Netflix's bet on advertising is beginning to pay off, according to analysts at UBS. The bank said in a recent note that the streaming giant's ad-supported plan is now generating closer-to-standard revenue per member, signaling that its push into advertising is gaining momentum.
UBS expects Netflix to bring in $3 billion in ad revenue by 2026, as the company explores new products like live TV channels and a free ad-supported streaming TV (FAST) service for its roughly 330 million global subscribers.
What's behind the optimism?
Netflix launched its ad-supported tier in late 2022 as a way to attract price-sensitive viewers and open a new revenue stream beyond subscription fees. Initially, the plan struggled to command high ad rates because of limited viewership and a smaller audience compared to competitors like YouTube or Hulu.
But UBS now sees signs that the ad tier is maturing. The bank noted that Netflix is testing features that could boost engagement and create more advertising inventory. Live TV channels—such as scheduled programming or sports events—could keep viewers on the platform longer, while a FAST service would offer free, ad-supported content to a broader audience.
FAST services, which are already popular with services like Pluto TV and Tubi, generate revenue entirely from ads and don't require a subscription. By launching its own FAST offering, Netflix could tap into a market that appeals to cord-cutters and budget-conscious viewers.
Why this matters for investors
For years, Netflix's growth story has been built on adding subscribers and raising prices. But as the streaming market matures, those levers are becoming harder to pull. The company's recent earnings report showed signs of slower subscriber growth, which weighed on the stock.
Advertising offers a new path to revenue that doesn't depend on signing up more users. If Netflix can successfully monetize its existing audience through ads, it could reduce its reliance on subscription price hikes—a move that often frustrates customers.
UBS's $3 billion forecast for 2026 is significant, but it's still a small slice of Netflix's overall revenue, which topped $33 billion in 2023. The bank's view suggests that advertising will become a meaningful contributor over time, but not an overnight game-changer.
What to watch next
Investors will be watching for concrete details on Netflix's live TV and FAST plans. The company has already dipped into live programming with events like the Chris Rock comedy special and a golf tournament featuring Formula 1 drivers. Expanding into scheduled channels would be a bigger shift.
Another key factor is competition. Streaming rivals like Disney and Warner Bros. Discovery are also ramping up their ad-supported offerings. Netflix's ability to command premium ad rates will depend on its audience size and engagement levels.
For everyday investors, the takeaway is that Netflix is evolving from a pure subscription business into a hybrid model. That could provide more stable revenue growth and reduce the volatility that comes with subscriber-number surprises. But the advertising pivot is still in its early stages, and results will take time to materialize.
UBS's note adds to a growing chorus of analysts who see Netflix's ad tier as a long-term positive. Whether it can hit the $3 billion target will depend on how quickly the company can roll out new products and convince advertisers to spend.
