Netflix exceeded analyst estimates, despite Wall Street’s already high expectations for the streamer.
Several factors drove these results: a paid subscriber base approaching 300 million globally, a crackdown on password sharing, the launch of an ad-supported tier, and live events such as The Roast of Tom Brady. The UK and India markets also contributed to strong sales, with the stalker series Baby Reindeer garnering 88.4 million views. India ranked third in revenue percentage growth due to Netflix’s most popular Indian drama series to date, Heeramandi: The Diamond Bazaar, with 15 million views.
In the latest quarter, Netflix grew its subscriber base by 8 million new accounts—almost double the 4.9 million analysts expected. This number was slightly lower than the 9.5 million new users added in the first quarter, which was anticipated by executives who informed investors that replicating that number in the second quarter was unlikely
Quarterly revenue rose 17% year-over-year to $9.5 billion, while earnings per share were $4.88, compared to an expected $4.73. Net profits increased 44% to $2.15 billion compared to the same quarter last year.
Widely regarded as the winner of the streaming wars, there were questions about whether Netflix’s industry dominance would continue. Instead, Netflix impressed investors by highlighting its ability to add new subscribers in a saturated market, while growing revenues and expanding margins. The company reported 27% margins for the quarter, a five-percentage point increase compared to the second quarter of 2023. On Thursday’s earnings call, Netflix executives said they expect margins to grow for the foreseeable future.
“They could bounce around each year, but we’re committed to growing margins each year,” said Netflix CFO Spencer Neuman on the call.
Just before the earnings call, Netflix’s advertising business experienced a management shakeup, with its former vice president of ad sales, Peter Naylor, leaving the company. This news was unexpected, given Netflix, like all other media companies, is in the midst of a major sales push with advertisers as they decide where to allocate next year’s budgets.
Although the ad-supported tier is still a relatively small portion of Netflix’s subscriber base, it has similar levels of engagement, with users averaging two hours per day, Peters said.
Netflix’s growth efforts extend to its content strategy. Since the start of the year, Netflix has ventured into live programming. When asked if live entertainment aligns with its efforts to grow its advertising business, Netflix co-CEO Ted Sarandos replied, “We’re in live because our members love it, and it drives a ton of engagement and excitement.”
Although the ad-supported tier is still a relatively small portion of Netflix’s subscriber base, it has similar levels of engagement, with users averaging two hours per day, Peters said.
Netflix’s growth efforts extend to its content strategy. Since the start of the year, Netflix has ventured into live programming. When asked if live entertainment aligns with its efforts to grow its advertising business, Netflix co-CEO Ted Sarandos replied, “We’re in live because our members love it, and it drives a ton of engagement and excitement.”
In January, Netflix reached a 10-year, $5 billion agreement to broadcast World Wrestling Entertainment, marking the company’s first live sports deal. A few months later, Netflix secured the rights to air two NFL games on Christmas Day from 2024 to 2026. The NFL agreement is particularly significant for Netflix, as professional football broadcasts accounted for 93 of the top 100 live programs in 2023, according to Sportico.
Netflix also experimented with live content beyond sports, launching comedy shows with John Mulaney and Katt Williams. In May, Netflix hit a major milestone with the Brady roast, where comedians roasted the legendary quarterback. The three-hour broadcast climbed to number one in the ratings of streaming programs the week of its release, according to Nielsen data.
To support its growing library of shows and movies, Netflix expects to spend $17 billion on content in 2024. Most of this budget will go toward original content, though spending on sports licensing fees will increase due to their new strategic focus. Overall, the company seems pleased with the return on this investment, especially given the struggles of some of its competitors.
“The challenge for many of our competitors is that while they are investing heavily in premium content, it’s generating relatively small viewing on their streaming services,” Netflix said in an earnings release.
Netflix also experimented with live content beyond sports, launching comedy shows with John Mulaney and Katt Williams. In May, Netflix hit a major milestone with the Brady roast, where comedians roasted the legendary quarterback. The three-hour broadcast climbed to number one in the ratings of streaming programs the week of its release, according to Nielsen data.
To support its growing library of shows and movies, Netflix expects to spend $17 billion on content in 2024. Most of this budget will go toward original content, though spending on sports licensing fees will increase due to their new strategic focus. Overall, the company seems pleased with the return on this investment, especially given the struggles of some of its competitors.
“The challenge for many of our competitors is that while they are investing heavily in premium content, it’s generating relatively small viewing on their streaming services,” Netflix said in an earnings release.
A significant factor in Netflix’s success has been its crackdown on password sharing, resulting in millions of new subscribers. This initiative is expected to remain an ongoing part of Netflix’s business, continuing to generate new subscribers and revenue, according to co-CEO Greg Peters.
Netflix also saw significant growth in its ad-supported tier, first launched in 2022. Subscriptions to the ad-supported tier grew 34% in the second quarter. As of May, the company reported 40 million subscribers in its ad-tier, with analysts believing there’s still room for growth in this segment.
“We continue to view advertising as a longer-term story and do not expect a material revenue contribution until 2025, especially given the glut of new inventory coming to market,” wrote Bank of America analyst Jessica Reif Ehrlich in a note published ahead of the earnings release.
