Netflix (NFLX.O) heads into its third-quarter earnings report on Tuesday facing a pivotal moment: can its billion-dollar pushes into advertising and gaming justify its $120 billion stock rally this year and sustain growth beyond its streaming roots?
Analysts expect the company to post its fastest revenue growth in over four years, driven by blockbuster releases such as “KPop Demon Hunters” — its most successful film to date — and the return of “Wednesday.” The fourth quarter also looks promising with the final season of Stranger Things set to draw massive viewership.
Yet some investors are skeptical. Netflix stopped reporting subscriber numbers earlier this year, shifting focus to revenue and profit metrics, which has heightened pressure on its new ventures to perform. The company has spent about $1 billion building its gaming division, acquiring studios and developing over 120 mobile titles, including “GTA: San Andreas” and games inspired by hits like “Squid Game: Unleashed.”
So far, the results have been underwhelming. According to Omdia, Netflix’s games have increased user engagement by less than 0.5% after four years. Co-CEO Greg Peters defended the slow progress, comparing the rollout to Netflix’s early struggles in Japan — suggesting success will take time.
Netflix’s gaming challenges mirror those of other media giants such as Warner Bros Discovery, which have also struggled to turn big franchises into profitable games. Analysts note that Netflix’s lack of iconic intellectual property limits its competitive edge.
Meanwhile, Netflix’s ad-supported subscription tier — now available in key global markets — is emerging as the company’s most promising new revenue stream. Analysts estimate it generated around $662 million in Q3 and already attracts over half of new subscribers, totaling roughly 94 million users. Still, its overall impact remains small compared to Netflix’s projected $11.51 billion in quarterly revenue and $3.01 billion in net profit, representing jumps of 17% and 27%, respectively.
Investors like Brian Mulberry of Zacks Investment Management caution that while these new segments may eventually diversify Netflix’s revenue, “in the short term, they are not profitable.” The coming quarters will reveal whether Netflix’s gaming and advertising bets can transform from costly experiments into real growth engines.