Netflix, the streaming giant, recently reported its quarterly earnings, revealing a 2.7% rise in revenue to $8.2 billion, a figure that fell in line with the company's expectations. However, the increase was primarily attributed to a surge in new subscribers, rather than a significant uptick in advertising revenue.
The company added 5.9 million new subscribers in the second quarter, a significant leap from the 1.5 million added in the previous quarter. This growth was largely driven by the rollout of Netflix's anti-password sharing initiative, which requires users to pay for sharing their accounts. Despite this, the company's advertising revenue remains a small fraction of its overall earnings.
Netflix's CFO, Spencer Neumann, stated during the earnings call that the company's primary revenue growth engine this year has been new paid memberships, largely driven by the paid sharing rollout. However, the percentage of users opting for the ad-supported tier remains small, which has kept advertising revenue from becoming a significant contributor to the company's bottom line.
The company's average revenue per user (ARPU) for the ad-supported tier is higher than for its other offerings, indicating that the advertising model could be financially viable if more users opt for it. However, due to the small size of the ad-supported user base, ARPU is down 1% year-over-year, and the company expects similar numbers for the third quarter.
Despite holding its first-ever upfront this year, Netflix did not share much positive news about its advertising growth. The company did not provide updates on new advertising features announced at its upfront, nor did it share progress on building out its own ad tech stack.
Netflix's stock dipped by almost 9% in after-hours trading following the earnings announcement. The company's share price has risen over 60% year-to-date, outpacing the S&P 500's 17% gain. However, with the company's advertising and paid sharing initiatives still in their early stages, it remains to be seen whether Netflix can reignite faster revenue growth and build a substantial advertising business over the next few years.
As the company continues to navigate these challenges, it remains optimistic about the potential of its paid sharing and ad-supported initiatives to grow ARPU and, ultimately, advertising revenue. However, the timeline for these contributions remains uncertain, and the company acknowledges that it could take years for these initiatives to significantly impact its bottom line.
