Netflix announced it gained over eight million new subscribers in the second quarter, exceeding the forecast of five million and driven by successful content like *Bridgerton*, *Baby Reindeer*, and *The Roast of Tom Brady*. This growth was boosted by Netflix's crackdown on password sharing. Despite this positive news, Netflix provided cautious projections for the third quarter and indicated that its advertising revenue will not significantly impact overall growth until at least 2026. After the announcement, Netflix shares recovered from initial losses and increased by one percent in after-hours trading. The stock has risen nearly 30% this year.

Michael Ashley Schulman from Running Point Capital noted that while Netflix remains a leading and profitable streaming service, some investors might be taking profits due to a recent downturn in tech stocks, waiting for a better opportunity to re-enter. The company is encountering saturation in the U.S. market and will cease regular reporting of new subscriber numbers next year. Investors are now focusing on Netflix's advertising business as a potential growth area. However, Netflix's third-quarter subscriber growth is expected to be lower compared to the same period in 2023 when the password-sharing crackdown was first implemented.

Netflix also announced the departure of its vice president of ad sales, Peter Naylor. Analyst Jamie Lumley from Third Bridge highlighted that Netflix's advertising segment has yet to demonstrate substantial revenue impact and that Amazon has made a more significant impact in the ad market. Netflix needs to scale its ad business to become a major player, according to Lumley. For April to June, Netflix reported diluted earnings per share of $4.88, surpassing the forecast of $4.74, with quarterly revenue reaching $9.56 billion, aligning with expectations. By the end of June, Netflix had over 277 million global subscribers.

The company's ad-supported tier grew by 34% from the previous quarter, though Netflix did not disclose the number of subscribers for this tier. Netflix acknowledged the growth of its ad business but emphasized that it will take time to become a major revenue driver, with a more significant impact anticipated in 2026 and beyond, according to CFO Spencer Neumann.

Disclaimer: This image is taken from Reuters.