Netflix Gears Up for Second-Quarter Earnings: Ad-Supported Growth and Sports Bets in Focus
Netflix is set to report its second-quarter earnings after the market closes on Thursday, and investors will be eagerly watching for updates on the company’s ad-supported business model and its recent foray into live sports. The streaming giant launched its ad-supported tier in late 2022 and has been gradually revealing details about its performance, but this earnings report is expected to provide deeper insights into the business’s progress.
Key Takeaways:
- Ad-Supported Growth: Wall Street analysts will be closely scrutinizing the success of Netflix’s ad-supported tier, which has been a crucial driver of subscriber growth in recent quarters. Notably, the company reported 40 million global monthly active users on the ad-supported tier during its Upfront presentation in May, nearly doubling its previous estimate.
- Live Sports Push: Netflix’s new foray into live sports, including streaming NFL games on Christmas Day for the next three years, will be another area of focus. This strategic move is designed to attract more viewers and advertisers, particularly during prime sporting events.
- Shifting Metrics: Netflix has announced it will stop reporting quarterly membership numbers or average revenue per user starting next year, prioritizing revenue, operating margin, and user engagement instead. This shift signals the company’s transition from a high-growth, low-profit model to a slower-growth, high-profit strategy.
The Ad-Supported Tier: A Key Growth Driver
The ad-supported tier has become a critical component of Netflix’s strategy to boost profitability and expand its subscriber base. The company has faced increasing competition from other streaming giants like Disney+ and Amazon Prime Video, making it essential to offer a more affordable option for budget-conscious consumers.
While Netflix remains committed to its premium, ad-free subscription tier, the ad-supported offering has opened up a new market segment for the company. The platform has been actively engaging with advertisers, promoting its high-quality content and large audience reach to attract ad dollars.
Live Sports: A New Avenue for Growth
Netflix’s recent move into live sports, specifically NFL broadcasts on Christmas Day, represents a significant shift in its content strategy. This venture signals a strategic intention to capitalize on the popularity of live sports programming and its potential to attract a broader audience.
By offering live sporting events, Netflix intends to increase viewer engagement and attract a more diverse demographic. This will also provide additional opportunities for advertising revenue, as brands are increasingly seeking to reach audiences during live sporting events.
Analysts Weigh In
Analysts are expressing cautious optimism about Netflix’s performance in the second quarter. The company’s focus on profitability and its progress with the ad-supported tier are encouraging signs for investors.
"As Netflix conditions investors and reporters to focus less on subscription additions, it will place more emphasis on time spent, where its only true rival in size is YouTube," said eMarketer senior analyst Ross Benes. "More live event announcements will ensue as the company looks to improve its ad-supported time spent, amid an industry-wide reduction in scripted content production."
Future Outlook
The second-quarter earnings report is expected to shed light on Netflix’s progress in its strategic shift towards a more profitable business model. The company’s commitment to expanding its ad-supported offering and its foray into live sports suggest a future where Netflix will compete not only with traditional streaming services but also with major sports broadcasters.
Although Netflix has a commanding lead in the streaming market, the company faces an increasingly competitive environment. However, its efforts to diversify its offerings, embrace new business models, and attract a wider audience through live sports stand as promising signs for its long-term growth.
