Netflix(NASDAQ:NFLX) fell 5% on Wednesday, as leadership sees no meaningful impact from its advertising levels in the short term.
Chief Financial Officer Spence Neumann said the streaming service saw a “muted” cancellation response after it cracked down on password sharing. An estimated 100 million people did not pay for a subscription and took advantage of family and friends accounts.
“Sales are increasing,” says Neumann, and will continue to do so until 2024. However, these “spin-off” subscribers lean more toward ad-free viewing, which isn’t ideal for building an ad business.
“We need to scale up the reach of our advertising,” the executive said at a Bank of America conference.
For the third quarter, the company forecast earlier this year that ARM, or streaming revenue divided by the average number of paid streaming memberships divided by the number of months in the period, would decline flat to slightly. He cited that 90% of the growth comes from outside the US, where subscriptions are cheaper.
Neumann also pointed to enormous opportunity for continued growth, with power making up less than 40% of the U.S. market and well below that in other markets. The total addressable market for streaming is estimated at $600 billion, and with 2022 NFLX revenue of $30 billion, that’s still just 5% of the total.
The director also said that games remain a relatively small percentage of the content budget and will not have a major impact on growth in the short term. Finally, he does not see that sports are profitable.