Historically, Netflix stock has been driven by subscriber growth and whether the streaming video leader beat or missed expectations each quarter. But Netflix wants to change the narrative and get investors to focus on revenue growth instead.
So, starting with its fourth-quarter earnings report in January, Netflix won't be providing its predictions for subscriber additions anymore.
"Focusing on subscribers in our early days was helpful, but now that we have such a wide range of price points and different partnerships all over the world, the economic impact of any given subscriber can be quite different," Spencer Wang, Netflix's vice president of finance, said during the company's earnings call Tuesday. "That's particularly true if you're trying to compare our business with other streaming services. So that's why we've been increasingly focused on revenue as our primary top-line metric."
The change comes ahead of two major revenue-generating initiatives for Netflix. They include the Nov. 3 launch of an advertising-supported service level and the early 2023 crackdown on account sharing. Those initiatives could be catalysts for Netflix stock, analysts say.
The company will continue to provide guidance for revenue, operating income, operating margin, net income, earnings per share and fully diluted shares outstanding. It will report actual subscriber numbers each quarter but won't give projections.
Netflix Stock Slides After Big Jump
On the stock market today, Netflix stock slid 1.6% to 268.16. On Wednesday, Netflix stock jumped 13.1% to 272.38 after its upbeat third-quarter earnings report.
Netflix added 2.4 million subscribers in the third quarter, topping its own target of 1 million new subscribers. Analysts had predicted 1.08 million new members. Netflix ended the September quarter with 223.1 million total subscribers worldwide.
For the current quarter, Netflix forecasts adding 4.5 million subscribers. Analysts were looking for 4.03 million new subscribers in the fourth quarter.
The subscriber growth comes after two straight quarters of subscriber losses at Netflix.
Wall Street Reacts To Guidance Change
Netflix's decision to stop providing subscriber guidance surprised Needham analyst Laura Martin. The change "implies that its new ad-driven tier plus password-sharing crackdown in 2023 still won't be enough to reverse subscriber declines," she said in a note to clients. Martin rates Netflix stock as hold.
Jefferies analyst Andrew Uerkwitz said Netflix probably made the change because uptake of its ad-subsidized service will be hard to forecast and management wants to avoid setting expectations. He rates Netflix stock as hold.
BofA Securities analyst Nat Schindler said the change in guidance is an indication that Netflix is no longer a growth story.
"The company has all but admitted that it will be a low to no-growth media company going forward," he said in a note. Schindler rates Netflix stock as underperform with a price target of 196.
Subscriber Growth Inflection Ahead?
Deutsche Bank analyst Bryan Kraft is more optimistic about Netflix's future. He upgraded Netflix stock to buy from hold and raised his price target to 350 from 270.
"We believe we now have visibility into a subscriber growth inflection point next year, given that Netflix management has confirmed both the early 2023 introduction of its new measures designed to better monetize account sharing, and the early November timing of its AVOD (ad-supported video on demand) tier launch in 12 top markets," Kraft said in a note.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
