Netflix stock is rising as the company shows growth at the advertising level

Netflix saw shares rise more than 9% on Thursday shortly after revealing details of its new ad-supported tier that suggested the business model is starting to pay off.

The streaming service said this week that it has five million monthly active users for its cheaper, ad-supported option, and 25% of its new subscribers sign up for the tier in the territories where it’s available.

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The update came Wednesday at Netflix’s first pitch to advertisers, the first time Netflix has attended the industry’s so-called upfront presentations. This year features top media companies including Comcastis NBCUniversal and Warner Bros. Discovery presented advertising-financed streaming options in their lectures.

Netflix rolled out its ad-based option in late 2022 after quarters of flat subscriber growth caused the stock to plummet.

The company released mixed financial results last quarter but said it added 1.75 million subscribers. Netflix is ​​also preparing to roll out its crackdown on password sharing more widely, another move to drive revenue growth.

Media companies that were once focused on getting subscribers for their fledgling streaming services have now turned their attention to making their businesses profitable. To achieve this, some have reduced the cost of content spend and relied on advertising models.

Last week, as Disney announced its earnings, CEO Bob Iger noted that the company was looking at the ad-supported option of its Disney+ streaming service as another way to help the streaming business turn a profit. Disney+ lost four million subscribers during the quarter.

Netflix’s advertising tier, which costs $6.99 a month and features 15- or 30-second commercials before and during content, marks a reversal for the company’s management, which had long said it would not air ads to switch the platform.

Netflix introduced the advertising option in cooperation with Microsoft. The content will be rated by Nielsen later this year to help advertisers better understand reach.

Shortly after launch, Netflix founder and former CEO Reed Hastings admitted he was slow to start advertising on the platform. When Netflix introduced the ad tier in November, it was $1 cheaper than Disney+ and Hulu’s ad-supported options.

Netflix co-CEO Ted Sarandos said the company will likely offer multiple subscription plans with advertising in the future, emphasizing the potential to attract more subscribers.

— CNBC’s Alex Sherman contributed to this report.