Netflix reduces ad revenue forecast amid ‘slower than expected’ rollout of products
Netflix has reduced its ad revenue growth outlook this year amid a “slightly slower than expected rollout of some ad product capabilities”, the streaming giant reported in its Q3 earnings on Tuesday.
The company now expects ad revenue to grow over 80% year-on-year to $2.7bn this year. This compares with prior forecasts of 100% revenue growth to $3bn, suggesting ad revenue growth slowed in Q3 and early Q4.
On the company’s earnings call, co-CEO Greg Peters praised the speed at which Netflix has built out its ad stack, but acknowledged it is “behind our aggressive target for the year”.
“If you are sufficiently aggressive with your roadmap, you’re going to occasionally be behind some milestones,” he reasoned. “In this case, we’ve seen some delays in the rollout and partner integrations for some of those new ad products. Getting to the integration model we want sometimes takes a bit more work with our partners, but we strongly believe a modest short-term hit for a better long-term strategic position is a good trade-off. We don’t see this impacting our long-term gains.”
Peters added that Netflix’s priorities for its ad business remain unchanged. They include offering “full funnel optimisation solutions”, new ad formats and ad products, and increased availability of first-party measurement and reporting.
In a separate blog post released Tuesday, Nicolle Pangis, Netflix’s VP of advertising for North America, announced several forthcoming ad innovations. These include an enhancement to its conversion API and a newly built Netflix Pixel to aid in first-party measurement and targeting.
In addition, Netflix is expanding opportunities through partner demand-side platforms, with Pangis outlining that, from next month, advertisers “will be able to activate any third-party data partner”. Netflix is also moving to offer in-DSP measurement; this is currently available in Yahoo DSP and will soon be available via The Trade Desk.
At its inaugural UK upfront event in London last month, the company revealed it would be expanding its ad tier to nine new countries in EMEA next March.
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‘I know that we could do better’
Netflix reported total revenue grew 12% year-on-year to $12.9bn in Q3, and the company now expects full-year revenue to grow 13% to $51.1bn.
However, shareholders are concerned amid reports of stagnant viewership. According to The Wall Street Journal, co-CEO Ted Sarandos has complained internally for months that watch time was falling in the American market in particular, and that YouTube was outpacing it. Netflix, Sarandos reportedly acknowledged, was failing to produce new hit shows.
The pressure to increase viewing comes as Netflix announced layoffs of 1,000 employees (equivalent to 6% of staff), including content chief Bela Bajaria and film chief Dan Lin. Peter Rice, a former Disney executive, was hired to replace Bajaria.
“We want to be the must-have entertainment service,” Sarandos said on the company’s earnings call. “The first one members check for a great series or a great film and the last service they’d ever cancel. The anchor of that strategy is Netflix originals: differentiated, exclusive, ambitious, professionally-produced series and films and live events. Now, we’ve oriented the market to expect something great and new to watch every week, so we have to deliver on quality and quantity always.”
Sarandos noted that Netflix currently has “healthy retention in every region”, with churn figures “better than forecast” amid price hikes to its subscription tiers.
Thanking Bajaria for “all of her incredible contributions to Netflix”, Sarandos continued: “There is a lot to be excited about, but I know that we could do better. […] Now we’ve seen an opportunity to take our slate to the next level, especially in the US, where we can have an outsized impact when we create a big buzzy show that members love and talk about all over the world.”