Netflix Exceeds Expectations with a 34% Rise in Ad-Supported Memberships

Netflix reported its second-quarter earnings Thursday, highlighting its strong position in the streaming space with an increase in global subscribers and significant growth in its advertising segment.

During the period, the company experienced a 34% growth in ad-supported memberships compared to the same quarter last year.

Advertising has become a crucial revenue stream for media companies in the streaming industry. Netflix’s stock performance has been positively impacted by its efforts to attract subscribers to its more affordable, ad-supported tier and its initiatives to curb password sharing.

Here’s a breakdown of how the company performed for the period ending June 30, compared to analysts’ expectations:

• Earnings per share: $4.88 vs $4.74 per share expected by LSEG
• Revenue: $9.56 billion vs.9.53 billion expected by LSEG
• Total memberships: 277.65 million global paid memberships vs. 274.4 million expected, according to StreetAccount

Netflix’s revenue reached approximately $9.6 billion, up 17% from the previous year, primarily driven by an increase in average paid memberships.

The company anticipates a full-year reported revenue growth of 14% to 15%, compared to its earlier projection of 13% to 15%.

Netflix reported a 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.

Global paid memberships for Netflix grew by 16.5% year-over-year to 278 million. This will likely be one of the final updates on membership numbers from Netflix.

In the last quarter, Netflix informed investors that it would discontinue sharing quarterly membership numbers and average revenue per user starting in 2025, emphasizing a focus on revenue and operating margin as primary financial metrics and engagement as an indicator of customer satisfaction.

In response to slowing subscriber growth in 2022, Netflix began implementing various strategies to drive revenue growth. In May, the company announced its plans to launch its own advertising platform, discontinuing its partnership with Microsoft for that technology. Additionally, Netflix started offering live sports content, such as NFL games on Christmas Day for the next three years, a move expected to attract more advertising revenue.

During the earnings call on Thursday, Netflix co-CEO Ted Sarandos emphasized the appeal of live TV to members, citing its ability to drive engagement and excitement, qualities that also resonate with advertisers. He highlighted the company’s focus on exclusive live entertainment content.

Though venturing into live content even before partnering with the NFL, Netflix continues to find success with original series like “Bridgerton” and “Baby Reindeer,” which contribute significantly to member engagement.

Netflix highlighted on Thursday the growing popularity of its more affordable, ad-supported subscription tier, with these subscribers constituting over 45% of signups in eligible markets.

However, Netflix acknowledged that the ad-supported segment is still in its early stages and does not anticipate ad revenue to be a primary revenue driver in 2024 or 2025.

The company stated in its earnings release that its current challenge is to scale its ad-supported subscriber base faster than its capacity to monetize the increasing ad inventory, resulting in unmet advertiser demand.

Netflix co-CEO Greg Peters mentioned during the earnings call that the company’s focus has been on expanding its ad-supported subscriber base but is now shifting towards monetizing its ad inventory as it progresses towards its 2025 subscriber goals. Netflix aims to provide advertisers with more effective ad-buying opportunities, responding to feedback from advertisers.

In the company’s view, Netflix is on track to achieve essential ad subscriber scale for advertisers next year, enabling a further increase in ad-tier memberships in 2026 and beyond.