The Netflix logo is seen above its headquarters on January 24, 2024 in Los Angeles, California.
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Netflix Facebook Inc. reported second-quarter earnings on Thursday that showed the media giant staying at the forefront of the streaming race as it added more global subscribers and saw strong growth in its advertising business.
The company said its ad-supported memberships increased 34% during the period compared to the same quarter last year.
Advertising has become an increasingly important business model for media companies to boost — or in some cases drive — the profitability of streaming services. Netflix shares have soared in recent quarters thanks to its efforts to win subscribers to its cheaper, ad-supported service, as well as its crackdown on password sharing.
Here's how the company performed during the period ended June 30, compared to Wall Street expectations:
Earnings per share: $4.88 vs. $4.74 per share expected by LSEGR Revenue: $9.56 billion vs. $9.53 billion expected by LSEG Total memberships: 277.65 million paid memberships worldwide vs. 274.4 million expected, according to StreetAccount
Revenue was approximately $9.6 billion, an increase of 17% compared to the same period last year, driven primarily by an increase in average paid memberships.
Netflix said it now expects full-year reported revenue growth of 14% to 15%, compared to its previous guidance of 13% to 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 rose 16.5% year-over-year to 278 million. This marks one of the last updates Netflix will release on its membership numbers.
In the most recent quarter, the company warned investors that it would stop providing quarterly membership numbers or average revenue per user starting in 2025, noting that the company is “focused on revenue and operating margin as our core financial metric — and engagement (i.e. time spent) as the best proxy for customer satisfaction.”
Netflix shares have surged thanks to its crackdown on password sharing and the addition of a cheaper, ad-supported tier.
Netflix has begun focusing on different business strategies to drive revenue growth after the streaming service saw subscriber growth slow in 2022. In May, Netflix said it would launch its own advertising platform and no longer partner with Microsoft on the technology. The company has also begun adding live sports, such as NFL games on Christmas Day, over the next three years, a move that will likely draw more ad dollars to the streaming service.
“We’re in streaming because our members love it, which drives tremendous engagement and excitement… And the good thing is advertisers love it for exactly the same reason,” Netflix co-CEO Ted Sarandos said on an earnings call Thursday.
Netflix had been experimenting with live content even before its deal with the NFL, with Sarandos noting the company's focus on “exclusive, noisy live entertainment.”
However, original shows like “Bridgerton” and “Baby Reindeer” continue to gain increasing interest from users.
Luke Newton and Nicola Coughlan attend the 'Bridgerton' Season 3 – Part 2 Special Screening at Odeon Lux Leicester Square on June 12, 2024 in London, England.
John Phillips | Getty Images
The company said Thursday that its cheaper, ad-supported plan has gained traction among its base, with those subscribers accounting for more than 45% of subscriptions in markets where the option is offered.
However, Netflix noted on Thursday that the ad-supported business is still in its infancy, and it does not expect ad 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 expanding faster than we can monetize our growing ad inventory,” the company said in its earnings statement, meaning the platform is not yet able to meet advertiser demand.
Netflix co-CEO Greg Peters said on an earnings call Thursday that Netflix has so far focused on growing its ad-supported subscriber base. As the company heads toward its 2025 subscriber goals, Netflix is now shifting its focus to monetizing its ad inventory, he said.
As the company works to strengthen its advertising operations, it is offering “advertisers more effective ways to buy… which is a big piece of feedback we’ve heard from advertisers,” Peters said Thursday.
In this regard, Netflix added that it believes it is on track to “achieve the scale of advertising subscribers that are critical to our advertisers” next year, allowing it to grow its advertising category memberships in 2026 and beyond.
