Netflix shares have roughly doubled in the past year, setting a high bar for future growth as the company’s market capitalization overtakes the valuations of rivals Disney, Comcast, Warner Bros. Discovery, and Paramount Global combined. To meet soaring expectations, the company will have to deliver on one of its priorities for 2025—selling more ads.
Recent signs are promising. Many of the record 19 million subscribers Netflix added in the final three months of 2024 are choosing to watch hit series like Squid Game, Bridgerton, and Nobody Wants This through the company’s cheaper, ad-supported offering. On an earnings call following Netflix’s impressive beat Tuesday, co-CEO and president Gregory Peters agreed with an analyst that the growth of the company’s ads business is moving from “crawl to walk.”
Advertising revenue doubled this past year, he noted, and the company expects to replicate that growth in 2025. Those plans accounted for 55% of new sign ups in countries where they were available, which includes Canada, Mexico, Brazil, South Korea, Japan, Australia, and most of Western Europe. Ads-plan membership grew 30% last quarter on top of a 35% jump in Q3.
“While we’ve got tons of work,” Peters said, “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 [connected TV] ad spend,” referring to devices like smart TVs that are connected to the internet and allow viewers to stream content and browse the web.
David Heger, a senior analyst at Edward Jones, credits management with pivoting to the idea in 2022 after the company began losing subscribers as people grappled with inflation and cut down on binge watching following the end of the COVD-19 pandemic. As the revenue boost from the company’s widely publicized crackdown on password sharing fades, he said, the advertising play could prove to be another savvy move. The attempt to lure budget-conscious customers could be particularly meaningful in emerging markets, he added.
“I don’t think they’re at the point yet where an ad-supported subscriber generates as much revenue as an ad-free subscriber,” Heger said. “But they certainly want to get to that point.”
Investors will be watching closely to discern if ads can continue to be a key growth driver powering the stock’s incredible returns of late.
Brian Mulberry, a client portfolio manager at Zacks Investment Management, sees tension ahead. While Netflix continues to grow its premium subscriptions, it also wants to focus on boosting ad revenue from the cheaper plan as well as from airing live events like NFL games on Christmas Day and the two upcoming editions of the Women’s World Cup.
