Netflix beats estimates as ad-supported memberships rise 34%

Netflix reported second-quarter earnings Thursday that showcased the media giant’s position at the head of the streaming race as it added more global subscribers and saw its advertising business bloom.

The streamer said its advertising-supported memberships grew 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, achieve — profitability for streaming. Netflix’s stock has been uplifted in recent quarters by its push to gain subscribers on its cheaper, ad-supported tier, in addition to its crackdown on password sharing.

Netflix shares were down about 1.5% in extended trading following the earnings release.

Here’s how the company performed for the period ended June 30, compared with Wall Street 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

Revenue was roughly $9.6 billion, up 17% compared to the same quarter last year, driven primarily by the increase in average paid memberships.

Netflix said it now expects full-year reported revenue growth of 14% to 15%, compared with 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, during 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 regarding its membership numbers.

Last quarter the company warned investors it would stop providing quarterly membership numbers or average revenue per user beginning next year, noting the company is “focused on revenue and operating margin as our primary financial metrics — and engagement (i.e. time spent) as our best proxy for customer satisfaction.”

Netflix began focusing on different business strategies to drive revenue growth after the streamer saw subscriber growth slow in 2022. In May, Netflix said it would launch its own ad platform and no longer partner with Microsoft for that 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 attract more ad dollars for the streamer.

The company said its cheaper, ad-supported tier has been gaining traction, with these subscribers accounting for more than 45% of signups in the markets where the option is offered.

However, Netflix noted on Thursday that the ad-supported business is still young, and it doesn’t expect ad revenue to be a “primary driver of our revenue growth in 2024 or 2025.”

“The near term challenge (and medium term opportunity) is that we’re scaling faster than our ability to monetize our growing ad inventory,” the company said in its earnings release.

On this note, Netflix added it believes it’s on track to “achieve critical ad subscriber scale for our advertisers” in 2025, allowing it to further increase its ad-tier memberships in 2026 and beyond.

Netflix co-founder Reed Hastings admitted in late 2022 he was slow to come around to offering a cheaper, ad-supported option for subscribers since he was focused on digital competition from Facebook and Google.

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