After years of keeping ads off its platform, Netflix (NFLX 1.46%) introduced its first ad-supported plan in late 2022. Growth was slowing at the time, and by offering a lower monthly price, Netflix opened the door for more cost-conscious consumers.
By all accounts, Netflix's ad strategy has worked. By the end of 2025, Netflix surpassed 325 million paid memberships. The company also had more than 190 million monthly active viewers, which Netflix defines as subscribers who watch at least one minute of ads per month multiplied by the number of people in a household. Ad revenue topped $1.5 billion in 2025, up 2.5x from 2024.
There's just one problem: Ad-supported customers produce less revenue per subscriber than ad-free customers.
Image source: Netflix.
There's a gap that needs closing
Netflix has been focused on scaling up its ads business rather than optimizing it. The result is that ad-supported customers aren't being fully monetized. "So there is still a gap between the ad tier ARM for standard without ads," noted co-CEO Gregory Peters in the fourth quarter earnings call.
The issue is the fill rate, the percentage of ad requests that are filled with an actual ad. While Netflix didn't disclose its fill rate, one estimate puts it at just 45% in 2025. If that metric is accurate, Netflix has plenty of room to boost ad revenue, even without adding more ad-supported subscribers. Given the company's 2025 ad revenue, optimizing the ad business could be a billion-dollar opportunity.
Netflix rolled out its in-house adtech stack, called Netflix Ads Suite, in 2025, aiming to make it easier for advertisers to participate. "In 2026, we are making more Netflix, Inc. first-party data accessible, of course, in a privacy-safe, data-secure way," Peters said. The company has also been testing modular interactive video ads, which allow advertisers to mix and match creative elements. These changes will help Netflix cater to more advertisers and boost its fill rate.
Netflix has successfully sold consumers on its ad-supported plans. Now, the company must sell advertisers on its platform.
Does Netflix's ad opportunity make it a buy?
Shares of Netflix have been hammered over the past six months, and the stock sank further in pre-market trading on Wednesday following its fourth-quarter earnings report. While Netflix has the potential to boost its ad revenue over the next few years, the pending mega-acquisition of Warner Bros. Discovery could be putting pressure on the stock. While Warner Bros. owns valuable content and franchises, investors may be concerned about the price tag.
NASDAQ: NFLX
Key Data Points
Netflix stock is also pricey, trading at 28 times the average analyst estimate for 2026 adjusted earnings per share. Total revenue grew by 17% in 2025, and the company expects 12% to 14% growth in 2026, thanks in part to a doubling of ad revenue. However, with the uncertainty around the Warner Bros. deal and a lofty valuation, Netflix stock doesn't appear all that attractive.
