Netflix released its second-quarter earnings on Thursday (July 18), emphasizing its ongoing foray into the advertising realm initiated in late 2022.
The streaming giant posted a 17% surge in revenue to $9.56 billion, buoyed by a 16% year-over-year uptick in average paid memberships, with an operating margin of 27%, up from 22% in Q2 2023.
As the leading premium streaming service, Netflix expanded its global subscriber base to 277.65 million in Q2, adding 8.05 million net paid customers. The company reported a net income of $2.15 billion, up from $1.49 billion a year ago.
Netflix introduced a new, user-friendly TV homepage in June to enhance content discovery. Progress in scaling the ad business includes a 34% growth in ad tier memberships. The company is developing an in-house ad tech platform scheduled for testing in Canada in 2024 and a broader launch in 2025.
“We’re pleased with our performance in Q2, there was a strong performance across the board, good momentum across the business, strong revenue growth, member growth, and profit growth,” Netflix CFO Spencer Neumann said during the earnings call. “We’re targeting 26% full-year income margin, up five percentage points year over year. We’re committed to growing margins each year.”
Key initiatives include enhancing user experience and content offerings to better serve members. Q2 featured popular series like “Bridgerton S3,” “Baby Reindeer,” “Queen of Tears,” and “The Great Indian Kapil Show,” alongside hit films such as “Under Paris,” “Atlas and Hit Man,” and “The Roast of Tom Brady,” attracting record live audiences.
Netflix introduced its ad-supported tier in late 2022 and has incrementally revealed its performance metrics. Advertising now plays a pivotal role in enhancing streaming profitability, bolstering Netflix’s stock amid initiatives to grow its ad-supported subscriber base and mitigate password sharing.
The inclusion of live sports events, such as NFL games on Christmas Day, is designed to further increase ad revenue. Despite reaching about 270 million global subscribers by Q1, Netflix is pivoting its focus from growth metrics to emphasize revenue and operating margin, signaling a strategic shift toward greater profitability.
“We’re very pleased with how we’re scaling our ads business,” Neumann said. “The revenue portion of ads is growing nicely.”
Neumann said it will take time to scale the ads business, but it should be more of a prominent revenue driver by 2026, adding, “We’re scaling well through reach, through engagement, through growing inventory and that represents opportunity for us over a multiyear trajectory to have a big and increasing revenue and profit impact on the business.”
Looking ahead, Netflix officials anticipate a 14% year-over-year increase in revenue for Q3, and for the full year 2024, they forecast a range of 14% to 15%, up from previous estimates of 13% to 15%.
“This adjustment reflects strong membership growth trends and positive business momentum, partially offset by the U.S. dollar’s strength relative to other currencies,” according to the shareholder letter.
Co-CEO Greg Peters noted that improving the overall member experience is an ongoing process at Netflix.
“So, we’re constantly prioritizing all those opportunities based on what we think is the expected value,” he said. “To give you a sense of how wide that is, even things that we’ve been working on for over a decade, like our signup flows, the user experience that a consumer has when they want to sign up for Netflix, we have found multiple improvements just over the last couple of quarters in those flows which have delivered material incremental revenue wins.”
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