Netflix was able to gain an impressive 8 million new subscribers in the second quarter thanks to hit series like "Baby Reindeer" and "Bridgerton," surpassing Wall Street expectations for the streaming service's revenue and profits.
Sign-ups reached their highest value for a second quarter since 2020, when Netflix experienced explosive growth during the pandemic. However, the company warned that sign-ups in the current quarter could be lower than the previous year, when the crackdown on password sharing took full effect.
The profit increased by 48 percent to $4.88 per share on revenue of $9.6 billion, surpassing Wall Street forecasts. Netflix also raised its revenue forecast for the entire year, reflecting "solid membership growth trends and business dynamics.
Netflix announced that its ad-supported subscription model now accounts for 45 percent of sign-ups in the markets where it is available, but does not expect this model to be a "primary driver of revenue growth" until 2024 or 2025. Sign-ups for the ad-supported model increased by 34 percent compared to the previous quarter.
The success of Netflix stands in contrast to the continued difficult times for the streaming services of traditional studios, which are either unprofitable or only achieve modest profits. In a letter to shareholders, Netflix pointed out the difficulties of its competitors, stating: "While they are heavily investing in premium content, they see relatively low viewership on their streaming services, while linear television continues to decline.
Greg Peters, Co-CEO of Netflix, said that the "top priority is to gain scale in the advertising business," which is being achieved by hiring new sales staff and building an in-house advertising platform to replace the current Microsoft system. "This opens up a whole range of innovations, a better user experience, and better advertising capabilities," he said.
Paolo Pescatore, analyst at PP Foresight, noted that it is taking longer than expected to scale up in the advertising business, especially given the "wealth of data on viewer behavior and habits" from Netflix.
It competes against even larger tech giants with a huge base and scale," he said, mentioning Amazon, Meta, and Google. "This obviously takes longer for Netflix, as its advertising base is small.
Netflix has added unique sporting events to its programming, including a golf tournament, an upcoming fight with Mike Tyson, and two American football games on Christmas, leading to speculation about whether it would sign a contract with a sports league.
Ted Sarandos, Co-CEO, dampened expectations for a major sports deal: 'It is very difficult to make profits with major league sports and an entire season,' he said. 'By hosting these Netflix [sports] events, we are not taking on much. We like this economics and can live with it.'
When asked about artificial intelligence, Peters said that Netflix uses technology "similar to AI" to increase engagement among its users and that new generative AI technology "could enhance discovery and recommendations" for its customers.
Sarandos said that the impact of generative AI on the creative community is "hard to predict.
Many filmmakers and producers are experimenting with AI today, and we need to see how that develops," he said. "We need to focus on the quality of storytelling.
