Netflix expects to transition the growth of its fledgling advertising business to a walk from a crawl this year.
The streaming platform hasn’t released hard revenue numbers for advertising but says it exceeded its target in the December quarter.
“We've doubled our ads revenue year-over-year last year,” co-CEO Greg Peters told analysts in a briefing.
“We expect to double it again this year so that should give you a sense of the slope of monetisation growth that we're on. And broadly, we think of this as we're making solid progress. “
Netflix reported a 16% increase in revenue to $10.247 billion for the December quarter. The platform now has more than 300 million paid memberships which means, with multiple people per household, a global audience estimated at more than 700 million.
At the briefing, analyst Brian Pitz of BMO Capital said Netflix’s advertising user base is growing quickly and adtech has been ramping for almost a year.
“What are your biggest learnings and perhaps hurdles for advertising monetisation in 2025?” he asked at the briefing.
Peters said he loved the ads plan because it allows a lower price point for consumers.
“That's more choice, good accessibility,” he said. “That is proving to be popular. It means that we obviously have more people that can sign up and enjoy a growing range of entertainment that we've got to offer.
“It's also the reason that we've been successful in driving that first ads priority we had in our ads goals, our most primary ads goals, which were to get to sufficient scale.”
In the December quarter, ads plan represented over 55% of sign-ups across countries where advertising supported subscriptions are available.
“We've seen membership on those ads plan increase about 30% quarter-over-quarter this last quarter,” he said. “That was on top of 35% the quarter before, on top of significant growth the quarters before that.
“So as you point out, we've seen significant growth since launch, which we're excited about. Maybe even more excited about the fact that the engagement of those ads members remains healthy.
“So view hours per member on the ads plan is similar to engagement on our standard non-ads plan in our ads country, which is a really good marker that we're excited about.
“So we've done the work, I would say, to meet our scale goals for advertisers in '25. And that means that increasingly, we've been able to shift more of our focus, more of our attention on making the offering better for advertisers to increase monetization of that growing inventory.
“This is going to remain a priority and part of our road map for at least the next several years, likely years to come after that.
“But we're making solid progress already. For example, we exceeded our ads revenue target in Q4, which was an exciting milestone to get."
However, considerable more work is ahead but Peters is confident of significant runway to continue to grow that revenue.
Analyst Jessica Reif Ehrlich of Bank of America asked if Netflix had all the tech and tools needed to significantly scale up, to move from the crawl to walk phase?
“You can say that 2025 is the year that we transition from crawl to walk,” Peters said.
“A big part of that is standing up our own ad stack. We launched that in Canada and that's done well. We're testing, we're learning quickly as we prepare to then roll that out in 2025 across the rest of our 12 ads countries, starting with the US in April.
“And the biggest initial benefit we have of using our own ads server is just enabling us to offer more flexibility, more ways of buying for advertisers, fewer activation hurdles, just improving the overall buyer experience.
“And of course, that is meant to drive increased sales and the ease of transacting with Netflix. And we're already seeing the impact of those benefits in the revenue growth in Canada.
“Over time, the first-party ad tech platform allows us to deliver more critical capabilities to advertisers that we hear from them that they really need. So more programmatic availability. We're talking enhanced targeting, we're leveraging more data sources, more measurement, more reporting, more incrementality studies.
“The other big benefit is it just creates a higher quality experience for our members. So it increases relevance. That's good for them. It's good for advertisers. It's good for us. It's good for everybody in the ecosystem.
“While we've got tons of work, 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 CTV ad spend.”
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