Netflix earnings put ads, engagement and deal talk back in focus

Netflix is set to report second-quarter earnings after the market closes Thursday, giving investors a fresh look at whether its newer growth engines are still working. The big items to watch are advertising, viewer engagement and management’s appetite for deals as the media business keeps shifting.

Analysts polled by LSEG expect Netflix to report earnings of 79 cents per share on revenue of $12.59 billion for the period ended June 30. Netflix has said it will hold its analyst call at 4:45 p.m. ET Thursday.

For retail investors, the report is about more than whether Netflix beats a single earnings number. The company is trying to prove it can keep growing even as streaming subscriber additions have slowed across the industry and competition for attention has moved beyond traditional TV rivals.

Advertising is a key test

Wall Street is expected to focus on Netflix’s lower-priced ad-supported plan. An ad-supported tier is a subscription option that costs less for users because Netflix also sells ads against the viewing time.

That matters because advertising has again become an important revenue source for media companies as streaming matures. Earlier this year, Netflix said it was on pace to generate $3 billion in advertising revenue in 2026, which would be double its ad revenue from the prior year.

Investors will be looking for signs that the ad business is gaining scale. More users on the ad plan can give Netflix more ad inventory, meaning more places to show commercials, while better ad pricing can help the company make more money from each hour watched.

Engagement will get close attention

Netflix’s programming performance is also under scrutiny. Investors have raised concerns about engagement after recent reports that viewership for Netflix series declines after the first season.

Engagement is a broad term for how much users watch and how often they return. For Netflix, it can affect subscriber retention, ad opportunities and the perceived value of its content spending.

Keybanc analysts said in a Sunday report that current investor worries resemble the concerns that followed Netflix’s 2022 subscriber loss, its first in more than 10 years. After that period, Netflix pushed into several business initiatives, including ads and tighter controls on password sharing.

“This time around, we believe levers will likely center around content and product diversification that aid perceived content quality, and support better monetization per hour,” Keybanc analysts said in the report.

Deal questions remain

Netflix may also face questions about possible acquisitions. Late last year, the company pursued Warner Bros. Discovery’s film and streaming business before stepping away from the transaction, according to CNBC.

That move fueled questions about whether Netflix might consider other media assets. The broader industry has been under pressure from consolidation, spinouts and changing viewing habits as streaming reshapes the pay TV business.

Competition is also coming from outside legacy media. CNBC reported that tech platforms such as Google’s YouTube and TikTok have continued to take screen time from traditional media.

Netflix remains larger than its streaming peers by paid membership. In January, the company said it had 325 million global paid members.

The stock has fallen about 40% over the past year, with the decline accelerating when Netflix sought to acquire assets from Warner Bros. Discovery, according to CNBC. In April, Netflix said it expected second-quarter revenue to rise 13% and warned that content spending would be heavier in the first half of the year because of release timing. The company said then that it expected content amortization growth to slow in the second half.

This story draws on original reporting from CNBC.