Netflix’s $120 billion stock market rally this year faces a crucial test on Tuesday: proving that its costly investments into advertising and video gaming can support the growth that made the streaming pioneer a Wall Street darling.
A strong content slate including “KPop Demon Hunters”, Netflix’s most successful movie ever, and the second season of “Wednesday” are expected to power the company’s fastest revenue increase in more than four years when it reports third-quarter results on Tuesday.
The last three months of 2025 will also feature strong programming, including the last season of “Stranger Things.”
But some investors and analysts fear that the streamer’s years of runaway growth could fade. They noted that the company decided to stop sharing subscriber numbers earlier this year, urging Wall Street to focus more on financial metrics such as revenue and profit.
That has pushed the company to focus on newer ventures such as video games, which, analysts said, have struggled amid shifts in leadership and strategy.
According to the Wall Street Journal, Netflix is estimated to have invested around $1 billion buying gaming studios and building the business, which now offers more than 120 mobile games, including Rockstar Games’ “GTA: San Andreas” alongside games based on its own hit shows such as “Squid Game: Unleashed.”
Netflix said this month it would offer family party games such as “Boogle Party” and “Pictionary: Game Night” on TV.
A BET THAT HASN’T PAID OFF
Netflix’s video games have boosted user time spent – a key engagement measure – by less than 0.5 per cent, after more than four years in operation, an analysis from technology research firm Omdia showed in June showed.
Co-CEO Greg Peters – seen as the architect of Netflix’s gaming strategy – recently likened the expansion into video games to the streaming service’s entry into Japan, when only 2 per cent of consumers knew the brand.
“We just did the 10th Anniversary in Japan … but it took us a long time. The gaming situation is not dissimilar to that,” he said at the Bloomberg Screentime conference earlier this month.
That problem is not unique to Netflix. Major media and entertainment companies other than Warner Bros Discovery have struggled to turn hit films into profitable game ventures.
Netflix’s main challenge in gaming is its limited roster of iconic intellectual property unlike Warner Bros Discovery, which owns iconic intellectual property such as DC Comics, said Michael Pachter, managing director, strategic planning at Wedbush Securities.
Sensor Tower data showed that “GTA: San Andreas” remains Netflix’s most downloaded game, outperforming its originals – a sign that the company’s own IP lacks the merchandising pull of established entertainment franchises.
Omdia analyst Rob Gallagher said video games stand out awakardly within Netflix’s lineup because most subscribers come for a passive, lean-back viewing experience – a habit that even light party games struggle to change.
AD TIER
Focus will also on the ad-supported tier, widely expected to become a major driver of Netflix’s growth from next year.
The plan has been attracting more than half of the company’s new subscribers and had around 94 million users as of May, but its contribution to Netflix’s topline remains small.
The streamer does not break out the revenue figure for the tier but analysts expect it to bring in $662.3 million in the third quarter ended Sept. 30, according to data from three analysts polled by LSEG.
Overall, the company is expected to report a revenue jump of 17.2 per cent to $11.51 billion, while net profit likely surged 27 per cent to $3.01 billion.
“We understand why they’re taking these measures to have diverse streams of revenue but in the short term, they are not profitable segments,” said Brian Mulberry, senior portfolio manager at Zacks Investment Management, which offers Netflix-linked ETFs.
“But we will certainly want to see that develop over the next couple of quarters.”
