Netflix profits surge after password-sharing crackdown

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Netflix’s crackdown on password sharing helped the streaming service blow past Wall Street’s earnings forecasts, but its shares fell after it said it planned to stop regularly disclosing its subscriber numbers.

The company’s operating income surged 54 per cent in the first quarter as it added 9.3mn subscribers worldwide, proving that the efforts to reduce password sharing it launched last year has had more lasting benefits than some investors expected.

However, Netflix said on Thursday that from next year it would stop revealing its total number of subscribers, a metric that has been a crucial benchmark for investors in the streaming era.

In its letter to shareholders, Netflix said it was shifting its focus to engagement — the amount of time its subscribers spend on the service — while also developing new price points and sources of revenue, including advertising.

“Each incremental member has a different business impact” with the new subscription plans, Greg Peters, co-chief executive, said in a call with investors. “And that means the historical simple math that we all did — the number of members times the monthly price — is increasingly less accurate in capturing the state of the business.”

He added that Netflix would “periodically update” on subscriber figures when it hits “major milestones”.

Paolo Pescatore, an analyst at PP Foresight, said Netflix’s decision to no longer disclose quarterly subscriptions starting in 2025 “will not go down well”.

“No matter the company’s attempt to switch focus from subscribers to financials, net [subscriber] adds is the key metric everyone wants to see,” he said.

The latest results showed there was still room for growth as a result of its password crackdown and push into advertising, Pescatore added. Netflix said memberships to its advertising-supported tier rose 65 per cent from the previous quarter.

Before Thursday’s report the streaming pioneer’s shares had risen 30 per cent this year, significantly outperforming the broader market. The shares fell 4.7 per cent in after-hours trading following the earnings report.

Netflix executives said their primary goals included improving the variety and quality of their entertainment, including television shows, movies and games. It recently appointed Dan Lin as the new head of its film division.

“Even though we have made and we are making great films, we want to make them better,” said Ted Sarandos, co-chief executive. He added that he saw no need to spend more money on content.

Netflix has been pushing further into sports-related content, including a $5bn deal to live stream World Wrestling Entertainment’s flagship Raw programme in the US over the next decade.

It is also offering a livestream of a fight between Mike Tyson and Jake Paul in July, leading analysts to question whether the company plans to move further into live sport. “We’re not anti-sports, but pro- profitable growth,” Sarandos said.

Netflix reported earnings of $5.28 a share, well ahead of Wall Street forecasts of $4.51, while its number of subscribers rose 16 per cent to 269mn from a year earlier.

Its revenue forecast for the current quarter of $9.49bn was slightly below Wall Street forecasts of about $9.5bn. But Netflix said it expected revenue to grow between 13-15 per cent for the full year.

The company said it generated strong engagement in the first quarter from subscribers in the UK with Fool Me Once, which had 98mn views. Other standouts included the drama series Griselda with 66.4mn views and 3 Body Problem with about 40mn.