Netflix, currently leading as the dominant streaming platform, is set to announce its second quarter earnings on Thursday, offering crucial insights into the state of the streaming industry.
Netflix’s stock has outpaced most major streamers this year, increasing by 36%, reaching around $657 since the start of the year. In contrast, stocks of Paramount Global and Warner Bros. Discovery have dropped by 26% and 36%, respectively. Among the “Magnificent Seven” tech stocks, Netflix is outshined only by Meta and Nvidia.
The streaming landscape continues to evolve, with new platforms emerging annually, the rise of ad-supported models, and significant mergers like the Paramount-Skydance deal.
Key points to watch in Netflix’s upcoming earnings report:
1. Possible Decline in Subscribers:
In its previous quarterly 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 figures from 2025, indicating a shift from focusing on subscriber growth to profitability. However, JPMorgan’s Doug Anmuth, who recently raised his price target for Netflix to $750, expects Netflix to report 5 to 6 million net new subscribers for the second quarter, surpassing the FactSet consensus estimate of about 3.7 million.
2. Advertising Strategy:
To enhance profitability, Netflix and other streamers are increasingly relying on advertisements. Although streaming initially seemed like it would eliminate television commercials, almost all services now offer ad-supported plans. Netflix introduced ads in 2022. In May, Netflix reported that its ad plan had grown to 40 million active users and that 40% of new signups were for its $6.99 ad-supported tier. The company also plans to launch an in-house advertising technology platform by late next year. Goldman Sachs estimates Netflix could generate nearly $3 billion in ad revenue in 2024.
3. Increased Focus on Live TV:
While streaming has offered on-demand content, live programming has shown to drive subscriptions. Netflix has experimented with live programming, including announcing NFL games on Christmas and a food eating competition featuring Joey Chestnut and Takeru Kobayashi. However, it still trails competitors like Amazon, YouTube, Disney, and NBCUniversal in this area. Paul Verna, an analyst at eMarketer, noted that despite Netflix’s innovative lead in entertainment streaming, it is catching up in live events and sports.