in subscribers was as high as 9.3 million, far exceeding the market expectation of 4.5 million, which undoubtedly made the market shine. However, digging deeper, you will find that this gorgeous data is actually not that impressive.
As third-party data platforms have already revealed Netflix's recent subscriber growth trend, core institutions have gradually raised their expectations for it, from the initial 4 million to 6 million. More optimistic market watchers are even predicting 8 million to 10 million subscriber growth. It can be seen that Netflix's so-called "more than expected" growth in the first quarter has actually greatly reduced its gold content.
More worryingly, the company's second-quarter revenue guidance was lower than market expectations, which may be the reason why the market is cautious about its future development. Although analysts believe that this expectation is within an acceptable range, the suspension of disclosure of key operational indicators has undoubtedly exacerbated market concerns and directly led to the after-hours decline in stock prices.
Looking ahead, the second quarter is a traditional off-season, and the market expects user growth to fall back to 3.73 million. The company's management also admitted that due to seasonal factors, the second-quarter performance may be weaker than the first quarter. In particular, it is worth noting that the increase in per capita payment in the first quarter was mainly due to the price increase in Europe and the United States in October last year. However, in Latin America and other regions, the amount paid per capita fell month-on-month due to the depreciation of exchange rates and the introduction of low-cost advertising packages and the crackdown on account sharing.
Consecutive quarters of better-than-expected growth in North America seem to offer a glimmer of hope for Netflix. However, this does not hide the heavy dependence on the North American market for its overall performance, as well as the embarrassing situation of sluggish growth in Latin America and the Asia-Pacific region. If there is no breakthrough in user growth in emerging markets, Netflix's future growth momentum will be severely limited by price increases and advertising revenue, which will undoubtedly put forward higher requirements for Netflix to maintain its content competitive advantage.
Although the operating profit in the first quarter increased by 54% year-on-year, and the gross profit margin also reached a record high, these strong financial figures cannot hide the challenges facing Netflix. In the increasingly competitive streaming market, Netflix needs to invest to maintain its leading position, and the continued increase in overall operating expenses also poses a potential threat to its profitability.
Although management raised its full-year margin target from 24% to 25%, this did not completely dispel concerns about Netflix's future growth. Especially in the current increasingly competitive market environment, Netflix needs to work harder to find new growth sources to maintain its leading position in the market.
In terms of cash expenses from non-operating activities, Netflix repurchased some shares and spent a certain amount of money in the first quarter. However, this does not hide the embarrassing situation of negative net cash. Despite low short-term debt and positive free cash flow, Netflix will need to manage its cash flow and financing activities more carefully in the coming quarters to ensure operational soundness.
Looking ahead, Netflix faces both challenges and opportunities. On the one hand, it is necessary to pay attention to the growth of users in emerging regions and the impact of price increases and advertising revenue on performance, and on the other hand, it is also necessary to see Netflix's efforts in content competitive advantage and cost optimization, as well as the improvement of management's full-year margin targets.
Together, these factors will determine the next direction of Netflix's development.