Streaming giant Netflix solidified its position as the leader in the streaming wars by exceeding analyst expectations in its second-quarter earnings report. The company reported strong subscriber growth during the quarter, alongside a thriving ad-supported tier.
Speaking of the financial results for the quarter ending June 30, Netflix’s quarterly revenue grew by a healthy 17% year-over-year, reaching a total of $9.5 billion (slightly higher than the anticipated $9.53 billion). This growth was primarily driven by a rise in average paid memberships. Netflix now forecasts full-year revenue growth of 14% to 15%, a slight adjustment from its previous guidance of 13% to 15%. Earnings per share also surpassed analyst predictions, clocking in at $4.88 compared to the anticipated $4.73. Net profits showcased even more impressive growth, rising by 44% compared to the same period last year. The company posted a net income of $2.15 billion for the quarter.
Netflix’s ad-supported memberships saw a remarkable 34% growth during the second quarter compared to the same period last year. The streaming giant’s shares are currently priced at $643.04.
The company’s cheaper, ad-supported tier has also gained traction, with these subscribers accounting for more than 45% of signups in markets where the option is available. By converting millions of occasional viewers into paying subscribers, this initiative has demonstrably bolstered Netflix’s revenue streams. Additionally, the launch of the ad-supported tier in 2022 has emerged as a major driver of subscriber growth. Subscriptions to this tier surged by an impressive 34% in the second quarter. Still, the company acknowledges that ad revenue is not expected to be a major contributor until 2025. “We’re making steady progress scaling our ads business. Ads tier membership grew 34% quarter on quarter, and we’re building an in-house adtech platform that we’ll test in Canada in 2024 and launch more broadly in 2025,” Netflix noted in its letter to shareholders.
In response to slowing subscriber growth in 2022, Netflix has diversified its revenue growth strategies. In May, the company announced the launch of its own ad platform, discontinuing its partnership with Microsoft. Additionally, Netflix has ventured into live sports, securing NFL games on Christmas Day over the next three years, a move expected to attract more advertising dollars. Co-CEO Ted Sarandos revealed that live TV content drives significant engagement and excitement among viewers, which in turn makes it attractive to advertisers. Despite these new ventures, original shows like “Bridgerton” and “Baby Reindeer” continue to drive significant engagement for Netflix.
Netflix’s global paid memberships grew by 16.5% year over year, reaching 278 million (thus growing by 8 million total new accounts during the second quarter of the year). However, this quarter is one of the last times Netflix will report its membership numbers, as the company plans to stop providing quarterly membership figures or average revenue per user starting in 2025. Instead, Netflix will focus on revenue and operating margin as primary financial metrics, with engagement (time spent) serving as a key indicator of customer satisfaction. This comes at a time when Netflix seeks to realign its business metrics with long-term financial goals. The company has added over 17 million customers this year, and noted that there are still 500 million homes with smart TVs that do not pay for Netflix, representing a significant addressable market.
