Netflix measures wins and losses with an "efficiency" score. But is it relevant?

Netflix has long been a black box when it comes to how its individual shows contribute to its overall financial results. Nor has the streaming giant revealed how it even calculates success.

But over the past week, media leaks have shed light on how Netflix scores its wins and losses. The information provides key insight into the company’s thinking while also raising more questions.

Last week Bloomberg published an article that revealed how Netflix scores shows on their “efficiency”, or a show’s price compared to its viewership. According to internal documents, the comedian Dave Chappelle’s most recent comedy special, The Closer, which cost Netflix $24.1 million to produce, scored a 0.8—less than the breakeven score of 1. The comedy special sparked complaints by some of Netflix’s employees about remarks Chappelle made during the show mocking gender-neutral pronouns and transgender people.

Scoring higher was Bo Burnham’s documentary, Inside, which scored 2.8, indicating that it more than paid off in terms of audience relative to its price. Meanwhile, Squid Game, the recent breakout series from South Korea, scored a whopping 41.7, a sign that its $21.4 million price tag was well spent.

Since its release on Sept. 17, the series has surged in popularity, becoming the company’s most-watched original title with about 132 million viewing it for at least two minutes during in its first 23 days. For the record, Netflix, itself, shared that information publicly.

Netflix declined to comment.

In another Bloomberg article, Netflix was shown to have predicted that Squid Game will create for the company $900 million in “impact value,” an internal metric that purports to determine the value of individual programs.

Yet, analyst Michael Pachter, with Wedbush Securities, said how Netflix calculated that number is unclear. Nothing was revealed about what was or wasn’t included. And in any case, it’s difficult to determine how many people newly subscribed to Netflix specifically because of an individual show. For that matter, it’s equally unclear to how many existing subscribers remained who would have otherwise canceled.

“No one can objectively believe that that is the real value of the franchise,” Pachter said about Squid Game. “It’s just some Netflix internal metric, and I have no idea how they’re measuring it.”

The problem, said Pachter, is that the numbers reported by Bloomberg were prepared for internal purposes and came with no context to base them on. Investor attention, he said, should really be focused on Netflix’s subscriber count, which, during the first half of this year, grew at the slowest pace since 2013.

The company added only 5.5 million subscribers during that period, for a total of 209 million globally.

The subscriber base in the U.S. and Canada is nearly saturated, Pachter said, and within a couple years Europe’s will be too. That leaves Latin America and Asia, but Pachter said those subscribers are less valuable to the company.

“The Street values all subscribers the same,” Pachter said. “But an Indian subscriber paying $2.50 a month—mobile only—isn’t worth as much as a U.S. subscriber paying $14 a month.”

Despite the skepticism, shares of Netflix jumped 1.54% Monday, closing at $637.97 ahead of the release of third-quarter results on Tuesday. Several analysts have raised their price targets for the stock in the past week, according to MarketWatch.