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Netflix added a robust 8 million new subscribers in the second quarter thanks to successful series such as Baby reindeer And Brugton, causing the streaming service’s revenue and profits to beat Wall Street forecasts.
The new subscribers were the highest in a second quarter since 2020, when Netflix saw explosive growth during the pandemic. But the company warned that new subscribers in the current quarter would be lower than a year ago, when the stricter approach to password sharing was in full effect.
Earnings rose 48 percent to $4.88 per share on revenue of $9.6 billion, beating Wall Street forecasts. Netflix also raised its full-year revenue estimate, which the company said “reflects solid trends in membership growth and business momentum.”
Netflix said its ad tier now accounts for 45 percent of signups in markets where it is available, but it doesn’t expect it to be a “significant driver of revenue growth” until 2024 or 2025. Signups for the ad tier were up 34 percent from the previous quarter.
Netflix’s strength contrasts with the ongoing growing pains of the legacy studios’ streaming services, which are either loss-making or making only modest amounts. In a letter to shareholders, Netflix noted the struggles of its rivals, saying “while they are investing heavily in premium content,” they are seeing “relatively low audience engagement on their streaming services and linear [TV] “continues to decline”.
Greg Peters, co-CEO of Netflix, said the “number one priority is to get scale” in its advertising business, which it has done by hiring new salespeople and building its own advertising platform to replace the current Microsoft system. “That unlocks a whole range of innovations, a better user experience, better advertising features,” he said.
Netflix has added one-off sporting events to its lineup, including a golf tournament, an upcoming fight with Mike Tyson and two Christmas football games, prompting Wall Street to wonder whether it would strike a deal with a sports league.
Ted Sarandos, co-chief executive, threw cold water on the idea of a major sports contract. “It’s very hard to have major sports leagues and make a profit when you have full seasons,” he said. “This Netflix [sports] events, we don’t take on a lot of tonnage. These are economics that we like and can live with.”
When asked about artificial intelligence, Peters said Netflix is using technology “similar to AI” to increase engagement with its users, adding that new generative AI technology could “improve discovery and recommendations” for its customers.
Sarandos said the impact of generative AI on the creative community was “hard to predict.”
“A lot of filmmakers and producers are experimenting with AI these days and we need to see how that develops,” he said. “We need to focus on the quality of storytelling.”