Netflix Ends Basic Ad-free Plan As Solid Subscriber Growth Boosts Revenue View

(RTTNews) - Netflix Inc. has phased out its basic ad-free streaming plan in the United States and France on the success of its ad-supported offering. The move comes as solid growth in its global memberships and strong second-quarter results benefited the streaming media major to issue significantly positive third-quarter outlook and to hike fiscal 2024 revenue and margin view.

Netflix's lowest-priced ad-free streaming plan for $11.99 a month has been discontinued, its U.S. website shows. The basic plan subscribers are asked to choose a new plan, at $6.99 per month ad-supported plan or ad-free Standard or Premium plans. Ad-free Standard plan comes at $15.49 per month, while Premium plan comes at $22.99 per month.

Co-CEO Gregory Peters, during the company's earnings call for the second quarter, said, "We've had the confidence to move forward with that change in the U.S. and France so that's an indicator of how it's going."

He was responding to a question about early results from phasing out the basic tier in a handful of Netflix's markets. The company had withdrawn its basic sign-up option in the UK and Canada last year.

While talking about the successful ad-supported offering, Peters further said, "we've got a very strong offering for our members. Essentially, we're providing them a better experience, 2 streams versus 1. We've got higher definition, we got downloads. And of course, all at a lower price, $6.99 in the United States, we think that represents a tremendous entertainment value. And it includes ads."

Netflix further said it is making steady progress scaling its ad business with ad-tier memberships growing 34 percent sequentially. The company added that it is building an in-house ad tech platform that will be tested in Canada in 2024 and launch more broadly in 2025.

According to the firm, the sustained progress indicate that it is on track to achieve critical ad subscriber scale for advertisers in its ad countries in 2025, creating a strong base from which it can further increase ad membership in 2026 and beyond.

For Netflix, advertising is not considered to be a primary driver of its revenue growth in 2024 or 2025, while it will be a key component of its longer-term revenue and profit growth.

The company, among its peers, enjoys a sold streaming subscriber number, with the second- quarter global streaming paid memberships reaching 277.65 million, a growth of 16.5 percent from the prior year. The company added 8.05 million new susbcribers in the quarter, significantly higher than a year ago.

On the earnings front, the media major reported sold earnings in its second quarter, above market estimates, with strong growth in revenues. The bottom line came in at $2.15 billion or $4.88 per share, higher than $1.49 billion or $3.29 per share a year ago. This is compared to the Street estimate of $4.74 per share. Revenue rose 16.8 percent year-over-year to $9.56 billion.

Looking ahead to the third quarter, the company projects net income of $2.24 billion or $5.10 per share, higher than the prior year's $1.68 billion or $3.73 per share.

Revenue growth is projected to be 14 percent year-over-year to $9.73 billion. The increase would be 19 percent at constant currency basis.

Meanwhile, paid net additions are expected to be lower than last year, which had the first full quarter impact from paid sharing.

For the full year 2024, Netflix now expects revenue growth of 14 percent to 15 percent, up from 13 percent to 15 percent expected previously. The updated revenue forecast reflects solid membership growth trends and business momentum.

Operating margin is now expected to be 26 percent, higher than the previous estimate of 25 percent, due to the improved revenue outlook and ongoing expense discipline.