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As the James Bond title goes, ‘The World Is Not Enough’ for Netflix as far as investors are concerned. They want more, more and more.
Better than expected quarterly results and upgraded full-year revenue and cash flow guidance weren’t enough to keep investors happy.
Shares in Netflix fell in pre-market trading following the results even though the company is going from strength to strength. Investors took fright at a few points in the update and locked in some profit after the shares doubled in value over the past 12 months.
Investors didn’t like the fact that the core of its upgraded revenue guidance was foreign-exchange related rather than demand-driven. It is benefiting from the weakening US dollar relative to most other currencies.
Full-year margin guidance implies that the uplift in second quarter margins won’t carry through to the second-half period. That’s because it has some big releases on the schedule, including new series of ‘Stranger Things’ and ‘Wednesday’, and it plans to market them heavily. Netflix is betting that extra marketing spend could lead to a big uplift in customer numbers. This isn’t a gamble; it’s a calculated ploy that could yield big results.
Member growth already improved more than expected at the end of the second quarter, and advertising-related income looks interesting.
Netflix plans to spend big bucks to strengthen its advertising sales infrastructure and capabilities. Many investors don’t like it when money is going out the door rather than coming in. In reality, Netflix is spending money today to potentially make a lot more money tomorrow.
Advertising is on track to become a core source of income for the business and the smarter its technology capabilities on this front, the sweeter the potential for profit.
Carrying third-party advertising has been more successful than anyone thought when the plan was first announced. Some investors thought that adding advertising into the revenue equation was a risky move as earnings would become unpredictable. Netflix has proved the naysayers wrong.
The streaming platform is an advertiser’s dream. It has a large audience who keep coming back for more, and it knows an awful lot about who is watching and what they’re doing. The more Netflix can learn about its customers’ habits and monitor responses to marketing messages, the more it can feed back to advertisers and potentially charge them extra.
One area to watch is engagement levels. Netflix has done a good job at serving up a broad range of content that has both mass market and niche appeal. Total view hours grew slightly in the first half of 2025, but Netflix says overall engagement has been relatively steady for the past few years. It really needs to improve engagement to win over investors.
A redesigned TV homepage could be the catalyst to get customers watching more content. This has just been launched and Netflix says early results are ‘encouraging’.
Roughly half of the time customers don’t have a particular show or film in mind when they log on, meaning it’s up to Netflix’s interface to make suggestions. We’ve all wasted hours browsing through streaming platform menus and been undecided on what to watch, so Netflix has a big job to make personalised content suggestions. There is knock-on commercial effect if Netflix gets this right, in that the more customers are engaged with the content, the more advertisements they could be served.
CORRECTION: The original version of this article implied that Terry Smith from Fundsmith had made a particular remark about the company’s strategy. This was incorrect. We apologise for this error.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
