Netflix knows it’s in trouble. Or, rather, it knows people think it’s in trouble.
The streaming service – on paper, at least – posted decent numbers during its Q2 earnings report on Thursday. Revenue in the second quarter grew 13% YoY from $11.1 billion to $12.6 billion, in line with guidance.
But Netflix’s Q1 results looked alright at first, too, and yet shares still dipped more than 10% the next day. Shares fell 31% over the three months that followed, representing an 18-month low. (They dropped a further 8% after its Q2 results posted.)
The general consensus among investors and trade publications is that Netflix’s cultural relevance has stagnated, a notion the executive team pushed back on during the company’s livestreamed quarterly earnings interview on Thursday.
“It’s worth saying also that, in many ways, we’re still just getting started as a company,” said CFO Spencer Neumann. “We’re entertaining an audience approaching a billion people, with still lots of room to grow into our addressable market on every measure.”
Happily engaged(?)
Part of Netflix’s recent woes have to do with a perceived decline in engagement rates, which has been reported on anecdotally by the likes of The Wall Street Journal, Bloomberg and The Guardian.
Compounding that narrative is the perception that viewers haven’t been tuning into the second seasons of major series like “Avatar: The Last Airbender,” “One Piece,” “Four Seasons” and “Beef,” according to Netflix’s own data.
However, Netflix claims that viewing hours actually grew 2% during the first half of the year, compared to 1.5% during the first half of 2025. That number represents 97 billion viewing hours overall, mostly driven by non-English content, especially from Korea, Japan, Spain and India.
Co-CEO Ted Sarandos told investors that season two numbers are not only in line with Netflix’s own expectations, but larger industry trends overall.
“You can pick any five data points to tell any story you want,” said Sarandos, “but I’m going to repeat this: Our season two fall-off is actually slightly improved this year relative to last year.”
In any case, engagement is about more than just viewing hours, and value is about more than just engagement alone, Netflix contends in its quarterly letter to shareholders. “Quality and variety also matter,” the letter reads
But how does prioritizing quality and variety square with Netflix’s recent plan to license more video podcasts and YouTube-first content? According to Sarandos, “the definition of TV has broadened, and our definition has changed along with it.”
In other news, Netflix announced it will be pivoting to an annual release schedule for its “What We’ Watched” reports as opposed to a biannual one. Which means that, perhaps, viewership data won’t have quite as much of an impact on how investors value Netflix moving forward.
Meanwhile, in Ad Land
Arguments about engagement rates aside, at least Netflix’s advertising business seems to be chugging along smoothly.
Netflix still expects to hit $3 billion in ad revenue by the end of 2026, and for this year’s TV upfront commitments to close within the next few weeks.
The company also expanded programmatic access to pause ads and live inventory this summer, and is adding new AI-powered features and products that assist with planning and buying. (Whether these moves will help the advertisers who want more IP address data from Netflix remains to be seen.)
Still, there are some lingering signs of growing pains.
For example, there remains a gap between the average revenue per membership (ARM) for both standard tier and ad tier subscribers, although the gap is narrowing, said Co-CEO Greg Peters.
Speaking of which, Peters also addressed recent speculation that Netflix might introduce free ad-supported channels to its product offerings, which could help boost both Netflix’s ad revenue and engagement rates.
His response: Netflix might “continue to consider” a free offering, but there are no-near term plans to launch anything of the sort.
“A free offering could make sense in some markets,” Peters said, “but we have to be thoughtful about cannibalization of paid tiers.”
