Netflix Continues to Monetize Beyond Streaming

Yesterday, Netflix (Nasdaq: NFLX) reported its third quarter results that missed market earnings expectations. The company continues to expand its monetization capabilities through advertising and franchise business while leveraging AI and ML tools to deliver improved content.

Netflix’s Financials

Netflix’s Q3 revenues grew 17% to $11.51 billion in line with the Street’s forecast. Its impressive content line-up helped drive viewership. According to reports, KPop Demon Hunters alone added “roughly 500 million viewing hours, with another about 400 million expected in the fourth quarter.” EPS of $5.87 was significantly short of the market’s forecast of $6.97. Netflix no longer reports a subscriber base, but analysts believe that it continues to add viewers in non-English speaking countries.

For the current quarter, Netflix expects revenues of $11.96 billion, ahead of analyst estimates of $11.89 billion. EPS for the quarter is projected to come in at $5.45 compared with the $5.43 anticipated by the market. For the full year, Netflix expects revenues of $45.1 billion for the year.

Netflix’s Ad Business Focus

Netflix continues to see strong growth in the ad business and is on track to more than double ad revenues this year. Netflix Ads Suite is now fully deployed across all ads markets for a full quarter now and Netflix is already seeing growth opportunities. It recently announced an integration with Amazon’s DSP globally.

Amazon DSP is a technology solution that enables Amazon Ads customers to gain choice and flexibility between brands and consumers. It leverages first-party insights to help advertisers connect with publishers, increase ad efficiency, and improve ad performance. It leverages AI to deliver impactful ads to relevant audiences through automation that helps improve planning, buying, and measurement. As part of the partnership, advertisers using Amazon DSP will have direct access to Netflix’s premium ad inventory beginning in Q4 2025.

Netflix continues to expand its international measurement partnerships and recently secured its first partner in APAC with Australia’s OzTAM. OzTAM is Australia’s source of television audience measurement intelligence. With the partnership, Netflix has become the first global streaming platform to have its audience independently measured and reported by OzTAM. The arrangement will help Netflix become transparent on its viewership metrics, which are important for ad performance tracking.

In Brazil, Netflix integrated with Kantar IBOPE Media to validate campaign audiences thus providing advertisers with enhanced insights into individual reach and cross-media effectiveness. Within the targeting side of the ad business, Netflix expanded its language targeting to support eight languages across its ad-supported countries. Netflix now offers more inclusive and relevant targeting to its advertisers, reaching members based on their watch history or the language they choose on Netflix.

Netflix’s ad business is also benefiting from its improving viewer metrics. According to recent reports, Netflix had record TV view share in Q3 in the United States and the United Kingdom. Its quarterly TV view share has grown 15% and 22% in the US and UK, respectively. Its successful content line-up is helping it set up franchises. It already has franchises in Stranger Things and Squid Game, and it is adding KPop Demon Hunters to the mix.

KPop Demon Hunters is Netflix’s most popular film with over 325 million views. Netflix partnered with Mattel and Hasbro and awarded global co-master toy licensee for the film. It also released apparel on the Netflix Shop and at leading retailers. Netflix is looking for additional monetization opportunities for KPop Demon Hunters in the form of live experiences, publishing, beauty, lifestyle, and food and beverage space.

Additionally, Netflix is using ML and AI capabilities to improve the title recommendations and its production and promotion technology. It is currently beta testing a conversational search experience that will allow members to use natural language to explore the catalog and discover titles. It is also using GenAI to localize promotional assets in a variety of languages.

AI continues to accelerate content development. For instance, in Happy Gilmore 2, GenAI integrated with ML and Eyeline’s volumetric capture technologies to de-age characters. Production houses are using GenAI tools during pre-production for visualization to explore wardrobe and set designs. During the current quarter, Netflix is using AI to test new ad formats that can generate the relevant ad creative and placement for members.

Netflix’s stock is trading at $1,238.56 with a market capitalization of $527.5 billion. It hit a 52-week high of $1,341.15 in June and has recovered from the 52-week low of $744.26 that it was trading at a year ago.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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