After Crawling, Netflix Says Its Ad Business Is Ready To Walk

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With its subscription business driving higher-than-expected revenue and earnings in the fourth quarter, and the company forecasting higher profit margins in 2025, Netflix said its nascent advertising business is ready to walk in 2025 after crawling since its launch two years ago.

During Netflix’s fourth-quarter earnings call Tuesday, co CEO Greg Peters said the company has been successful in scaling up the number of its subscribers who have signed up to see ads. 

Peters said that in 4Q, 55% of the people signing up for Netflix in the countries where it shows commercials choose the cheaper, ad-supported product. 

“We've seen membership on those ads plan increase about 30% quarter-over-quarter this last quarter. That was on top of 35% the quarter before, on top of significant growth the quarters before that,” he said.  “So we've done the work, I would say, to meet our scale goals for advertisers in '25.”

That’s starting to translate into revenue, added Peters, who said the company aims to take a growing share of the $25 billion CTV market. 

“We exceeded our ads revenue target in Q4, which was an exciting milestone to get. We've doubled our ads revenue year-over-year last year. We expect to double it again this year so that should give you a sense of the slope of monetization growth that we're on,” he said. 

The company did not break out ad revenue in its earnings report.

But he added that “there is considerable work ahead of us for sure” when it comes to the advertising business. 

Peters said that at this point, when it comes to its ad business, Netflix is shifting its focus from increasing scale to increasing monetization of those ad-tier viewers by improving what it offers advertisers. 

So we think our path is relatively straightforward. And we're confident we've got a significant runway to continue to grow that revenue.

After relying on Microsoft for ad tech at launch, Netflix decided to build its own ad stack. It launched in Canada last year and will go online in the U.S. in April, Peters said. 

“The biggest initial benefit we have of using our own ads server is just enabling us to offer more flexibility, more ways of buying for advertisers, fewer activation hurdles, just improving the overall buyer experience. And of course, that is meant to drive increased sales and the ease of transacting with Netflix,” he said. 

The ad stack will make more Netflix ad inventory available programmatically and provide enhanced targeting while leveraging more data sources, more measurement, more reporting, more incrementality studies,” he said. 

“The other big benefit is it just creates a higher quality experience for our members. So it increases relevance. That's good for them. It's good for advertisers. It's good for us. It's good for everybody in the ecosystem essentially,” he said. . 

Peter added that “we've got many years of building ahead of us. The road map is clear. We're committed to iterative innovation and advertising just as you've seen us do in many other places. And as I mentioned before, while we've got tons of work, we feel the path for the next several years at least is fairly straightforward, and we're confident we can continue to grow revenue at a solid pace and earn a growing piece of that over $25 billion in CTV ad spend.”

Netflix added 19 million subscribers in Q4, including 4.82 million in North America, but the company downplayed the impact of its big live events, including the Mike Tyson-Jake Paul boxing exhibition and two NFL games on Christmas Day.

“As we've consistently seen across our history, no single title really drives the majority of our acquisition or engagement,” said Ted Sarandos. In addition to the sports, Netflix launched Season 2 of Squid Game in the quarter.

“Our estimates for subscriber adds driven by those titles combined represent a small minority of our total member acquisition in the quarter,” Sarandos said.

Not so long ago, Netflix’s top brass said they’d never stream advertising and that sports was not part of its plan.

On the 4Q call, the Sarandos shaded the odds that streaming Taylor Swift watch Travis Kelce, the Kansas City Chiefs and having Beyonce perform a halftime show created an insatiable appetite for more sports.

“We are constantly trying to broaden our programming, and live events is one of those things and sports is part of those live events. So when I look at this and say, this is a really fantastic thing, but it doesn't really change the underlying economics of full-season big league sports being extremely challenging,” he said. “So if there was a path where we can actually make the economics work for both us and the league, we certainly would explore. But right now, we believe that the live events business is where we really want to be and sports is a very important part of that but it is a part of that expansion.”

The next big set of sports rights up for bid is the UFC. Netflix has started to stream the WWE’s Monday Night Raw–getting about 5 million views in its first week–but Sarandos declined to comment on any designs on UFC.

“We're going to be mindful of the bottom line. And it's really important that those economics do work and that the big league sports full season economics are very hard to make work,” he said. 

Netflix did sign Women’s World Cup soccer starting in 2027. Sarandos said that acquisition fits Netflix’s strategy. 

“These matches set a bunch of viewing records in 2023, and women's sports have only become more interesting and more popular since,” he said. “We're thrilled to be the home for those starting in 2027 and we're thrilled to have the time to start telling the stories of these teams and these athletes like we've done so well with other sports with our series and our documentaries.”

Here are few numbers from Netflix’s 4Q financials:

Net income rose to $1.869 billion, or $4.27 a share, from $938 million, or $2.11 a share a year ago. Revenue rose 16% to $10.2 billion. For the first quarter, the company expects net income of $2.4 billion or $5.6 billion. For all of 2025, Netflix raised its revenue forecast by $500 million to between $43.5 billion and $44.5 billion, with profit margins rising to 29%.The company expects to spend $18 billion on content, up from $17 billion last year.

“We maintain a leadership position in engagement, revenue and profit. We’re focused on improving all aspects of our service and, combined with the return in 2025 of our biggest shows (Squid Game, Wednesday and Stranger Things), we’re optimistic heading into the new year,” the company said in a letter to shareholders.

The success made the company confident enough to announce another price.increase: $1 a month for the ad supported tier in the U.S. and $2 for the ad-free version. 

“As we continue to invest in programming and deliver more value for our members, we will occasionally ask our members to pay a little more so that we can re-invest to further improve Netflix. To that end, we are adjusting prices today across most plans in the US, Canada, Portugal and Argentina (which was already factored into the 2025 guidance we provided in October 2024),” the company said.

Pricing power makes Wall Street happy. Netflix stock hit a 52-week high of $999 a share this morning and was still up 11% at $965.45 Wednesday morning. Ad tech benefits marketers. What about consumers?

Once upon a time, streaming was a cheap, ad-free alternative to cable, and cable crumbled. Now streaming is becoming known for increasing prices, high margins and increasing commercial clutter. If streaming aims to be the new cable, how long will it be before the next technology disrupts Netflix and its cohorts?

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