Netflix announced its financial results for the second quarter of 2024. The company reported revenue of $9.56 billion, a 17% growth, and operating income of $2.6 billion, growing from 27% vs. 22% last year. Moreover, it added 8 million subscribers and expanded its lead as subscription streaming TV’s dominant platform, reaching 277 million global subscribers. Netflix said last quarter that it will stop reporting subscriber numbers and average revenue per member beginning in the first quarter of 2025.
During the earnings call, advertising was one of the top questions, with co-CEO Greg Peters noting that the company will be testing its in-house ad tech in Canada this year, before rolling out globally next year. Moreover, although Netflix’s ad tier has grown slower than expected, brands understand the reach the world’s largest TV platform can muster. On a long enough timeline, the ad-supported tier is expected to generate higher average revenue per user (ARPU) than its ad-free compatriots as it amasses more cost-conscious users. Importantly, advertisements have always been a feature of sports programming, which feeds directly into Netflix’s other major strategic shift.
According to Parrot Analytics, as of Q2 2024, Netflix accounts for one quarter of the world’s streaming original series. With new content necessary to mitigate subscriber churn, this volume gives Netflix a structural advantage. The next closest competitor in global supply share for original series is Amazon Prime Video at 9.0%, followed by Disney+ at 4.0%.
Netflix also leads the pack in demand share of original series, at 32.9%. Demand for Netflix original content outweighing its vast supply suggests the streamer provides strong value for its 277M subscriber base relative to the monthly fee.
Between the beginning of 2020 and Q2 2024, there has been a 296% increase in the global supply of streaming original titles as leading companies have prioritized DTC platforms and chased Netflix’s business model. However, the rate of growth for streaming original titles steadily slowed down in 2023, shrinking every single quarter of the year. Despite ticking back up in Q1 2024 this growth rate has now declined in five of the last six quarters. In other words, streamers are still making new shows, just not at the same clip as they used to. This slowdown is a combination of both major companies shifting business models and cutting back, with the sharper drop offs in Q3-Q4 2023 a direct result of the Hollywood labor strikes.
As recently as Q3 2021, Netflix accounted for 30.2% of all new streaming original titles released globally. Fast forward to Q3 2023 and Netflix’s share of new streaming originals worldwide was down to 14.7%. However, Netflix reversed this trend big time starting in Q4 2023, and has accounted for nearly a quarter of all new streaming original releases in two of the past three quarters. This coincided with Netflix’s first increase in originals demand share since before 2020. This was the result of Netflix having a deep roster of new content in the can — something co-CEO Ted Sarandos emphasized repeatedly in 2023 — and a more global footprint than its competitors.
While demand for original content drives subscription growth, library content is key for customer retention, and catalog demand is a good indicator of which SVODs consumers are most likely to use as a default ‘streaming home. Netflix remained in first place here, but did tick down compared to Q1 2024. In Q1, Netflix led Max 18.8% to 16.1%. This 2.7% lead has been cut to 1.6% in Q2, due in part to the surging audience demand for the second season of "House of the Dragon," and with it, "Game of Thrones."
New SVODs eroded Netflix’s lead from 2020 to mid-2023, but Netflix has mostly stemmed its market share losses since then, largely due to its supply advantage. Since Netflix’s global share of the supply of streaming originals is down to 24.9% in Q1 2024, 32.9% demand share should be considered an over-performance. Netflix is still delivering strong value to its subscribers especially with streaming originals — a key leading indicator of subscriber growth. It also means Netflix has room to raise prices without incurring significant subscriber losses.
Netflix also revealed in its shareholder letter that it was working on designing a new TV homepage, what they are calling its biggest update in a decade: “This new interface provides more visible title information at a glance — including synopsis, genre and ratings,” the company said in its letter to shareholders. “Title previews are also larger and more dynamic, with more immersive trailers and bigger box art to make browsing easier. We’ve also simplified the navigation bar and moved it to the top of the page to create quicker, easier short cuts. And this new design includes My Netflix, which has everything members have saved or watched and was previously only available on mobile.”
The company bested Wall Street expectations, but saw its share price slump after hours as it predicted slower growth moving forward, as its paid-sharing efforts begin to deliver diminishing returns. Looking forward, the company said it is estimating 14% revenue growth in Q3, with lower paid net additions compared to Q3 last year, which had the first full quarter impact from paid sharing.
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