Despite the growth in subscribers, Netflix's quarterly revenue growth fell short of estimates.
👉 Background: Netflix is always in the spotlight - whether it'd be thanks to a new banger show like Stranger Things, or if it's about them releasing 40 new Netflix-linked games.
👉 What happened: Now, Netflix made a big announcement that it has added 6 million subscribers in the past quarter. But here's the thing: despite the growth in subscribers, their quarterly revenue growth fell short of estimates.
👉 What else: Although Netflix is growing its users, many of its new sign-ups are coming from countries where it charges lower prices. And for the 'Flix, it means that an important company ratio is declining - the LTV to CAC ratio.
💡The LTV to CAC ratio measures the relationship between the lifetime value of a customer (LTV) against the cost of acquiring that customer (CAC). To make a business sustainable, the LTV of a customer generally needs to be higher than the CAC.
💡The LTV represents the total revenue that a company makes from any given customer over their entire relationship. And CAC is the total cost of sales and marketing to attract a new customer.
💡For Netflix, their lower-priced tier seems to be lowering their LTV since these customers pay less. So, the 'Flix needs to make sure they acquire these new customers cheaply enough to ensure a healthy LTV to CAC ratio.
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