With Netflix set to release second-quarter earnings, Wall Street's focus is shifting from subscriber numbers to user "engagement." Because the ad business has yet to take root as a major revenue source, whether Netflix can boost users' viewing time and frequency of service use has emerged as the key variable that will determine future growth. In particular, expansion of the ad business and investments in live content are seen as a turning point to gauge whether growth can continue.
On the 15th, local time, according to Reuters and the Wall Street Journal (WSJ), Netflix will announce its second-quarter results and business outlook after the market closes on the 16th, local time. Investors see growth in the ad business, changes in user engagement, the impact of live content investments, annual guidance (sales outlook), and second-half content strategy as key checkpoints.
According to market consensus compiled by the London Stock Exchange Group (LSEG), Netflix's second-quarter revenue is expected to be $12.59 billion (about 18.73 trillion won), up 13.6% from a year earlier. That would be the slowest revenue growth rate in more than a year. Adjusted earnings per share (EPS) are projected at $0.79 (about 1,175 won).
The metric Wall Street is paying closest attention to in this report is user engagement. User engagement is a comprehensive metric that shows how long users watch content and how often they finish movies or series, and since last year it has become a key criterion for assessing growth after Netflix effectively removed subscriber count from its core key performance indicators (KPI).
Inside Netflix recently, declining user engagement was also handled as a major issue, according to reports. The WSJ said Netflix executives identified signs of declining engagement at the company's annual business review meeting in the spring and that the issue has been repeatedly discussed in internal meetings since.
The intensifying competition in the online video market is also cited as a challenge for Netflix. Not only are existing streaming players such as Disney Plus, Amazon Prime Video, and HBO Max competing for users' viewing time, but so are YouTube and mobile platforms built around short videos, making it increasingly difficult to maintain engagement. Bloomberg reported earlier this month that viewership for follow-up seasons of some popular Netflix titles such as "The Night Agent" and "Beef" fell by more than half compared with the first season.
In this environment, Netflix is diversifying its service formats to boost engagement. Alongside expanding its ad business, it is strengthening live content such as sports, considering the introduction of linear-style channels, and reviewing bundle offerings that package other streaming services on its platform. The strategy is seen as a way to increase users' time on the platform and strengthen competitiveness in advertising.
Whether the ad business is growing as quickly as initially expected is a key point to watch in this earnings report. LSEG forecasts Netflix's second-quarter ad revenue at $705.8 million (about 1.05 trillion won). Ross Benes, an analyst at the market research firm emarketer, said, "Netflix's ad business has not grown as much as most analysts initially expected," adding, "We had no choice but to lower our ad business outlook."
In its first-quarter earnings release this year, Netflix presented annual revenue guidance of $50.7 billion to $51.7 billion (about 75 trillion to 76 trillion won). The industry expects this earnings report to confirm whether ad business growth and the impact of live content investments are materializing, and whether the company will maintain or raise its annual revenue guidance.