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News Junction > Blog > Business > Netflix vanquishes doubts about its ability to keep growing just about every profit metric
Netflix vanquishes doubts about its ability to keep growing just about every profit metric
Business

Netflix vanquishes doubts about its ability to keep growing just about every profit metric

Published July 19, 2024
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Netflix exceeded analyst estimates, even though Wall Street went into the call with already lofty expectations for the streamer. 

A paid subscriber base inching closer to 300 million globally, a crackdown on password sharing, the launch of an ad-supported tier and live events like The Roast of Tom Brady all drove results. The UK and India markets also drove strong sales, with stalker series Baby Reindeer garnering 88.4 million views, while India ranked third in revenue percent growth due to Netflix’s most popular Indian drama series to date, Heeramandi: The Diamond Bazaar, with 15 million views.

In the latest quarter, the company grew its subscriber base by 8 million total new accounts— almost double the 4.9 million analysts expected. That number was slightly lower than the 9.5 million in new users Netflix added in the first quarter. But the dip was expected, after executives informed investors they didn’t expect to replicate that number in the second quarter. 

Meanwhile, quarterly revenue came in 17% higher than last year at $9.5 billion, while earnings per share were $4.88 compared to an expected $4.73. Compared to the same quarter last year, net profits rose 44% to $2.15 billion. 

After being widely considered the winner of the streaming wars, there were some questions as to what extent Netflix’s industry dominance would continue. Instead, it has impressed investors with another quarter that highlighted its ability to add new subscribers in a saturated market, while growing revenues and expanding margins. Netflix 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 the company expected margins to grow for the foreseeable future. 

They “could bounce around each year…but we’re committed to growing margins each year,” Netflix CFO Spencer Neuman said on the call.  

Critical to Netflix’s success has been its crackdown on password sharing, which resulted in millions of new subscribers. The initiative is expected to remain an ongoing part of Netflix’s business that will continue to generate new subscribers and subsequently new revenue, according to co-CEO Greg Peters. 

Netflix also drove significant numbers of new subscribers through its ad-supported tier, first launched in 2022. In the second quarter, subscriptions to the ad-supported tier grew 34%. As of May the company said it had 40 million subscribers in its ad-tier. And analysts believe there’s still room to grow for that part of Netflix’s business. 

“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.  

Shortly before the earnings call Netflix’s advertising business underwent a management shakeup, with its former vice president of ad sales, Peter Naylor, leaving the company. The news was unexpected given Netflix, like all other media companies, is in the midst of a major sales push with advertisers, as they decided where to spend next year’s budgets. 

While still a relatively small portion of Netflix’s subscriber base, the ad-supported tier does have similar levels of engagement, with an average of two hours per day per user, Peters said. 

The company’s growth efforts also extend to its content strategy. Since the start of the year Netflix has made its foray into live programming. When asked if live entertainment went hand-in-hand 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 a ton of excitement.”

In January Netflix reached a 10-year, $5 billion agreement to broadcast World Wrestling Entertainment, the company’s first live sports deal. A few months later, Netflix secured an even more valuable piece of the sports market when it bought the rights to air two NFL games on Christmas Day from 2024 to 2026. The NFL agreement in particular represents a coup in live entertainment for Netflix. Professional football broadcasts accounted for 93 of the top 100 live programs in 2023, according to Sportico. 

The streamer also tried its hand at live content other than sports, launching comedy shows with John Mulaney and Katt Williams. In May, Netflix hit a major homerun with the Brady roast, in which comedians pelted the legendary quarterback with insults The three-hour broadcast climbed to number one in the ratings of streaming programs the week of its release, according to Nielsen data. 

To fund its ever growing assortment of shows and movies, Netflix expects to spend $17 billion in 2024 on content. The majority of the budget will be for original content, though spending on sports licensing fees will increase given their new focus in Netflix’s strategy. Overall though the company seemed pleased with the return on that investment, especially given the struggles of some of its fellow streamers. 

“The challenge for so many of our competitors is that while they are investing heavily in premium content, it’s generating relatively small viewing on their streaming services,” the company said in an earnings release.

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