Netflix’s stock has jumped $120 billion this year, which sounds great until you realize that on Tuesday, the company has to convince Wall Street that its expensive bets on video games and advertising are actually going anywhere.
The streaming giant is expected to post its fastest revenue growth in over four years when it reports third-quarter earnings, thanks to a killer content lineup. “KPop Demon Hunters” became Netflix’s biggest movie ever, and the second season of “Wednesday” pulled in massive numbers. The final season of “Stranger Things” is coming in the last three months of 2025, so yeah, people are watching.
But here’s the thing investors are nervous about: Netflix stopped sharing subscriber numbers earlier this year and told everyone to focus on revenue and profit instead. That’s the kind of move companies make when they’re worried the subscriber growth story is running out of steam.
So now Netflix is pushing into gaming and advertising—two areas where, let’s be honest, they haven’t exactly set the world on fire yet.
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The Gaming Problem Nobody Wants to Talk About
Netflix has reportedly dumped around $1 billion into buying gaming studios and building out its gaming business. That’s real money. They’ve got over 120 mobile games now, including “GTA: San Andreas” and games based on their own shows like “Squid Game: Unleashed.” This month they announced they’re adding family party games like “Boogle Party” and “Pictionary: Game Night” that you can play on your TV.
Sounds ambitious, right? Here’s the reality check: after more than four years of operation, Netflix’s video games have increased user engagement—the amount of time people spend on the platform—by less than half a percent. That’s according to research from Omdia back in June, and it’s… not great.
Co-CEO Greg Peters, who’s basically the guy in charge of Netflix’s gaming strategy, recently tried to explain this away by comparing it to Netflix’s launch in Japan, where initially only 2% of people 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 a conference earlier this month.
That’s one way to spin it. Another way to look at it is: you’ve spent a billion dollars and barely moved the needle on engagement after four years. How much longer are investors supposed to wait?
The problem Netflix faces in gaming isn’t unique to them—plenty of major entertainment companies have tried turning hit movies and shows into successful games and failed. Warner Bros Discovery is kind of the exception, but they’ve got DC Comics and a ton of other iconic characters to work with.
Netflix? Not so much. Their most downloaded game is still “GTA: San Andreas,” which is a Rockstar classic from 2004, not a Netflix original. That tells you something about how their own intellectual property is performing. People aren’t exactly lining up to play games based on Netflix shows when they could play established franchises instead.
There’s also a more fundamental mismatch happening here. Most people come to Netflix to zone out and watch TV—it’s a passive, lean-back experience. Gaming, even casual party games, requires active engagement. Those are just different behaviors, and it’s not clear Netflix has figured out how to bridge that gap.
The Ad Tier: Growing But Still Small
Then there’s the advertising-supported tier, which is supposed to be Netflix’s big growth driver starting next year. The cheaper plan with ads has been attracting more than half of Netflix’s new subscribers and had around 94 million users as of May.
That sounds impressive until you realize Netflix doesn’t actually tell anyone how much money the ad tier is making. Analysts polled by LSEG estimate it’ll bring in about $662 million in the third quarter. For context, Netflix’s total expected revenue for the quarter is $11.51 billion. So the ad tier is contributing maybe 5-6% of total revenue, despite having all these subscribers.
That’s not nothing, but it’s also not exactly transformational yet. The question is whether it gets there, and how long that takes.
“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, a senior portfolio manager at Zacks Investment Management. “But we will certainly want to see that develop over the next couple of quarters.”
Translation: Yeah, we get it, you need new revenue sources because the subscriber growth party can’t last forever. But show us some actual results soon, because patience has limits.
What Wall Street Wants to See
Overall, Netflix is expected to report a 17.2% revenue jump to $11.51 billion for the third quarter, with net profit surging 27% to $3.01 billion. Those are solid numbers by any measure.
But Wall Street’s getting pickier. It’s not enough anymore to just keep growing through more subscribers watching more content. Investors want to see these newer ventures—gaming and advertising—start pulling their weight. They want proof that Netflix isn’t just throwing money at problems and hoping something sticks.
The challenge for Netflix is that both gaming and advertising take time to mature. Building a successful gaming business isn’t something you do in a couple years, especially when you’re competing against companies that have been doing it for decades. Getting advertisers to fully embrace your platform and pay premium rates takes time too.
But Netflix’s stock is up $120 billion this year, and that’s created expectations. Investors who’ve enjoyed those gains are going to start asking harder questions if these expensive bets don’t start showing returns soon.
Peters’ comparison to Japan might be accurate—maybe gaming really does just need more time to find its footing. Or maybe Netflix is learning the hard way that being great at streaming TV doesn’t automatically translate to being great at everything else in entertainment.
Tuesday’s earnings call will probably give us a better sense of which way this is heading. Either Netflix will show real progress on gaming and advertising that justifies the investments, or they’ll keep asking investors to be patient and trust the process.
Given how much money is involved and how long this has been going on, that patience might be wearing thin. We’ll find out soon enough.