Netflix Q2 23: a return to growth but ads yet to deliver

No longer losing subscribers, Netflix – the video streaming giant – reported growth in tis member numbers, even if its revenue figures ($8.2bn) came in under analyst expectations; its advertising business, meanwhile, is yet to contribute to the company’s topline.  

Why it matters

“Building an ads business from scratch isn’t easy,” the company observed in a letter to shareholders, but it appears that a global password-sharing crackdown has helped to boost overall subscriber numbers.

What went on

Netflix reported that it added 5.9m new streaming customers in the quarter beginning April and ending June to reach a total of 238.4m subscribers.

Average revenue per member fell 3% year on year, however. Mostly because new subscribers are joining from less wealthy countries than the north American growth that had powered Netflix in the past.

The company has been unable to raise prices in some of its most lucrative markets since a hike in 2022.

Speaking on a call with investors, CFO Spencer Neumann added that “most of our revenue growth this year is from growth in volume through new paid memberships and that's largely driven by our paid sharing rollout.”

Meanwhile, “Revenue from advertising and our extra member feature are not yet material enough to offset these factors,” the company said in a letter to shareholders.

Advertising

The company says that the ad-supported tier remains a small proportion of its membership, with Neumann telling a Reuters analyst that “We’ve got a long way to go from where we are today, even getting to 10% [of revenue]”.

However, it noted in the letter that the number of ad-tier members had doubled since Q1.

“We expect that our revenue growth will accelerate more substantially in Q4’23 as we further monetize account sharing between households and steadily grow our advertising revenue.”

Where next

“Our key focus is improving the ads experience for both members and advertisers,” the letter added. “We’re confident that over time we can develop advertising into a multi-billion dollar incremental revenue stream.”

“Brands can also now target media buys on our Top 10, which is updated daily and enables them to connect with audiences during our biggest viewing moments,” it continued, adding some colour to recent reports of new formats and the possibility of a new post-Microsoft targeting engine.

Sourced from Seeking Alpha, Netflix, WSJ, Reuters, WARC