How Netflix’s ad business could become a $10 billion sleeper hit

Netflix (NFLX) was once allergic to ads. Now it might be growing its empire on them.

Back in 2022, the company’s decision to launch an ad-supported tier felt more like a concession than a strategy — a move that came as password crackdowns replaced product launches and was driven by slowing subscriber growth, rising competition, and economic pressure.

Fast forward to mid-2025 and that “standard with ads” plan looks less like a reluctant experiment and more like a $10 billion franchise in the making.

Netflix’s ad-supported tier now boasts greater than 94 million global monthly active users, more than doubling from 40 million just the year before, according to the company. In regions where that tier is available, over 40% of new subscribers are choosing the cheaper, ad-supported option — showing that viewers are happy to trade a few commercials for a lower monthly bill. Among these users, 44% are new to Netflix, 40% downgraded from pricier ad-free plans, and 16% are returning subscribers, per The Wrap.

Jefferies (JEF) analysts estimate that Netflix’s advertising business could hit $10 billion in annual revenue by the end of the decade, and Wall Street is finally catching up to the plot twist.

In a June note, Jefferies raised its price target on Netflix to $1,400, citing, among other things, the “infancy” of the ad business and its massive runway for growth. Oppenheimer (OPY) analysts are even more bullish in the short term, forecasting $6 billion in ad revenue by 2025 — up from a previous $4.6 billion estimate.

That’s not pocket change for a company that built its brand on being the “ad-free” TV option.

From ad-free to ad-funded

Netflix’s transformation into a hybrid media-advertising platform mirrors broader shifts in the streaming landscape. According to data from analysts at Antenna, nearly half of streaming subscriptions across major platforms are now ad-supported. Consumers, it turns out, are willing to watch a few commercials if it means saving a few bucks — and advertisers are eager to reach them in a post-cable world.

Still, Netflix wasn’t the first to adopt this model. Hulu (DIS), Peacock (CMCSA), and Paramount+ (PARA) had ad-supported offerings years earlier. But Netflix’s scale gives it an edge: a global subscriber base, premium content, and hit franchises such as “Bridgerton,” and increasingly, the infrastructure to sell those ads with surgical precision.

The company recently began building an ad-tech platform with plans to launch it globally by the end of 2025. Netflix has also inked partnerships with major programmatic players such as The Trade Desk (TTD), Google’s DV360, and Magnite (MGNI) to streamline ad sales and targeting.

The appeal to advertisers is obvious. Netflix offers premium, brand-safe content in a streaming environment that’s becoming increasingly fragmented and unpredictable. And the company’s ad business still represents a small slice of total revenue — an estimated $2 billion in 2025.

But that’s the point: There’s room to grow.

MoffettNathanson (SIVB) sees Netflix’s advertising revenue climbing past $6 billion by 2027, on track for $10 billion by 2030. For comparison, YouTube (GOOGL) generated over $40 billion in ad revenue last year. Even capturing a small fraction of that puts Netflix in a different league than most of its streaming peers.

And Wall Street is paying attention. The ad model, combined with a blockbuster second-half content slate — “Squid Game” season three, the “Stranger Things” finale, and even NFL games and other live offerings — is fueling bullish sentiment on the stock.

Analysts expect free cash flow to grow at a 20% compound annual rate over the next five years, reaching $18 billion by the end of the decade. Advertising, Wall Street seems to be arguing, is the high-margin lever that could supercharge those numbers — while the company remains a strong, recession-safe play.

It also offers Netflix pricing flexibility. Rather than hiking monthly rates across the board (a tactic that’s historically sparked churn), the company can nudge users toward the ad tier while still growing average revenue per member (ARM). So far, it seems to be working: Churn from price increases has been “limited,” per Jefferies, and ARM is rising.

In early 2025, Netflix raised the price of its ad-supported plan from $6.99 to $7.99 (the standard plan without ads from $15.49 to $17.99; and the premium tier without ads from $22.99 to $24.99). Unlike previous hikes, this one didn’t trigger a mass exodus.

That’s good news for the company’s margins — and even better news for its ambitions to grow the ad-supported tier without sacrificing user growth.

Risks? Sure. But don’t bet against binge-watching

There are, of course, still caveats. Some analysts worry that the ad tier might cannibalize higher-paying subscribers, dragging down margins. Others point to the fact that the costs of live sports and entertainment rights could weigh on profitability (just ask ESPN). And unlike tech-native platforms such as Meta (META) or Google, Netflix has only recently begun building the backend that powers programmatic ad targeting at scale.

But if Netflix can thread the needle — retaining its brand while scaling its ad business — it could pull off something rare in streaming: profitable, diversified growth. The irony? For a company that famously shunned advertising for years, Netflix’s next act could be defined by it. If the company’s original story was about killing the cable bundle, the sequel might be about inheriting cable’s ad dollars.

As the credits roll on the first chapter of the streaming wars, Netflix is already filming the next one. And this time, it comes with commercial breaks.