Netflix Q2 earnings preview: Wall Street awaits updates on ad-supported model

Netflix is set to report its second-quarter earnings after the bell on Thursday, and all eyes are on the streaming giant’s progress with its advertising-supported business model.

Launched in late 2022, the ad-supported tier is seen as a critical component of Netflix’s strategy to boost revenue and profitability. Wall Street analysts are keen to hear updates on this initiative, alongside the company’s overall performance metrics.

Nexflix Q2: What’s expected?

For Q2 2023, Wall Street analysts are forecasting earnings per share (EPS) of $4.74, according to data from LSEG. Revenue is expected to reach $9.53 billion, reflecting Netflix’s steady growth in its core streaming business.

Total paid memberships are projected to hit 274.4 million, as per StreetAccount, indicating ongoing subscriber growth driven by both the standard and ad-supported tiers.

The significance of the ad-supported model

Advertising has become an increasingly vital revenue stream for media companies, particularly as they seek to enhance or achieve profitability in the competitive streaming market.

Netflix’s stock has benefited in recent quarters from its push to attract subscribers to its lower-cost, ad-supported tier, coupled with efforts to crack down on password sharing.

When Netflix introduced its ad-supported tier in late 2022, the move was initially met with skepticism. However, the company has since released promising metrics.

During its Upfront presentation in May, Netflix revealed that its ad-supported tier had reached 40 million global monthly active users, nearly doubling the number from just a few months earlier. This growth underscores the tier’s potential as a significant revenue driver.

Live sports and new revenue streams

In addition to its ad-supported model, Netflix has started to venture into live sports, a move likely to attract more advertising dollars.

The company announced it will stream NFL games on Christmas Day over the next three years, positioning itself to compete more directly with traditional broadcasters and other streaming services that offer live sports.

This expansion into live sports is part of Netflix’s broader strategy to diversify its content offerings and appeal to a wider audience.

By securing popular sports programming, Netflix can draw in new subscribers and increase engagement among existing ones, thereby enhancing its attractiveness to advertisers.

How is the subscriber growth placed?

At the end of the first quarter, Netflix had approximately 270 million global subscribers, marking a 16% increase from the same period the previous year and exceeding expectations.

The company’s ability to continue growing its subscriber base, even as competition intensifies, highlights its strong market position.

However, last quarter, Netflix informed investors that it would no longer provide quarterly membership numbers or average revenue per user starting next year.

Instead, the company will focus on revenue, operating margin, and engagement (time spent) as its primary financial metrics. This shift reflects Netflix’s transition from a high-growth, low-profit model to a more stable, high-profit approach.

What do analysts say?

Analysts from Wedbush noted last week that Netflix’s pivot to a slow-growth, high-profit business model is not yet complete, despite the company’s significant lead over its competitors in the streaming space.

The emphasis on profitability and operational efficiency will be crucial as Netflix navigates this transition.

The decision to stop reporting quarterly membership numbers has been seen as a strategic move to shift investor focus towards long-term financial health rather than short-term subscriber fluctuations.

This change in reporting could help mitigate volatility in the stock, providing a clearer picture of the company’s overall financial trajectory.

As Netflix prepares to release its Q2 2023 earnings, investors and analysts will be closely monitoring updates on its ad-supported tier and other strategic initiatives.

The expected earnings and revenue figures suggest continued growth, but the real interest lies in how effectively Netflix can leverage its new business models to sustain long-term profitability.

The company’s efforts to expand into live sports and its shift towards focusing on revenue and engagement metrics will be key factors in determining its future success.

As Netflix continues to adapt and innovate, its ability to maintain its leadership position in the streaming industry will be closely watched by market participants.

The post Netflix Q2 earnings preview: Wall Street awaits updates on ad-supported model appeared first on Invezz