Netflix surpasses 5 million subscriber targets as ad-supported tier gains momentum

Netflix exceeded Wall Street's expectations by adding 5.1 million subscribers in the third quarter of 2024, driven largely by its growing ad-supported service, which accounted for more than 50% of sign-ups in markets where it is available.

The company’s performance surpassed the forecast of 4 million new subscribers, leading to a 4.8% rise in its shares after-hours on Thursday.

However, the increase fell short of the 8.76 million subscribers gained during the same quarter last year.

Netflix’s revenue rose to $9.825 billion, slightly above the $9.769 billion projected by analysts, while its operating margin increased to 30%, compared to 22% in the prior year.

The company earned $5.40 per share, beating the consensus estimate of $5.12. Despite the positive financial results, analysts expressed concerns about a slowing pace of subscriber growth, especially in the US, where the market appears to be nearing saturation.

As Netflix shifts focus away from subscriber counts, the company aims to drive attention towards profitability and revenue growth.

From 2025, it will no longer report subscriber numbers, prioritizing financial metrics like revenue and profit margins.

The ad-supported tier has become a key area of growth, with Netflix expecting advertising to contribute significantly by 2026.

In terms of content, Netflix has high hopes for the upcoming holiday season, anticipating further subscriber growth with the much-anticipated return of the Korean drama Squid Game in December.

The streaming giant also plans to diversify its content by featuring live events, including a boxing match between YouTuber Jake Paul and Mike Tyson in November and two National Football League games on Christmas Day.

Additionally, Netflix plans to raise prices in Spain and Italy, following similar increases in other European markets earlier this month.

Co-CEO Ted Sarandos reiterated Netflix’s commitment to enhancing its value offering, dismissing the idea of joining discounted bundles with other streaming services like Disney and Warner Bros Discovery.

Netflix's restructuring efforts have also led to significant workforce reductions throughout the year. In April, the company laid off 15 employees from its film department.

Recently, another round of layoffs impacted about 10 staff members in its series and film publicity divisions.

This reorganization, headed by VP of Domestic Publicity Natalie Bjelajac, follows a broader trend of cutbacks across the media industry as companies face economic pressures.

While the company continues to make strategic changes, including price hikes and workforce reductions, Netflix remains optimistic about its ability to re-accelerate growth and maintain its position as a leader in the global streaming market.