Netflix’s new ad-supported subscription tier has reached 15 million global monthly active users (MAUs) just one year after its initial launch. This represents a significant increase from the 5 million MAUs the company reported in May 2022.
The streaming giant announced the milestone in a company blog post on Wednesday, with Netflix’s VP of Advertising, Amy Reinhard, stating that the growth demonstrates the “incredible foundation” the ad tier has built in a short period of time.
Netflix Stock Gets Boost From News
The news led to a boost in Netflix’s stock price, with shares climbing more than 1% in morning trading on Wednesday following the announcement. Netflix’s stock is now up over 40% year-to-date, significantly outpacing the S&P 500’s 10% gain over the same time period.
Analysts have been closely tracking the growth of Netflix’s ad tier as a major potential revenue driver for the company. While Netflix has yet to reveal the number of actual paying subscribers to the ad plan, reaching 15 million global MAUs indicates strong early adoption that could translate into subscriber growth.
Key Details on Netflix’s Ad Tier
- Launched in November 2022 as a $6.99 per month option, cheaper than Netflix’s ad-free plans
- Includes an average of 4-5 minutes of ads per hour
- Aimed at attracting new subscribers and generating incremental revenue
- Available in 12 countries currently including U.S., Canada, UK, France, Germany
- Features targeting and frequency caps for advertisers
- Includes sponsorship opportunities for brands to partner with specific shows
Major Initiative To Boost Growth
Netflix’s ad-supported tier represents a major strategic shift for the company, which long resisted adding commercials to its service. However, after a subscriber decline in the first half of 2022, Netflix warmed up to the idea of an ad tier as a way to boost growth.
The cheaper $6.99 ad plan provides an attractive entry point for new subscribers, while also generating revenue from advertising. This incremental revenue is vitally important as Netflix aims to improve profit margins after years of heavy content spending led to free cash flow losses.
Analysts Cautiously Optimistic About Potential
While Wednesday’s update provided positive momentum for Netflix’s stock, analysts remain cautiously optimistic about the long-term potential of the ad tier.
Netflix has warned it will take time to “scale” the ad business, indicating the company is still in the early stages of ramping up revenue from advertising. There are also questions around Netflix’s ability to secure premium ad rates compared to rivals like Hulu.
However, early signs point to strong engagement on the ad tier, with Netflix highlighting new features like a “binge ad” format that rewards viewers who watch multiple episodes back-to-back with an ad-free episode.
Other Revenue Initiatives
Netflix’s ad tier forms part of a broader push to boost revenue through multiple avenues beyond price hikes.
The company recently announced plans to crack down on password sharing by requiring accounts to verify their “primary location” and charging fees for adding sub-accounts outside a household.
Netflix also rolled out price increases on certain plans in the U.S., U.K. and France last quarter. The combined revenue initiatives helped drive a subscriber increase of 7.7 million in Q4, exceeding the company’s forecast.
While it will take time to evaluate the long-term success, Netflix’s ad tier reaching 15 million MAUs marks an important milestone and could emerge as a key pillar of the company’s growth strategy alongside content and subscriptions.
However, generating meaningful revenue from ads alongside competing with digital giants like Google and Meta will remain an ongoing challenge.