Shares of streaming-video platform Netflix (NFLX -9.09%) slumped on Friday after the company reported financial results for the first quarter of 2024. The company’s numbers looked great but investors seem concerned with a confusing change in its disclosures going forward. As a result, Netflix stock was down 8% as of 11:45 a.m. ET.
A good quarter overshadowed by a question
In Q1, Netflix kept building upon recently improving trends in the business. The company’s revenue was up 15% year over year to $9.4 billion — its third consecutive quarter of accelerated growth. And it had operating income of $2.6 billion, which was its best quarter ever for this metric.
Netflix’s management gave upbeat guidance for the rest of 2024 as well. Specifically, it expects 13% to 15% top-line growth, which is impressive for a company of this size. And it raised its full-year operating margin guidance to 25%, up from previous guidance of 24%.
While all of this was good, investors couldn’t look past a change from Netflix’s management. The company always reports its subscriber metrics. For example, it ended Q1 with 270 million paid memberships, up 16% from the prior-year period. But starting next year, Netflix won’t be reporting this number regularly.
Investors believe this change means that Netflix will lose subscribers going forward, which is why the stock is down.
Does it matter?
It’s important to point out that Netflix doesn’t see it this way. Management said that, unlike times past, it now has multiple subscription tiers and advertising, which makes its subscriber count less important than it used to be. In other words, when there was only one source of revenue for Netflix, its subscriber number directly correlated to its financials. Now it doesn’t.
Be that as it may, it seems that Netflix could still easily supply the subscriber number if it wanted to. Therefore, some degree of concern is valid. I wouldn’t necessarily call it a red flag, but maybe a light yellow one.
That said, the numbers were still great for Netflix in Q1 and the guidance for the year was strong. Investors shouldn’t let an unanswered question completely detract from this otherwise strong performance.
