Netflix Ad Revenue Up 80%, but Still Short of Its Double Target

Netflix grew advertising revenue more than 80% this year — and that still wasn't enough to hit its target of doubling it again. Co-CEO Greg Peters delivered the figure on Tuesday's Q3 earnings call, hours after the company unveiled a new measurement tool, the Netflix Pixel, and a buy-side integration with The Trade Desk.

The company's overall Q3 revenue rose 12% year over year to $12.9 billion, in line with its forecast. The ads business, though, is lagging slightly versus expectations, and Netflix has tweaked its forecast for the rest of the year. That puts pressure on a strong Q4.

What are the new ad tools?

The Netflix Pixel joins the conversion API (CAPI) Netflix launched in March as part of the Netflix Ads Suite. According to the company's blog post, the pixel standardizes how marketers measure business outcomes such as conversions and brand lift. It also lets buyers feed that conversion data back into audience targeting.

Starting next month, The Trade Desk joins Amazon's DSP and Yahoo DSP on the list of demand-side platforms that can deploy programmatic targeting across Netflix inventory.

The point of all this, Peters said, is minimizing the average revenue gap between ad-free and ad-supported memberships. That gap has narrowed throughout the year — evidence, in his words, of "unrealized near-term revenue growth."

"We've expanded [programmatic] demand sources, we're adding more features and we're making it easier for folks to transact with us," Peters said. "All of those things drive competitiveness and increased [ad] fill rates."

Is engagement actually growing?

Not fast enough, by Netflix's own admission. Co-CEO Ted Sarandos told a Bloomberg event earlier this month that engagement is "not growing as fast as I want us to." Viewership inched up just 2% over the first half of the year, and Sarandos repeated the point on Tuesday's call.

"We're not satisfied" with current engagement levels, CFO Spencer Neumann said, though "we're working on it." Netflix measures engagement mainly through growth in viewing hours.

In the US, "our engagement is solid, but we know that we can do better," Peters said, ranking regional engagement growth as "very good" when it could be "great." He framed the slowdown as an opportunity rather than a headwind.

Despite the "modest" growth in viewing hours, retention is holding. "The quality, quantity and variety of viewing remains healthy, and the best evidence that we're delivering value is churn," Peters said. Global user retention improved year over year and beat the company's own forecast — even after recent subscription price hikes.

What's the growth plan?

Ads are one of three revenue levers, alongside member growth and price increases. "All three revenue levers are working, and we expect to deliver strong revenue growth in 2027 with those same three levers," Neumann said.

To lift watch time, Netflix is leaning on "professionally produced" programming — sports and live events — plus more licensing and distribution deals, Sarandos said. Recent moves include:

• A content deal with France's TF1 signed over the summer
• Distribution deals with Disney and Brazil's Globo
• NFL coverage of the first-ever Thanksgiving Eve matchup next month
• The 2027 FIFA Women's World Cup

Investors weren't immediately sold. Netflix's share price dipped nearly 6% in after-hours trading Tuesday, a signal that closing the gap between engagement promises and ad revenue now falls squarely on Q4.