It would be wrong to characterize Netflix these days as a “black box” that keeps us guessing. Executives like co-CEOs Ted Sarandos and Greg Peters, as well as CFO Spencer Neumann, are consistently open about their plans if not necessarily consistent in implementing them (like launching an ad tier after saying they never would, although it was refreshing to hear Peters acknowledge during the Q2 call this week that he has learned to “never say never” on just about anything). But with 2025 the first year that Netflix no longer reports subscriber numbers, assessing the health of its growth has become more difficult. We can make some assumptions based on revenue, of course, and its 17.3% year-over-year growth to $11.1 billion in Q2 suggests it continues to globally add subs (thanks, ad tier) – although the wide gulf between the price of the $7.99/mo ad tier vs. the $24.99/mo ad-free tier (with “extra member” rates of $6.99-$8.99/mo) makes tying the revenue to subs difficult. And that’s just in the U.S. and Canada. In other regions, it’s even harder because pricing varies so much around the world. If you want to see how much, check out StreamTRAK®’s Global Pricing map that can show you, for instance, that the basic ad tier is only $3.99/mo in Bolivia. If we look at Netflix’s revenue reporting by region, we can make a few assumptions. Despite all the competition and saturation in the U.S.-Canada market, revenue still grew 15% YOY to $4.9 billion, outperforming Latin America at 9% YOY but lagging behind Europe (18% YOY) and the Asia Pacific (24% YOY). “We’ve got healthy member growth, and that even picked up nicely at the end of Q2, a bit more than we expected,” said Neumann during the Q2 earnings call. But the lack of reported sub counts means we have to estimate how all that translates to new “members,” as Netflix likes to call its subs. How much of all that growth comes from the cheaper ad tier and the “extra member” password-sharing crackdown? We just don’t know for sure, although Neumann said Netflix’s higher full-year margin target of 30%, up from 29%, largely stems from stronger sub growth for the ad tier. Other factors like the weakening dollar are also at play: Only half of that 1% margin increase was FX neutral, and Neumann said Netflix’s upped full-year revenue guidance to $45.2 billion from $44.8 billion largely comes from those exchange-rate benefits. And that’s despite a slew of show premieres slated for the back-
end of 2025, requiring higher marketing spend. Netflix has been on a tear for several quarters, but investors may be getting a little antsy: Its shares dropped more than 5% on Friday with those big sub metrics no longer there to calm their nerves.
Sub numbers or not, Netflix remains the leading streaming property as it continues to throw reams of content from around the world against the wall and letting those that stick drive buzz that keeps people from churning out. But Sarandos told investors that while hits like “Adolescence” and others (and 44 Emmy nominations this year) might feel impactful, they drive only about 1% of total viewing. “It’s not about the single hit,” he said. “It’s about the steady drumbeat of shows and films and soon enough games that our members really love.” Yes, Netflix continues to eye gaming as a new growth area even if it’s in no hurry to scale up quickly as Peters said the company views games similarly to its other content: “If we deliver more value in our offering, we get increased user acquisition, increased retention, and increased willingness to pay.” He told investors to expect more licensed and original games such as recent bows of Grand Theft Auto and Squid Game Unleashed, respectively, but “we want to remain disciplined and not invest too far ahead of demonstrating that we know how to translate that investment into value for our members.” On the ad tier, Netflix has rolled out its own tech stack to all markets as Netflix looks to double its advertising business and add “interactivity” to ads this year, Peters said. We’re guessing that means something beyond rudimentary QR-code ads, but time will tell. More sophistication also extends to the app itself, with a new user interface launched in May offering further customization not only for each viewer but also depending what day and time the user logs in “so the Netflix you get on a Tuesday night is different from the Netflix you get on a Sunday afternoon,” as Peters put it. He called out the shortcomings of the company’s previous UI “designed for the Netflix of 10 years ago” rather than its current content slate that now includes more live event programming. “If you think about the discovery experience that’s best suited for these new content types, it’s inherently different,” he said, arguing that a UI incorporating appointment viewing requires “a different user interface to do that job well.” The company is already planning enhancements such as conversational search and discovery, he said, teasing “conversational experience” to enable a “natural language discussion” with the UI, which sounds similar to Fire TV’s voice search function that Amazon launched roughly a year ago.
Next? Netflix faces an interesting conundrum. It leads the pack, has Wall Street (mostly) in the palm of its hand, and reportedly boasts the lowest churn among any major streamers. And yet it must innovate to stay ahead – whether through gaming, live events, or other means – to sustain revenue growth and fight for consumer time and attention with the likes of Google’s YouTube, which just keeps killing it on connected TVs. And unlike Netflix, YouTube doesn’t need to spend a penny on content (Sarandos once again suggested he wants to bring more UGC creator talent to Netflix). New innovations like artificial intelligence could also offer a path forward but only in lockstep with many competitors (including YouTube) that are racing to implement their own AI bells and whistles. During the Q2 call, Sarandos repeated his refrain that “AI represents an incredible opportunity to help creators make films and series better, not just cheaper.” But he also shared an interesting tidbit, acknowledging that Argentina’s sci-fi series “The Eternaut” used AI-powered visual effects to simulate a building collapse in Buenos Aires. “Using AI-powered tools, they were able to achieve an amazing result with remarkable speed,” he said, claiming they got it done roughly 10 times faster than using traditional VFX tools. Considering that Netflix plans to spend roughly $18 billion on content in 2025, that kind of AI integration could indeed let filmmakers go “bigger” for less money. But everyone has the same tools. So Netflix will have to learn to use them better than others to stay ahead. What else is new?
