Netflix’s steady, inexorable customer expansion has helped shaped its narrative over the past decade as the dominant paid streaming service.
And that didn’t change Thursday, with the streaming giant reporting the addition of slightly more than 5 million paid members worldwide in the third quarter, beating equity analysts’ forecasts. Netflix now serves 282.72 million subscribers globally.
Paid memberships even rose by 694,000 in Netflix’s most mature region, the United States and Canada, where the company continues to crack down on users who share their account with friends and family members living outside their home. (You can read Netflix’s Q3 letter to shareholders here
Investors reacted favorably, with Netflix shares up 5% in after-hours trading.
But with third-quarter revenue expanding by an also better-than-expected 15% to $9.8 billion, Netflix has declared that a shift in its growth priorities is at hand. Starting with its first-quarter 2025 earnings report next year, Netflix will no longer disclose subscriber metrics — the star of the show. This isn’t new — Netflix management earlier this year said this would happen.
But the associated spinning was in full effect during Thursday’s earnings report.
User engagement will be a focal point of Netflix’s narrative to Wall Street moving forward, as will — in a very related way — the evolution and growth of the company’s advertising business.
Engagement is the “best proxy for member happiness”, Netflix said in its letter to shareholders.
Responding to equity analysts in a pre-recorded video session Thursday, Netflix co-CEO Ted Sarandos said the streaming company will double down on the quality and quantity of content it delivers to members in 2025, as it seeks to improve user engagement.
Defined by the amount of time users spend on the platform, Sarandos said Netflix engagement increased by about 1% to an average of two hours a day per subscriber. With higher engagement, he explained, members are not only less likely to quit their subscription, they’re also more apt to talk about Netflix to other potential customers.
Sarandos believes this engagement dynamic will improve in 2025. The Hollywood labor unrest of 2023 caused “lumpiness” in Netflix’s steady content flow this year, he said. But the “steady drumbeat” of series and movies will return to the platform, with “a new show queued up as soon as you finish the last one,” added Sarandos, who rattled off a list of 2025 Netflix programming events that include new offerings from pedigreed producers including Shonda Rhimes, Ryan Murphy and the Russo Bros.
Meanwhile, responding to analysts alongside Sarandos, co-CEO Greg Peters talked up the impending revenue expansion driven by Netflix’s emerging advertising business.
In Q3, 50% of sign-ups in the 12 countries in which Netflix offers ad-supported tiers came from these cheaper, partially ad-subsidized plans, with ad-supported membership increasing by 35% quarter over quarter. Peters said Netflix’s ad-supported user base will reach “critical scale” in 2025, with advertiser commitments increasing by 150% during the company’s upfront sales event.
It’s not like Netflix management believes there are no more addressable homes available worldwide for member expansion. But with the global market for broadband distribution, and economic wherewithal to afford Netflix, being as volatile as it is, why risk another April 19, 2022?
It was on that day — following a disruptive Q1, which featured, among other factors out of Netflix’s control, Russia’s invasion of Ukraine— the company reported a loss of 200,000 subscribers globally and saw its stock crater 25%.
From establishing restrictions on account sharing to building an advertising business, Netflix has managed to reinvigorate its business and claw its way back.
Indeed, Netflix still talks about expansion, but in a different way. For example, asked Thursday if Netflix management feels about competition with YouTube, Sarandos framed the discussion this way: Since both Netflix and YouTube each account for around 10% of U.S. TV usage, that means they’re competing to swallow the other 80% of engagement market share.
That’s a very different discussion versus competing for individual users.