Netflix’s second-quarter revenue and earnings exceeded Wall Street expectations thanks to the success of shows like Bridgerton and Baby Reindeer .
The number of new subscribers was the highest in a quarter two since 2020 when Netflix experienced explosive growth due to the pandemic. The company did warn that the number of new subscribers in the current quarter will be lower than the year before, when it implemented its crackdown on password-sharing.
The earnings rose by 48 percent to $4.88 per share, exceeding Wall Street’s forecasts. Netflix has also raised its revenue forecast for the entire year. It said that this “reflects solid growth trends in membership and business momentum”.
Netflix’s advertising tier accounts for about 45 percent of new signups in the markets where they are available. However, Netflix doesn’t anticipate that it will be “the primary driver of revenue growth until 2024 or 2020.” The number of sign-ups for the advertising tier increased by 34 percent from the previous quarter.
Netflix’s success contrasts with that of the streaming services from legacy studios, which continue to struggle and are often unprofitable. Netflix, in a letter sent to its shareholders, noted that while rivals are investing heavily into premium content, they’re seeing “relatively low viewing on their streaming service and linear [TV] is continuing to decline”.
Greg Peters said that the “number-one priority” of Netflix’s advertising business was to gain scale. It did this by hiring more salespeople and developing its own platform for ads, replacing the Microsoft system. He said that this would unlock a host of innovations and provide a better experience for users.
Analyst Paolo Pescatore at PP Foresight said that achieving scale within the ad industry took longer than anticipated, particularly given Netflix’s wealth of data regarding viewing habits and attitudes.
He said that it was up against bigger tech giants like Amazon, Meta, and Google. Netflix’s small advertising base is making it take a long time to achieve this.
Netflix has added one-off sporting events to its programing, including a Mike Tyson fight, a golf event, and two American Football games during Christmas. This led Wall Street to wonder if it would be willing to sign a contract with a sports organization.
Ted Sarandos slammed the idea of signing a large sports contract. He said that it was difficult to make money from big-league sport when there are entire seasons. Making these Netflix [sports] shows, we are not taking on much tonnage. This is economics that we can live with.
Peters, when asked about artificial Intelligence, said that Netflix has been using technology similar to AI to drive more engagement among its users. He added that the new generative AI can “improve discovery and recommendations” to its customers.
Sarandos stated that the impact of AI generative on the creative community is “hard to predict”.
He said: “A lot filmmakers and producers today are experimenting AI and we have to see how it develops.” “We must focus on the quality of storytelling.”
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