Netflix Inc (NASDAQ:NFLX) shares dropped 3% in the US after the company's chief financial officer Spencer Neumann said revenues from its newly launched ad-based scheme are still immaterial, while also adding that operating margins have weakened.
Speaking at a Bank of America media conference, the executive warned the cheaper ad-based tier for Netflix will still require some time to mature, which later down the line could help improve margins.
"We're still in the crawl of the crawl-walk-run stage, so it is not easy to build an ad business from scratch. We got a lot of work to do," he said.
"As you've seen in our guidance, what we've done so far is not material to the overall revenue of the business. It's something we're building into and we have to get better across the board."
Operating margins, which had at one point reached 21%, are now expected to be between 18% and 20%, the Netflix chief affirmed, while current market consensus sits a little under 20%.
Having also released new schemes like a crackdown on password sharing and expansion into the gaming industry, the group believe it needs to “scale the reach” of its ad tier programme before it can better monetise it.
Looking forward, Neumann remained confident about meeting long-term targets, saying the ad tier met predictions at its first Upfronts and had a healthy stream of new subscribers, although he did not provide an exact number.
Shares in Netflix are up more than 35% in 2023 and closed on Thursday in the US at a little over US$400.