Netflix’s Billion-Dollar Bet on Ads
The streaming giant’s market capitalization has surpassed that of its major rivals, Disney, Comcast, Warner Bros. Discovery, and Paramount Global combined, thanks to a remarkable 100% surge in its shares over the past year. To justify its lofty valuation, Netflix must deliver on its key priority for 2025: significantly increasing its advertising revenue.
A Promising Start
Recent signs indicate that the company is on the right track. A record 19 million subscribers joined Netflix in the final quarter of 2024, with many opting for the cheaper, ad-supported plan. This trend is particularly evident in countries where the ad-supported option is available, such as Canada, Mexico, and parts of Western Europe, where it accounted for 55% of new sign-ups.
Doubling Down on Ads
Co-CEO and President Gregory Peters is optimistic about the growth prospects of Netflix’s ads business, which doubled in revenue last year. He expects this momentum to continue in 2025, with the company aiming to replicate its success. The ads-plan membership grew an impressive 30% last quarter, building on a 35% jump in Q3.
A Savvy Pivot
David Heger, a senior analyst at Edward Jones, credits Netflix’s management for pivoting to the ad-supported model in 2022, when the company began losing subscribers due to inflation and post-pandemic changes in viewing habits. As the revenue boost from the crackdown on password sharing fades, the advertising play could prove to be another shrewd move, particularly in emerging markets.
The Path Ahead
Investors will be watching closely to see if ads can continue to drive growth and power the stock’s remarkable returns. Brian Mulberry, a client portfolio manager at Zacks Investment Management, sees potential tension ahead as Netflix balances its premium subscriptions with its focus on boosting ad revenue. However, Heger believes the company can find the right balance between its ad-supported and ad-free plans.
A New Era for Streaming
The success of Netflix’s ad-supported model could have far-reaching implications for the industry. As the company explores new revenue streams, including live events like NFL games and the Women’s World Cup, it may ultimately lead to a shift in how streaming services operate. With its stock currently up 10% after beating expectations for Q4, Netflix is poised to continue its growth trajectory, but only time will tell if its billion-dollar bet on ads will pay off.
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