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Netflix likely added its fewest subscribers in five quarters in the April-June period as its subscriber growth slows amid increased regulation of password sharing and viewers shift their attention to summer sporting events such as the European Football Championship.
The company added about 4.82 million new subscribers in the second quarter, according to data from the London Stock Exchange. That would be the lowest growth since the first quarter of 2023 and about half the 9.3 million new subscribers it added in the previous three months.
Still, the streaming giant’s efforts to launch low-priced ad-supported packages have led to strong ad revenue growth, which is expected to more than double in the June quarter.
Total revenue is likely to rise 16.4% to $9.53 billion, the fastest growth since the second quarter of 2021.
Netflix originals, such as the historical romance “Bridgerton” and the limited series “The Young Reindeer,” based on comedian Richard Gard’s experience with a stalker, topped the ratings charts in the second quarter, according to Nielsen.
Investors will be carefully watching the streaming giant’s efforts to expand its lower-priced plans with advertising and look for new growth drivers when the company reports second-quarter results on Thursday.
In May, the company said its ad-supported service had 40 million monthly active users worldwide, or 40% of all registered users in the countries it covers, up from 23 million in January.
The advertising push has resonated with investors. Netflix shares are up nearly 35% this year, compared with a return of about 19% for the S&P 500.
Seasonally, Netflix and rivals such as Disney+ will also see ratings hit in the summer as people travel. The Olympics, which opens on July 26 this year, are also expected to draw some viewers away from Netflix, analysts said.
Advertising focus
Netflix has also been able to use rival content to attract viewers after investing heavily in original productions, according to agency MoffettNathanson, which noted that 18 of the top 20 streaming shows are acquisitions, such as NCIS or Grey’s Anatomy.
Netflix also announced a bundling partnership. Comcast will offer Netflix and Apple TV+ to Xfinity internet and TV customers through its Peacock streaming service.
Netflix is also offering more live content, including its deal to stream two National Football League (NFL) games on Christmas Day, to create an advertiser-friendly event.
“Against the backdrop of an industry-wide reduction in scripted content production, there will be more live event announcements as companies seek to increase their ad-supported hours,” said Ross Benes, senior analyst at Emarketer.
To fuel its next phase of growth, Netflix announced plans in May to build an in-house ad tech platform to give marketers more ways to buy ads and measure their effectiveness. The company initially relied on Microsoft to build the backbone of the ad layer.
“Despite progress, we continue to view the advertising business as a long-term play and do not expect material revenue contributions until 2025,” Jessica Reif Ehrlich, an analyst at Bank of America Global Research, said in a note Monday.
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