Netflix, which continues to lead as the top streaming platform, is prepared to release its second-quarter earnings report on Thursday. This report is expected to provide important insights into the current state of the streaming industry.
Netflix’s stock has performed remarkably well this year, rising 36% to about $657. In comparison, stocks for Paramount Global and Warner Bros. Discovery have both declined, down 26% and 36%, respectively. Additionally, Netflix is outpacing all but two of the “Magnificent Seven” tech stocks, namely Meta and Nvidia.
However, the streaming landscape is constantly evolving. New platforms emerge every year, alternate revenue models like ads are becoming more common, and significant mergers such as the recent Paramount-Skydance deal are reshaping the industry.
Here are key points to watch in Netflix’s upcoming earnings report:
A Potential Dip in Subscribers
In its previous quarterly earnings report, Netflix warned of a potential dip in subscribers in the second quarter due to “seasonality” and its crackdown on password sharing. The company also announced plans to stop reporting subscriber stats starting in 2025, indicating a shift in focus from subscriber growth to profitability.
Despite this warning, JPMorgan’s Doug Anmuth, who recently raised his price target for Netflix to $750, predicts that Netflix will report 5 million to 6 million net new subscribers for the second quarter, surpassing FactSet’s consensus estimate of about 3.7 million.
Netflix’s Advertising Strategy
Netflix and other streaming services are increasingly relying on ads to boost profitability. Although streaming once threatened to eliminate television commercials, nearly all streaming services now offer an ad-supported plan. Netflix introduced ads to its service in 2022.
In May, Netflix announced that its ad-supported plan has grown to 40 million active users and that 40% of all new subscribers opt for the $6.99 ad-supported tier. The company also plans to launch an in-house advertising technology platform by the end of next year. Goldman Sachs estimates that Netflix could generate nearly $3 billion in advertising revenue in 2024.
More Live TV
While streaming has traditionally offered thousands of hours of on-demand content, live programming is increasingly seen as a way to drive subscriptions. Netflix has experimented with live programming and has announced future programs, including NFL games on Christmas and a food-eating competition featuring 16-time hot dog eating champion Joey Chestnut and his rival Takeru Kobayashi. However, the company still trails behind competitors in this area.
“While Netflix is the market leader and has been the biggest innovator in entertainment streaming, live events and sports are areas where it’s playing catchup with competitors like Amazon, YouTube, Disney, and NBCUniversal,” Paul Verna, an analyst at eMarketer, told MarketWatch.