Netflix earnings surge as hit shows Baby Reindeer, Bridgerton attract big new audience

Bridgerton helped drive the biggest surge in Netflix subscriptions since the depths of the coronavirus pandemic.

Netflix added a robust 8 million new subscribers in the second quarter thanks to hit shows such as Baby Reindeer and Bridgerton, lifting the streaming service’s revenue and earnings past Wall Street forecasts.

The new subscriber sign-ups were the most in a second quarter since 2020, when Netflix saw explosive growth during the pandemic. But the company warned that new subscriber additions in the current quarter would be lower than a year ago, when its crackdown on password sharing went into full effect.

Earnings rose 48 per cent to US$4.88 a share on revenue of US$9.6 billion ($15.9b), beating Wall Street forecasts. Netflix also lifted its revenue estimate for the full year, which it said “reflects solid membership growth trends and business momentum”.

Netflix said its advertising tier now accounts for 45 per cent of sign-ups in markets where it is available, but it doesn’t expect it to be a “primary driver of revenue growth” until 2024 or 2025. Sign-ups to the ad tier rose 34 per cent from the previous quarter.

Netflix’s strength contrasts with the continued growing pains for the legacy studios’ streaming services, which are either unprofitable or making only modest amounts of money.

In a letter to shareholders, Netflix noted the struggles of its rivals, saying “while they are investing heavily in premium content”, they are seeing “relatively small viewing on their streaming services and linear [TV] continues to decline”.

Greg Peters, Netflix co-chief executive, said the “number one priority is gaining scale” in its advertising business, which it was doing by hiring new sales people and building its own ad platform to replace the current Microsoft system.

“That unlocks a whole set of innovations, a better user experience and better ad features,” he said.

Paolo Pescatore, an analyst at PP Foresight, said that achieving scale in the ad business had taken longer than expected, especially given Netflix’s “wealth of data on viewing attitudes and habits”.

“It is up against even bigger tech giants with a huge base and scale,” he said, mentioning Amazon, Meta and Google. “This is clearly taking Netflix a lot longer given its small ad base.”

Netflix has been adding one-off sports events to its programming, including a golf tournament, an upcoming fight featuring Mike Tyson and two American football games at Christmas — leading Wall Street to ask whether it would sign a deal with a sports league.

Ted Sarandos, co-chief executive, threw cold water on the idea of a big sports contract. “It’s very difficult to have big-league sports and profit when you have entire seasons,” he said. “Making these Netflix [sports] events, we’re not taking on a lot of tonnage. These are economics we like and can live with.”

Asked about artificial intelligence, Peters said Netflix had been using technology “similar to AI” to help drive more engagement with its users, adding that new generative AI technology “can improve discovery and recommendations” for its customers.

Sarandos said the impact of generative AI on the creative community was “hard to predict”.

“A lot of filmmakers and producers are experimenting with AI today and we’ve got to see how that develops,” he said. “We have to focus on quality of storytelling.”

Written by: Christopher Grimes

© Financial Times