Netflix, the dominant player in the streaming industry, added more than 9 million subscribers in the first three months of the year, hitting a record high of 269.6 million subscribers. This growth comes as the company adjusts its streaming strategy, making risky bets such as pushing users who share passwords to create their own accounts and expanding into new areas like live sports, video games, and ad-supported content.
The subscriber additions topped Wall Street's estimates, with eMarketer senior analyst Ross Benes noting, "This signals that password sharing was even more common than previously thought as Netflix keeps converting freeloader viewers into paid users." However, the company still reported a drop in growth from its blowout fourth-quarter report, when Netflix added 13 million subscribers.
In a significant move, Netflix announced Thursday that it plans to stop sharing its quarterly subscriber numbers in 2025, shifting the focus to revenue, operating margin, free cash flow, and the amount of time spent on the platform. This decision comes as the company evolves its revenue model and adds new features that are not directly connected to the number of members.
Netflix's recent moves to expand and reinvent its business have included licensing content from other studios, venturing into live and sports programming, and partnering with video game franchises like Rockstar Games' "Grand Theft Auto." The company's first-quarter letter to shareholders outlined several goals to "sustain healthy growth long term," including improving the variety and quality of their entertainment offerings.
The streaming giant's advertising-supported subscription tier, introduced in late 2022, has seen explosive growth, with more than 23 million users as of January. Netflix's president of advertising, Amy Reinhard, shared that the company aims to snatch more ad dollars from traditional TV competitors, with co-CEO Greg Peters stating, "We know ad dollars follow engagement. We've got the most engaged audience so we believe we're well positioned to capture some of that ad spend that shifts from linear to streaming."
While the company's future growth could hinge on its success in the advertising space, Netflix's decision to stop sharing subscriber numbers allows it to "quit while its ahead and go out as the world heavyweight champ in subscribers," according to Benes from eMarketer. He added, "Netflix is emphasizing what benefits them. The password sharing boosts will eventually recede and it will be very difficult to continue to add as many subscribers as they have added in the last few quarters."
Despite the strong subscriber growth, Netflix shares fell 4% in after-hours trading, in part due to a weaker full-year revenue growth outlook than some analysts estimated. The company forecast revenue growth of 16% in the second quarter but just 13% to 15% for the full year.
Investors typically don't like less transparency, particularly when it comes to granular membership information, which Netflix used to pride itself on. However, forcing Wall Street to focus on revenue and profit, rather than user growth, is also evidence of Netflix's maturity as a company. As the dominant incumbent in the streaming industry, Netflix has the luxury of focusing on profit, revenue, and free cash flow, while many legacy media companies struggle with money-losing or barely profitable streaming services and declining traditional TV businesses.
