Netflix reported its second-quarter earnings on Thursday, demonstrating its dominance in the streaming industry with a significant increase in global subscribers and significant growth in its ad-supported subscription model.
The streaming giant saw a 34% increase in ad-supported subscriptions during this period compared to the same quarter last year.
Advertising has become a crucial revenue stream for media companies looking to improve, or even achieve, profitability in streaming. Netflix shares have benefited recently from efforts to attract subscribers to its most affordable ad-supported tier, along with moves to limit password sharing.
Here’s a breakdown of Netflix’s performance for the quarter ended June 30, versus Wall Street forecasts:
- Earning per share: $4.88 vs. $4.74 forecast by LSEG
- Income: $9.56 billion vs. LSEG’s forecast of $9.53 billion
- Total subscribers: 277.65 million global paid subscriptions vs. 274.4 million expected, according to StreetAccount
Revenue reached approximately $9.6 billion, up 17% from the same period last year, driven largely by increased average paid subscriptions.
Netflix now expects annual revenue growth of 14-15%, up from its previous estimate of 13-15%.
The company reported net income of $2.15 billion, or $4.88 per share, up from $1.49 billion, or $3.29 per share, in the second quarter of 2023.
Netflix’s global paid memberships grew 16.5% year over year to 278 million. This is one of the last updates Netflix will provide on its membership numbers.
Last quarter, Netflix informed investors that it will no longer provide quarterly subscriber or average revenue per user data starting in 2025, emphasizing the importance of revenue and operating margin as primary financial metrics, with engagement (time spent) as the best predictor of customer satisfaction.
Netflix shares rose on the back of crackdowns on password sharing and the introduction of a cheaper, ad-supported subscription tier.
Netflix has been exploring various business strategies to drive revenue growth after a period of slow subscriber growth in 2022. In May, Netflix announced plans to launch its own advertising platform, ending its partnership with Microsoft on that technology. The company has also begun incorporating live sports, such as NFL games on Christmas Day over the next three years, a move that is expected to attract more advertising revenue.
“We’re in the live TV business because our members love it and it drives great engagement and excitement… and the good thing is that advertisers love it for the same reason,” Netflix co-CEO Ted Sarandos said on Thursday’s earnings conference call.
Netflix had been experimenting with live content even before the NFL deal, and Sarandos emphasized the company’s commitment to “exclusive, compelling live entertainment.”
Meanwhile, original shows like “Bridgerton” and “Baby Reindeer” continue to generate high engagement on the platform.
Luke Newton and Nicola Coughlan attend the special screening of ‘Bridgerton’ season 3 part 2 at Odeon Luxe Leicester Square on June 12, 2024 in London, England.
Netflix has revealed that its cheapest ad-supported plan is gaining popularity, with over 45% of subscriptions in markets where the option is available.
However, Netflix stressed that its ad-supported business is still in its early stages and it does not expect advertising revenue to be “the primary driver of our revenue growth in 2024 or 2025.”
“The near-term challenge (and medium-term opportunity) is that we are growing faster than we can monetize our growing ad inventory,” the company noted in its earnings call, indicating that it has not yet fully met advertiser demand.
Netflix co-CEO Greg Peters said on Thursday’s earnings call that Netflix’s initial focus was on expanding its ad-supported subscriber base. With the company on track to meet its 2025 subscriber goals, the focus is now shifting to monetizing its ad inventory.
As Netflix ramps up its advertising efforts, it is offering “advertisers more effective ways to buy… important feedback we’ve heard from advertisers,” Peters said.
Netflix added that it believes it is on track to “achieve a critical number of advertising subscribers for our advertisers” next year, which will allow for further growth in its ad-supported subscriptions in 2026 and beyond.
