Netflix Exceeds Subscriber Targets, Warns on Ad Growth

Netflix said Thursday it attracted more than 8 million customers in its second quarter thanks to a password-sharing crackdown and hits like “Bridgerton,” “Baby Reindeer,” and “The Roast of Tom Brady”

Netflix issued cautious guidance for the third quarter. It stated that its advertising business would not become a primary driver of revenue growth until at least 2026, even though the subscriber gains surpassed analyst predictions of 5 million.

Netflix’s shares posted a 1% increase in after-hours trading after the company reported its results, reversing their initial losses. This year, the stock has experienced a nearly threefold increase.

Michael Ashley Schulman, chief investment officer at Running Point Capital, stated, “Netflix remains the most profitable and superior streaming company in the industry. However, given the general decline in technology stocks over the past few days, some investors may opt to sell on the positive news and take profits at this time while anticipating a potential more favorable re-entry point for the stock.”

Due to saturation in the United States, the streaming video pioneer anticipates ceasing its routine reporting of new subscriber additions next year. The company’s relatively new advertising division has been the focus of investors as a potential source of growth.

Netflix announced on Thursday that its subscriber growth during the third quarter would be lower than that of the same period in 2023 when it had recently implemented the password restriction.

Additionally, the organization disclosed that Peter Naylor, its vice president of advertising sales, would be departing.
According to Jamie Lumley, an analyst at Third Bridge, Netflix’s advertising business “has yet to demonstrate its revenue potential.”

“Our experts highlight that Amazon has made a much bigger splash in the ad market, and Netflix needs to continue working on scale in this segment if it wants to be a major player,” according to Lumley.

Netflix reported diluted per-share earnings of $4.88 for April through June, which was lower than the consensus forecast of $4.74 per share, according to LSEG. The revenue for the quarter was $9.56 billion, which was consistent with the predictions.

Due to the new sign-ups, the total number of global Netflix subscribers exceeded 277 million after June.

Netflix reported a 34% increase in ad tier membership from the previous quarter; however, it did not specify the number of subscribers who elected to utilize this service.

In a letter to investors, Netflix stated that its advertising business is expanding rapidly and becoming a more significant contributor. “But building a business from scratch takes time – and coupled with the large size of our subscription revenue – we don’t expect advertising to be a primary driver of our revenue growth in 2024 or 2025.”

In a post-earnings video, Netflix Chief Financial Officer Spencer Neumann stated that the company’s advertising business is “growing nicely” but operating from a limited foundation.

Neumann stated, “It is a significant contribution.” “And then we get (to) ’26 and beyond, it can be even more meaningful, and hopefully comes to the point where it’s a primary contributor.”

The company anticipates a 14% revenue increase from the previous year’s third quarter.

Netflix announced its intention to release a multiplayer game based on “Squid Game” later this year when it premieres Season Two of the dystopian Korean series, three years into its videogame initiative. It also intends to develop games associated with “Selling Sunset” and “Emily in Paris.”