Netflix to Cease Reporting Subscriber Numbers: Wall Street Unhappy

Along with subscribers, the company will also stop reporting a key measure of profitability — average revenue per member, or ARM

by Sededin Dedovic
Netflix to Cease Reporting Subscriber Numbers: Wall Street Unhappy
© Mario Tama / Getty Images

Netflix will stop reporting subscriber numbers early next year. This doesn't sit well with Wall Street. Shares fell as much as 9% on Friday after the news was announced a day earlier as part of the first quarter earnings report.

It's a surprising announcement, especially for an industry that has historically tied a company's performance to the growth or decline of its subscriber base. In addition to subscribers, the company will also stop reporting a key profitability metric — average revenue per member, or ARM.

While Netflix's first-quarter earnings beat expectations, a disappointing second-quarter and full-year revenue forecast overshadowed the results. This, along with the streaming giant's plans to eliminate membership metrics, has investors worried about whether the recent growth momentum can be sustained over the long term.

"While it's still early, a potential concern is that subscriber growth has slowed significantly in 2022 (before Netflix cracks down on password sharing)," Bank of America analyst Jessica Reif Ehrlich wrote in a client note on Friday.

"This could signal a slowdown in subscriber growth going forward." It's been about a year since Netflix first implemented its crackdown on password sharing, targeting 100 million global users who share accounts. Analysts say the move has accounted for most of the streamer's new subscribers in recent quarters, as viewers who used friends' or family members' accounts suddenly had to get their own.

So far, the initiative has paid off, with the company adding 9.3 million subscribers in the first quarter after adding 13 million subscribers in the fourth quarter. But Wall Street seems convinced that the benefits of throttling are beginning to wane.

"We believe the low-hanging fruit has already been picked," analyst Michael Nathanson wrote on Friday. "Netflix has talked about expanding its push to previously untouched mobile users, though the size of that opportunity is unclear, and it remains to be seen whether this effort can yield similar results." In other words, the decision to no longer sign up subscribers "can be read cautiously because subscriber growth has really peaked - particularly in the higher ARM markets - and a slowdown may be ahead," he warned. Nathanson maintained his neutral rating on the stock but raised his price target by $5 to $505 per share.

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