Netflix’s Ad Business Is Booming, With Record Q3 Results

Netflix posted strong revenue growth and its best ad sales quarter ever, but a surprise $619 million Brazilian tax charge caused an earnings miss and a stock dip. The results paint a picture of a company whose core advertising and content engines are firing on all cylinders, even as unexpected costs create short-term turbulence.

• Good news, bad news: Despite the hiccup, Netflix’s revenue grew 17% year-over-year to $11.5 billion. The real story, however, is the ad business, which is on track to double its revenue for the second year in a row. The growth is fueled by an expansion in programmatic buying, powered by the company's now fully-operational in-house ad platform.

• K-Pop and knockouts: A slate of massive hits is fueling this growth. Leading the charge is the animated musical "KPop Demon Hunters," which became the platform's most-watched film ever after racking up over 325 million views. Meanwhile, a live boxing match between Canelo Álvarez and Terence Crawford pulled in 41 million viewers, proving the company's bets on live events can pay off.

• Beyond the binge: Netflix is also pushing beyond its core content to keep users from straying. The company is using AI to develop "dozens of ad formats by 2026" and broadening its library with an exclusive deal to stream video podcasts from Spotify. When asked about acquiring a legacy studio like Warner Bros. Discovery, co-CEO Ted Sarandos downplayed the idea, stating, "Historically, we've been more builders than buyers."

The Brazilian tax issue was a surprise speed bump, but it doesn't change the trajectory. Netflix's ability to create cultural hits and monetize them through a rapidly growing ad business shows its fundamental strategy is working.

While its streaming and ad businesses mature, Netflix is already making its next moves. The company is pushing into the living room with a new slate of party games that use smartphones as controllers. Meanwhile, analysts are speculating that if Netflix were to acquire Warner Bros. Discovery, it could gain a critical missing piece in its live content strategy: CNN.