Netflix is preparing to report its slowest subscriber additions in six quarters, as the benefits of its password-sharing crackdown begin to wane.
Analysts anticipate the company added around 4 million new subscribers globally during the July-September quarter, according to estimates compiled by LSEG.
This slowdown comes at a time when the streaming giant is aiming to shift investor attention towards its growing advertising business and revenue growth.
Despite the popularity of Netflix originals such as The Accident and The Perfect Couple, which were among the top streamed titles in the US during the quarter, the pace of subscriber growth is slowing.
The streaming service has been gradually transitioning its business model to focus on advertising revenue, but it still faces challenges in making this segment a significant contributor to its overall growth.
Netflix ad revenue in focus as subscriber gains ease
Netflix’s ad-supported tier, which launched in 2022, has gained traction but is not yet a major growth driver.
In fact, the company expects that its ad business won’t become a substantial revenue generator until 2026.
In the third quarter, Netflix is projected to generate $242.7 million in ad revenue, according to estimates from analysts compiled by LSEG.
This figure is still modest compared to its total expected revenue of $9.76 billion for the quarter, which represents a growth of 14.3%.
Netflix’s advertising business, while growing, remains small compared to its global scale.
Some experts argue that the company should phase out more of its ad-free plans and raise prices on its standard subscription tiers to push users toward the ad-supported options, which typically generate more revenue per user.
The company’s $6.99 per month ad-supported plan in the US is significantly cheaper than its $15.49 per month standard plan without commercials, making it an attractive option for price-conscious consumers.
Netflix subscriber data to disappear in 2025
Starting in 2025, Netflix will no longer report subscriber data, a move that suggests the company is looking to steer the focus towards other key performance metrics such as revenue growth and profit margins.
With this shift, Netflix aims to manage expectations around subscriber growth, particularly as the market becomes more saturated, and its ability to attract new users slows.
For now, the company is navigating a tricky period of slower user growth while attempting to expand its ad business.
Analysts believe that Netflix will need to further refine its strategy, especially when it comes to increasing ad revenue without alienating its core user base.
Netflix banking on live sports and popular titles to draw advertisers
To attract more advertisers, Netflix has started to invest in live events, particularly sports.
The streaming giant is expected to air the highly anticipated Jake Paul vs. Mike Tyson boxing fight in November, which could attract millions of viewers and offer new opportunities for advertising revenue.
Netflix will also air its first NFL games in December, marking its entry into the competitive sports broadcasting market.
Netflix is also banking on the return of Squid Game, its globally popular South Korean drama, to help boost subscriber numbers in the last quarter of the year.
The second season of the hit show is scheduled for release in December, and the company hopes it will replicate the success of the first season, which brought in millions of new subscribers globally.
Analysts weigh in
Industry experts are suggesting that Netflix may need to raise the prices of its standard plans while phasing out ad-free options to drive customers towards its ad-supported tier.
The company has already begun this process, discontinuing its $9.99 per month basic plan without commercials for new users in the US and the UK as of last year. Existing subscribers to this plan are being gradually phased out.
According to analysts, the company’s ability to raise prices and shift users towards its ad-supported tiers will be crucial for maintaining revenue growth.
However, it remains to be seen how subscribers will react to these changes, particularly in competitive markets where alternative streaming services are readily available.
Netflix stock performance and outlook
Netflix’s stock has risen 12.4% since its second-quarter results were announced in July, outpacing the 5% rise in the S&P 500 index.
Investors remain cautiously optimistic about Netflix’s growth potential, especially as the company works to expand its advertising business and increase prices across its subscription tiers.
However, concerns remain over Netflix’s ability to maintain its competitive edge in an increasingly crowded streaming market.
The company’s ad revenue growth will be closely watched in the coming quarters, as investors look for signs that Netflix can successfully diversify its revenue streams beyond subscriber growth.
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