Netflix said Thursday that it added more than 8 million subscribers in its second quarter, as the streaming service benefited from a crackdown on password sharing and the popularity of titles such as “Bridgerton,” “Baby Reindeer” and “ “The Roast of Tom Brady.”
While subscriber gains topped analyst predictions of 5 million, Netflix issued cautious guidance for the third quarter and said its advertising business would not become a major driver of revenue growth until at least 2026.
Netflix shares reversed early losses after it reported its results rose 1% in after-hours trading. The stock is up nearly a third so far this year.
“Netflix remains the best and most profitable streaming company out there, but with tech stocks overall falling in recent days, some investors may sell on the overall good news and take profits now while waiting for a possible better bottom line.” re-entry for stocks,” said Michael Ashley Schulman, chief investment officer at Running Point Capital.
The streaming video pioneer is facing saturation in the United States and plans to stop regularly reporting new subscriber additions next year. Investors have focused on the company’s relatively new advertising business as a potential source of growth.
On Thursday, Netflix said subscriber gains in the third quarter would be lower than in the comparable period in 2023, when it had just started clamping down on passwords.
The company also said its vice president of advertising sales, Peter Naylor, was leaving.
Third Bridge analyst Jamie Lumley said Netflix’s advertising business “has yet to prove itself from a revenue standpoint.”
“Our experts highlight that Amazon has made a much bigger impact on the advertising market and Netflix needs to continue working at scale in this segment if it wants to be a major player,” Lumley said.
From April to June, Netflix posted diluted earnings per share of $4.88, compared to consensus estimates of $4.74 per share, according to LSEG. Revenue for the quarter reached $9.56 billion, in line with estimates.
At the end of June, new subscriptions brought the total number of global Netflix subscribers to more than 277 million.
Netflix said its advertising-tier membership grew 34% from the previous quarter, but did not say how many subscribers chose that option.
“Our advertising business is growing very well and is becoming a more significant contributor to our business,” Netflix said in a letter to investors. “But building a business from scratch takes time and, coupled with the large size of our subscription revenue, we do not expect advertising to be the primary driver of our revenue growth in 2024 or 2025.”
In a post-earnings video, Netflix CFO Spencer Neumann said the company’s advertising business is “growing very well” but is being built from a small base.
“He’s a significant contributor,” Neumann said. “And then we get to 26 and beyond, it may be even more significant and hopefully it will get to the point where it is a major contributor.”
The company said it expects third-quarter revenue growth of 14% compared to a year ago.
Three years after its video game initiative, Netflix said it planned to release a multiplayer game based on “Squid Game” later this year when the second season of the Korean dystopian series premieres. He also plans games related to “Emily in Paris” and “Selling Sunset.”
