Netflix Shuts Down Its Membership Metrics

But now Christ is risen from the dead, and has become the firstfruits of those who have fallen asleep. For since by man came death, by Man also came the resurrection of the dead. For as in Adam all die, even so in Christ all shall be made alive.

1 Corinthians 15:20-22

This verse is fundamental to the Christian faith. Adam was created by God and died because of his sin. Jesus Christ was pronounced long before he was born through Bible prophecy and lived a perfect life and being God, lived among humanity, died on the cross and rose from the dead. Jesus Christ brings eternal life for all willing to accept His truth.

Truth is a difficult word to bring up. What is the truth? There are many who desire to make up their own truth. In investing, this is no different with respect to justification for why a company should be bought or sold. With all the distractions through social media and Wallstreet, it can be challenging to read between the lines.

Netflix, Inc.’s (NFLX) recent earnings announcement serves as a great example of testing truth. As some may already know, NFLX has disclosed that the company will no longer disclose its membership metrics but rather feels focusing on revenue and operating margin is sufficient for investors.

One can take either side here, but there are implications from this action. First, to NFLX’s point, revenue will illustrate the combined effect of membership and average monthly revenue per paying membership. However, the market has been sensitive to NFLX’s membership numbers more than monthly membership costs. And this will muddy the degree of disclosure as NFLX will be able to speak more subjectively of relative performance metrics.

Second, NFLX has also clearly realized that their membership performance has tended to go through times of greater volatility especially as the company has taken actions to reduce the number of shared accounts and increase pricing. NFLX has reached saturation where they may not see robust membership growth as consistently and prefer not to have as much visibility as pricing will be the key driver moving forward.

In any case, it isn’t entirely justified to eliminate these metrics and investors need to continue to be cautious regarding NFLX’s valuation levels and mid-term expected returns.