July 18 (Reuters) – Netflix reported adding over 8 million subscribers in the second quarter, surpassing analyst expectations of 5 million. This growth was driven by a crackdown on password sharing and the popularity of titles such as “Bridgerton,” “Baby Reindeer,” and “The Roast of Tom Brady.”
Thank you for reading this post, don't forget to subscribe!Despite the impressive subscriber growth, Netflix provided cautious guidance for the third quarter and noted that its advertising business would not significantly contribute to revenue growth until at least 2026.
After initially dipping, Netflix shares rose 1% in after-hours trading and have surged nearly a third this year. Michael Ashley Schulman, CIO at Running Point Capital, remarked, “Netflix is still the best and most profitable streaming company, but technology stocks have been retreating recently, prompting some investors to sell on the good news and await a better re-entry point.”
Facing market saturation in the United States, Netflix plans to stop regularly reporting new subscriber additions next year. Investors are increasingly focused on Netflix’s burgeoning advertising business as a potential growth driver.
Netflix projected lower third-quarter subscriber gains compared to the same period in 2023, coinciding with the initial phase of its password-sharing crackdown. Additionally, the company announced the departure of Peter Naylor, VP of Ad Sales.
Jamie Lumley, an analyst at Third Bridge, commented on the advertising sector’s potential, noting, “Amazon has made a bigger impact in the ad market, and Netflix needs to scale significantly to become a major player.”
For the April-June period, Netflix reported diluted earnings per share of $4.88, exceeding the consensus forecast of $4.74. Revenue for the quarter was $9.56 billion, matching estimates. The total number of global subscribers reached over 277 million by the end of June.
While Netflix’s ad tier membership grew by 34% from the previous quarter, the company did not disclose the number of subscribers opting for this tier. “Our ad business is growing nicely and becoming a more meaningful contributor,” Netflix stated, emphasizing that building a substantial advertising business takes time.
CFO Spencer Neumann echoed this sentiment, acknowledging the current growth from a small base but expressing optimism for significant contributions by 2026 and beyond.
Netflix anticipates a 14% revenue growth for the third quarter compared to the previous year. In its third year of venturing into video games, Netflix plans to release a multiplayer game based on “Squid Game” alongside Season Two of the series. Other upcoming games include titles related to “Emily in Paris” and “Selling Sunset.”
