Netflix’s advertising strategy is starting to pay off

netflix It jumped into advertising later than its media peers, but its shift in strategy is starting to pay off.

Netflix reported fourth-quarter earnings this week, but they were mostly overshadowed by the company’s recent acquisition efforts. Warner Bros. Discovery’s streaming and studio assets. But beyond the headlines, measurements Factors such as customer interaction, subscriber numbers and advertising revenues paint a promising picture.

The earnings report provided long-awaited clarity on the progress of Netflix’s advertising strategy and how it affects the overall business. Netflix on Tuesday said its 2025 ad revenue exceeds $1.5 billion, or about 3% of the streaming giant’s total full-year revenue, and is expected to double this year.

The company’s overall revenue will increase by almost 16 percent in 2025, while net income will increase by 26 percent.

“We’re making good progress and there’s a great opportunity ahead of us,” co-CEO Greg Peters said on a call with investors Tuesday.

However, Wall Street analysts noted that the advertising revenue release fell short of their previous estimates, indicating that it may take longer than expected to get the advertising business back on its feet.

“The last few years have been slower than we anticipated. However, ad revenue growth is accelerating and should provide a similar contribution to revenue growth as we predicted in our pre-Q4 forecast,” analysts at Deutsche Bank wrote in a research note on Wednesday. he said.

MoffettNathanson’s Robert Fishman noted that total advertising revenue was lower than the research firm had predicted, but welcomed the new insights into the company’s advertising business.

“At least we now have a better understanding of the contribution of advertising to overall growth and can get back to core subscription revenue,” Fishman said in a note Wednesday.

Shares of Netflix were trading down nearly 4% on Wednesday.

Advertising came to the fore for media companies after it became clear that a subscription-only streaming model would not be enough to support profitability.

Advertisers, despite various negativities, were very eager to find a place on streaming platforms, especially Netflix.

But after leadership rejected the business model for a long time, the industry leader was late to the advertising game. It launched its cheaper, ad-supported tier in late 2022, which coincided with a brief slowdown in subscriber additions.

A crackdown on advertising and password sharing have been put forward as measures to stimulate growth. And it happened, albeit slowly.

Netflix said Tuesday it has 325 million subscribers worldwide by the end of 2025. This marks an increase of nearly 23 million from the end of 2024, when Netflix last announced its global paid memberships.

By comparison, Netflix added nearly 41 million subscribers in 2024 and almost 30 million in 2023.

In an environment of constant price increases for streaming services, companies are increasingly relying on the belief that consumers will opt for cheaper, ad-supported plans rather than give up entirely.

Peters said Tuesday that while there is a gap between the average revenue per membership for the company’s standard, ad-free plan subscription and its ad-supported plan, “that gap is narrowing.”

“And because there’s a gap, that means we haven’t been able to deliver enough revenue growth recently, so that represents an opportunity for us as well,” Peters said, pointing to upgrading the tech stack and advertising capabilities to help drive growth.