Netflix stock plummeted Friday after the streaming video leader forecast lower-than-expected second-quarter revenue and said it would stop giving quarterly subscriber numbers next year.
On the stock market today, Netflix stock dropped 9.1% to close at 555.04. With the move, the stock dived below its 50-day moving average line, a key support level.
Late Thursday, the internet television network reported better-than-expected results for the first quarter but gave a soft revenue outlook for the current quarter.
The Los Gatos, Calif.-based company also shocked analysts by announcing that starting with the first quarter of 2025, it won't disclose quarterly subscriber numbers or average revenue per member. Those have been key metrics investors use to gauge the company's performance.
Netflix Defends Hiding Subscriber Numbers
"We're focused on revenue and operating margin (not subscribers) as our primary financial metrics — and engagement (i.e. time spent) as our best proxy for customer satisfaction," co-CEOs Ted Sarandos and Greg Peters wrote in a shareholder letter.
They noted that the company is developing new revenue streams such as advertising, so subscriptions are just one component to its growth story.
The aggregate number of subscribers "is increasingly less accurate in capturing the state of the business," Peters said on an investor webcast Thursday. "This change is really motivated by wanting to focus on what we see are the key metrics that we think matter most of the business."
Netflix will still announce subscriber numbers when the company hits major milestones, he said.
Netflix Stock Analysts Respond
Wall Street analysts weren't thrilled with the reporting change.
"Netflix made a mistake by disclosing it will remove subscriber data starting in Q1 '25," CFRA Research analyst Kenneth Leon said in a client note. Investors and advertisers will want to know the size of the subscriber base in total and by region, he said.
Leon reiterated his buy rating on Netflix stock but cut his price target to 640 from 650.
The lack of visibility into key performance metrics is the biggest reason for the Netflix stock drop Friday, BofA Securities analyst Jessica Reif Ehrlich said in a client note.
The reporting change "could be a harbinger of decelerating subscriber growth in the future," she said. Still, Reif Ehrlich maintained her buy rating on Netflix stock and even raised her price target to 700 from 650.
Lack Of Disclosure Is 'A Chump Move'
Bernstein analyst Laurent Yoon said the reduced disclosure from Netflix is a sign of its maturing business.
"Fewer disclosures is a rite of passage for large tech companies namely Apple, Google and Meta," Yoon said in a client note. "On the other hand, removing growth disclosures signals a maturing business, and gives shareholders even fewer data points to underwrite forecasts. Time will tell how investors digest the change."
Yoon reiterated his market perform rating on Netflix stock but raised his price target to 600 from 490.
Evercore ISI analyst Mark Mahaney said he understands Netflix's reasons for ending its quarterly subscriber numbers. "But it's still a chump move — less disclosure," he said in a client note. He kept his outperform rating on Netflix stock and raised his price target to 650 from 640.
Netflix's reporting change will mark the start of the company's pivot from a "high-growth, low-profit business to a slow-growth, high-profit business," Wedbush Securities analyst Alicia Reese said in a client note. She reiterated her outperform rating on Netflix stock with a price target of 725.
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