Netflix said in a letter to investors Thursday that it will not reveal exact subscriber numbers starting next year. Communicating company metrics to investors in addition to profit and loss and other financial information is something many companies do.
When a company is in its early stages, there's a good chance it's not yet profitable. So instead of focusing on how much they're losing, company leaders might point to other metrics that tell investors, “We matter.”
“In the beginning, it's all about gaining mindshare. It's all about land grabbing,” said Santosh Rao of Manhattan Venture Partners. “We need to show, 'We're growing, we're here, we're a significant company,'” he said.
And instead of profit margins, things like number of subscribers, foot traffic at retail stores, and time spent on the app can show investors that a company has the potential to make more money in the future.
Sarah Kunst, managing director at Cleo Capital, said this is similar to what parents talk about their children when they are really young.
“When a child is born, they say this baby is five days old, but then it's five months old,” Kunst said. But at some point, she says, these initial measures will evolve.
For example, it would be weird if my parents started bragging that I'll be 405 months old tomorrow (I think I'm doing that math correctly).
“So in general, the longer something persists, the way we measure this changes,” she says.
Matteo Arena, a finance professor at Marquette University, said that for Netflix, subscriber numbers are no longer everything to the company.
“There may be other ways to increase revenue and profits beyond just adding more subscribers,” Arena said. For example, selling advertising on a cheaper subscription tier. This is also a sign that the company is now profitable and more mature, she said.
“When a company reaches maturity, it's like slowing growth,” Arena said.
That's kind of inevitable for a company that has grown rapidly over the years. At some point, that level of growth becomes unsustainable. But University of Chicago professor Steve Kaplan said Netflix can now afford to tell investors to focus on the bottom line.
“Look at our earnings and cash flow, look at that and judge. And, you know, if we're growing them, good things are happening,” Kaplan said. I did.
And the number of subscribers is probably going well.
There's a lot going on in the world. For everything, Marketplace is here for you.
You use the Marketplace to analyze world events and communicate how they affect you in a factual and approachable way. We rely on your financial support to continue making that possible.
Your donation today helps power the independent journalism you depend on. For as little as $5 a month, you can help sustain our marketplace. This allows us to continue reporting on the things that matter to you.
