Unnamed: 0 int64 | symbol string | quarter int64 | year int64 | date string | company_name string | company_id float64 | text string |
|---|---|---|---|---|---|---|---|
5,200 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Karl Keirstead with UBS. Please proceed.
Karl Keirstead: I'm actually not going to ask a question about the numbers, but Satya and Amy, I'd love to ask a question about OpenAI. Since the print three months ago, we investors have been hit with a torrent of media stories about OpenAI and Microsoft. And I'd love to give Microsoft an opportunity to frame the relationship. It seems to me it's critically important. But we have been, I think, everyone on the line picking up signals that perhaps Microsoft wants to diversify somewhat at the model layer and offer customers choice. So, Satya, I'd love to get your framing of the relationship. And then in terms of the numbers, maybe this is a little bit more for you, Amy, but how does Microsoft manage the demands on CapEx from helping OpenAI with its scaling ambitions? And how do you manage the impact on other income that you just gave us some color on? |
5,201 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Sure. Thanks, Karl. So, I'd say first, the partnership for both sides, that's OpenAI and Microsoft, has been super beneficial. After all, we effectively sponsored what is one of the most highest-valued private companies today when we invested in them and really took a bet on them and their innovation four, five years ago. And that has led to great success for Microsoft. That's led to great success for OpenAI. And we continue to build on it, right? So, we serve them with world-class infrastructure on which they do their innovation in terms of models, on top of which we innovate on both the model layer with some of the post-training stuff we do as well as some of the small models we build. And then, of course, all of the product innovation, right? One of the things that my own sort of conviction of OpenAI and what they were doing came about when I started seeing something like GitHub Copilot as a product get built or DAX Copilot get built or M365 Copilot get built. So, we have a fantastic portfolio of innovation that we build on top of that. And the same also, I would say, we are investors. We feel very, very good about sort of our investment stake in OpenAI. And so, our focus, and we're always in constant dialogue with them in a partnership like this where both sides have achieved mutual success at the pace at which we've achieved it, that means we need to kind of push each other to do more, to capture the moment and that's what we plan to do, and we intend to keep building on it. |
5,202 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: And maybe to your other two questions, Karl, Listen, I'm thrilled with their success and need for supply from Azure and infrastructure and really what it's meant in terms of being able to also serve other customers for us. It's important that we continue to invest capital to meet not only their demand signal and needs for compute but also from our broader customers. That's partially why you've seen us committing the amount of capital we've seen over the past few quarters is our commitment to both grow together and for us to continue to grow the Azure platform for customers beyond them. And so, I don't really think of it as how do you balance it. It's just we have customers who have needs and real use cases and delivering value today. And if we can't meet that, we need to work to meet it. And that means working harder and faster to make sure we do that, which is what the team is committed to do. Second piece of your question, I think, was on the impact to other income. And not to get too accounting-heavy on the earnings phone call, but I would say just a reminder, this is under the equity method, which means we just take our percentage of losses every quarter. And those losses, of course, are capped by the amount of investment we make in total, which we did talk about in the Q this quarter as being $13 billion. And so over time, that's just the constraint and it's a bit of a mechanical entry. And so, I don't really think about managing that. That's the investment and acceleration that OpenAI is making in themselves and we take a percentage of that.
Operator: The next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed. |
5,203 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: The next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed.
Kash Rangan: Satya, when you talked about the investment cycle, these models are getting bigger, more expensive, but you also pointed out to how the inference phase were likely to get paid. How does that cycle look like an inference for Microsoft? Where are the products and the applications that will show up on the Microsoft P&L as a result of the inference rate of AI kicking in?
Satya Nadella: Thanks, Kash. I mean, the good news for us is that we're not waiting for that inference to show up, right? If you sort of think about the point, we even made that this is going to be the fastest growth to $10 billion of any business in our history, it's all inference, right? One of the things that may not be as evident is that we're not actually selling raw GPUs for other people to train. In fact, that's sort of a business we turn away because we have so much demand on inference that we are not taking what I would -- in fact, there's a huge adverse selection problem today where people -- it's just a bunch of tech companies still using VC money to buy a bunch of GPUs. We kind of really are not even participating in most of that because we are literally going to the real demand, which is in the enterprise space or our own products like GitHub Copilot or M365 Copilot. So, I feel the quality of our revenue is also pretty superior in that context. And that's what gives us even the conviction, to even Amy's answers previously, about our capital spend is if this was just all about sort of a bunch of people training large models and that was all we got, then that would be ultimately still waiting, to your point, for someone to actually have demand which is real. And in our case, the good news here is we have a diversified portfolio. We're seeing real demand across all of that portfolio. |
5,204 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: And Kash, maybe just to add a little bit to what Satya is saying. I think a part of his two answers is that what you're seeing is this number we're talking about, the $10 billion across inference and our apps is already what that momentum and that investment and that progress and that revenue is what builds the next cycle of training, right? And so, it's that circle as opposed to, oh, we're doing training now and then inference. Much of the training investments that are -- that fuel this revenue growth came before and we already funded that work. And so, that's an important part.
Kash Rangan: That's, to your point, that you invest now and you can get the growth later, even if you slow down the CapEx, right, that's what you're trying to tell us?
Amy Hood: That's the cycle that is important to understand.
Operator: The next question comes from the line of Mark Murphy with JPMorgan. Please proceed.
Mark Murphy: I'm wondering if you can shed any more light just on the nature of the supply limitations that you're mentioning that are impacting Azure in Q2, where that impact might be incrementally just a touch more than we expected? Is it more the GPU supply? Is there some element of power cooling or the ability to wire up the networks? And Amy, should we infer that the supply is constraining Azure growth by roughly a couple of few points in Q2 or am I overestimating that? |
5,205 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: Maybe to answer both those questions, Mark, very directly, I wouldn't think about it component logic in my Q2 answer. The supply pushout, as Satya said, was third parties that are delivering later than we had expected, that get pushed mainly into the second half of the year and in general, Q3. So that's third parties where we have tended to buy supply inclusive of kits so it's complete end-to-end third-party delivery. In terms of the impact, as I was saying, when you think about having flat consumption Q1 to Q2, there really are only two things that impact that difference and one was the help we got in Q1 from the revenue and accounting help, and then Q2 has been the supply pushout.
Operator: The next question comes from the line of Raimo Lenschow with Barclays. Please proceed.
Raimo Lenschow: If you talk about the market at the moment because you were first with Copilot, you had identified a lot with Copilots and now we're talking agents. Can you, kind of -- Satya, how do you think about that? And to me, it looks like an evolution that we're discovering how to kind of productize AI better, et cetera. So how do you think about that journey between Copilots, agents and maybe what's coming next? |
5,206 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Sure. The system we have built is Copilot, Copilot Studio, agents and autonomous agents. You should think of that as the spectrum of things, right? So ultimately, the way we think about how this all comes together is you need humans to be able to interface with AI. So, the UI layer for AI is Copilot. You can then use Copilot Studio to extend Copilot. For example, you want to connect it to your CRM system, to your office system, to your HR system. You do that through Copilot Studio by building agents effectively. You also build autonomous agents. So, you can use even that's the announcement we made a couple of weeks ago is you can even use Copilot Studio to build autonomous agents. Now these autonomous agents are working independently, but from time to time, they need to raise an exception, right? So autonomous agents are not fully autonomous because at some point, they need to either notify someone or have someone input something. And when they need to do that, they need a UI layer and that's where again, it's Copilot. So, Copilot, Copilot agents built-in Copilot Studio, autonomous agents built in Copilot Studio, that's the full system we think that comes together, and we feel very, very good about the position. And then, of course, we are taking the underlying system services across that entire stack that I just talked about, making it available in Azure, right? So, you have the raw infrastructure if you want it. You have the model layer independent of it. You have the AI app server in Azure AI, right? So, everything is also a building block service in Azure for you to be able to build. In fact, if you want to build everything that we have built in the Copilot stack, you can build it yourself using the AI platform. So that's sort of, in simple terms, our strategy, and that's kind of how it all comes together.
Brett Iversen: Operator, we have time for one last question.
Operator: And the last question will come from the line of Rishi Jaluria with RBC. Please proceed. |
5,207 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Operator: And the last question will come from the line of Rishi Jaluria with RBC. Please proceed.
Rishi Jaluria: I want to go and think a little bit about Copilot. How we should be thinking about kind of numbers here with the recategorization? It seems like that was maybe softer in the past than expected or maybe with the numbers this quarter starting to pick up. Can you maybe walk us through what you're seeing on that? And maybe more importantly, how we should be thinking about your overall AI strategy on consumer versus enterprise, especially now with the stock on the fold? |
5,208 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Satya Nadella: Yes. On the first part, Rishi, to your question, I think we feel very, very good about the momentum we have in the commercial Copilot, right? As I said in my remarks and Amy talked about, this is the fastest growth of a new suite in M365. If I compare it to what we saw even way back in E3 or E5 or the transition from O to M, this is really much faster, right? It's the numbers of penetration of the Fortune 500 and then the fact that they're coming back for more seats and what have you. So, it's very strong in that context. The other thing I'd like to mention is that we want this to be something that is systemic, right, because people need to be able to put the security controls, then they need to deploy, then there's skilling and then there's change management. So, this is not like you just -- it's not a tool like when I talk about Copilot, Copilot Studio, agents. It's really as much about a new way to work. And sometimes I describe it as what happened throughout the '90s with PC penetration. After all, if you take a business process like forecasting, what was it like pre e-mail and Excel and post e-mail and Excel, that's the type of change that you see with Copilot. But overall, we feel great about the rate of progress and the penetration. And then on the consumer side, look, for us, the exciting part here is to be able to use the same investment we are making in the commercial where we have structural strength and then beyond the offense. One of the things that I think I hope you all catch in our earnings is ex-TAC, our revenue, when it comes to what we describe as search, news and ads, is growing faster than market. So, it's fantastic to see that. And so that's kind of our consumer business, which in Microsoft's large scope, it's sort of even a $10-plus billion business or sometimes go missing. But in our case, it is actually a fantastic growth business that's growing faster than market. We feel good about how we will use AI in LinkedIn. In fact, LinkedIn is a consumer business as you know. You |
5,209 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | than market. We feel good about how we will use AI in LinkedIn. In fact, LinkedIn is a consumer business as you know. You saw even this week, they announced some new capabilities for both consumers and, in their case, even recruiting. So, we think that AI, the same investment gets monetized even through LinkedIn's innovation. And gaming, of course, is another place where you'll see some of these things apply. And Windows, right? So, the place where I think I'm excited about is Copilot+ PCs. For us, it's not about having a disconnected edge. It's about having hybrid AI where the rebirth of sort of the PC as the edge of AI is going to be one of the most exciting things for developers. So, we feel well positioned, quite frankly, with the same investment. So, this is -- that's the thing. We're not a conglomerate here. We are sort of one company. That means we invest once and then we have all these categories that benefit from that, and that's the theory of the firm for us. And so, we feel good about all of that coming together. |
5,210 | MSFT | 1 | 2,025 | 2024-10-30 17:30:00 | Microsoft Corporation | 21,835 | Amy Hood: And maybe just to add one piece because I think Rishi, now that I'm listening and thinking through the question, it feels like you're wondering like, why am I not seeing the Copilot, if you've made all this progress and the results, and the answer is you already are. In that M365 commercial number, we've seen that seat growth but those seats that we're adding, the majority of them are driven by frontline worker and small businesses. Those have a lower ARPU point. And so, it masks some of the ARPU that we're already seeing not just from E5, which continues to contribute, but also this quarter, additional impact from Copilot. So, as we go forward, being able -- that is where you're going to see the impact will be in ARPU and M365 commercial, as Satya said, I think you'll see the impact of Copilot engagement, frankly, across the same ex-TAC number.
Brett Iversen: Thanks, Rishi. That wraps up the Q&A portion of today's earnings call. Thank you for joining us today, and we look forward to speaking with all of you again soon.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day. |
5,211 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Good afternoon, and welcome to the Netflix Q4 2024 Earnings Interview. I'm Spencer Wang, Vice President of Finance, IR and Corporate Development. Joining me today are co-CEOs, Ted Sarandos and Greg Peters; and CFO, Spence Neumann. As a reminder, we will be making forward-looking statements and actual results may vary.
Spencer Wang: We will now take questions submitted by the analyst community. And we will begin with our first question from Dan Salmon of New Street Research. Dan asks, "Given the need to ensure safety and well-being of cast and crews, has there been any disruption to your L.A-based productions owing to the wildfires? If so, can you please quantify the impact on this year's cash content spending?" |
5,212 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Thanks a lot, and thanks, Dan. Let me start by saying this is a really difficult time for a lot of people in Southern California. So many people in our industry, including our employees were deeply impacted by these fires and the hardest hit areas of these fires, the areas around Pacific Palisades, Altadena, Malibu are very heavily populated with the folks above and below-the-line who we work with every single day. So, we're doing everything we can to help with relief and we're getting those folks who can back to work. To your question directly, no meaningful delays in the delivery of the projects and no meaningful impact to the cash in '25, but very meaningful disruption in people's lives. So, our goal is to keep everything on schedule safely, be mindful of folks who need time to work through the challenges of the fires, including in some cases, loss of life and home. But this industry has been through a really tough couple of years, starting with COVID, going into the strikes and now this. So, it's really important that we try not to delay anything and try to make sure that these jobs stay safe. But I definitely want to add that we are extremely grateful to the firefighters and first responders who are still fighting flames right now. These are the real heroes here. But to answer your direct question, no impact in 2025 on cash or deliverable. Nothing meaningful.
Spencer Wang: Thanks, Ted. We'll take our next question from Jason Helfstein of Oppenheimer. "Is it fair to assume that most of the upside in the 19 million subscriber additions came from the Jake Paul and the Christmas Day football games? And how was the attrition or retention, I guess, post the Christmas Day games versus normal post-holiday levels?" |
5,213 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yeah. Short answer to that question is no. At a high level, we've seen broad strength across content categories across all regions. We've seen it throughout the entire year. And as we've consistently seen across our history, no single title really drives the majority of our acquisition or engagement. So, even in an amazing quarter where we had three huge live events, we had an incredible fight, two NFL games, we had one of our biggest TV series ever in Squid Games Season 2, all very successful events and titles that we are thrilled about. Our estimates for subscriber adds driven by those titles combined represent a small minority of our total member acquisition in the quarter. So, it's really the whole service that's working that delivered the upside that we saw this quarter. The vast majority of our net adds were driven by our broad slate in our portfolio globally. And Ted, maybe you want to pick it up for the last half of that? |
5,214 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yeah, just, I mean, putting some color around that, we really have built the business on variety and quality across countries, across regions, across genres, and we really focus that year-round of having a very strong slate of programming for our members. So, we're thrilled that some folks came in for the fight and some folks came in for the games, but they stuck around for Squid Game and for Carry-On and for Black Doves and for Six Triple Eight and Senna and Nate Bargatze's new comedy special, all those things all performed really well in the quarter and continue to in the days and weeks after the fight and after the games. And what's really been most encouraging is that the retention behavior of those folks who did come in for those events look a lot like the folks who come in for all of our other big titles. And so, I just would add that it's great that all these big swings worked very well in the quarter, but for -- to be able to have that translate into revenue growth meaningfully, everything has to be working. The product, the pricing teams, the marketing, the advertising, all those things have got to be working well and we saw really strong execution across the board throughout the quarter and throughout the year.
Spencer Wang: Thanks, Ted and Greg. Our next question is from Steven Cahall from Wells Fargo. And Spence, this is probably best handled by you. "The U.S. dollar has strengthened since your last results and you said that you'll tend to underperform your margin targets when the dollar is stronger. What FX volatility do you think you can successfully hedge out in 2025? And what are the best ways to estimate the impact of currency movements net of hedging?" |
5,215 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Spence Neumann: Sure, Spencer. I will take that one. So, roughly 60% of our revenue is in non-U.S. dollar currencies. And think of it as the way we look at it is of that amount, we try to hedge roughly 50% on a rolling forward 12-month basis. So, I want to stress that we view hedging as sort of a short- to medium-term solution at best. Our focus has always been to manage the underlying operating results of the company through natural hedges where we can plus pricing and cost structure over time. So, our hedge program is really just a price averaging program to smooth the impact of FX, reduce the volatility from big near-term FX moves and avoid short-term swings to the business so that we can invest appropriately for both the short and the long term.
Spencer Wang: Thanks, Spence. The next question comes from Brian Pitz of BMO Capital. "The advertising user base is growing quickly and your ad tech has been ramping for almost a year. What are your biggest learnings and perhaps hurdles for advertising monetization in 2025?" |
5,216 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: First and foremost, we love our ads plan because it allows us to offer a lower-price point for consumers. That's more choice, good accessibility that is proving to be popular and it means that we obviously have more people that can sign-up and enjoy the growing range of entertainment that we've got to offer. It's also the reason that we've been successful in driving that first ads priority we had in our ads goals, our most primary ads goals, which were to get to sufficient scale. So, Q4, ads plan represented over 55% of sign-ups across our ads countries. We've seen membership on those ads plan increase about 30% quarter-over-quarter. This last quarter that was on top of 35%, the quarter before, on top of significant growth the quarters before that. So, as you point out, we've seen significant growth since launch, which we're excited about. Maybe even more excited about the fact that the engagement of those ads members remains healthy. So, view hours per member on the ads plan is similar to engagement on our standard non-ads plan in our ads country, which is a really good marker that we're excited about. So, we've done the work, I would say, to meet our scale goals for advertisers in '25. And that means that increasingly, we've been able to shift more of our focus, more of our attention on making the offering better for advertisers to increase monetization of that growing inventory. This is going to remain a priority and part of our roadmap for at least the next several years, likely years to come after that, but we're making solid progress already. For example, we exceeded our ads revenue target in Q4, which was an exciting milestone to get. We doubled our ads revenue year-over-year last year. We expect to double it again this year. So that should give you a sense of the slope of monetization growth that we're on. And broadly, we think of this as we're making solid progress, there's considerable work ahead of us for sure, but we don't see specific hurdles that you mentioned in the question other |
5,217 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | there's considerable work ahead of us for sure, but we don't see specific hurdles that you mentioned in the question other than just doing the work. So, we think our path is relatively straightforward and we're confident we've got a significant runway to continue to grow that revenue. |
5,218 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Great. And we have a follow-up question on advertising from Jessica Reif Ehrlich of Bank of America. "On advertising, do you have all the tech and tools you need to significantly scale-up and move from the crawl to walk phase?" |
5,219 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yeah, I think you can say that 2025 is the year that we transition from crawl to walk. A big part of that is standing up our own ad stack. We launched that in Canada and that's done well. We're testing, we're learning quickly as we prepare to then roll that out in 2025 across the rest of our 12 ads countries, starting with the U.S. in April. And the biggest initial benefit we have of using our own ad server is just enabling us to offer more flexibility, more ways of buying for advertisers, fewer activation hurdles, just improving the overall buyer experience. And of course, that is meant to drive increased sales and the ease of transacting with Netflix. And we're already seeing the impact of those benefits in the revenue growth in Canada. So that's exciting and improves our optimism around it. And then, over time, the first-party ad tech platform allows us to deliver more critical capabilities to advertisers that we hear from them that they really need. So, more programmatic availability. We're talking enhanced targeting, we're leveraging more data sources, more measurement, more reporting, more incrementality studies. So, being on our own tech stack enables all those advertising features -- advertiser-facing features, but the other big benefit is it just creates a higher quality experience for our members, so it increases relevance. That's good for them, it's good for advertisers, it's good for us, it's good for everybody in the ecosystem, essentially. Just so, to reiterate, we got many years of building ahead of us. The roadmap is clear. We're committed to iterative innovation in advertising, just as you've seen us do in many other places. And as I mentioned before, while we've got tons of work, we feel the path for the next several years at least is fairly straightforward. And we're confident we can continue to grow revenue at a solid pace and earn a growing piece of that over $25 billion in CTV ad spend. |
5,220 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Awesome. Thanks, Greg. I'll now shift to a couple of content-related questions from analysts. The first is from Ben Swinburne of Morgan Stanley. He asks, "Ted, do the strong viewing numbers for the NFL games leave you more interested in full season sports rights for Netflix, or do you still see full season sports rights as generally unattractive for Netflix?"
Ted Sarandos: Well, let me start with the viewing of the NFL games, which for there are in-season games and they're the two most-streamed NFL games ever. The average minute audience for those games were 30 million and 31 million. It's phenomenal. And Beyonce also set a very high bar for future halftime shows, even for the Super Bowl. So, we're really thrilled with the viewing. We're thrilled with everything about it. All that being said, we are constantly trying to broaden our programming and live events is one of those things and sports is part of those live events. So, when I look at this and say, that's a really fantastic thing, but do we -- but it doesn't really change the underlying economics of full season big league sports being extremely challenging. So, if there was a path where we could actually make the economics work for both us and the league, we certainly would explore. But right now, we believe that the live events business is where we really want to be and sports is a very important part of that, but it is a part of that expansion.
Spencer Wang: Thanks, Ted. And Rich Greenfield from LightShed has a similar follow-up question. "Has the fight and WWE Raw results influenced your decision process on additional rights like the UFC?" |
5,221 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yeah. Well, look, I'm not going to comment anything specifically like the UFC, but WWE is off to a great start. Our first week, we drew about 5 million views, which is about two times the audience that Monday Night Raw was getting in linear television. Pretty consistent with how we modeled it, how we'd hope to build the audience for the league. We also saw that the non-live viewings in the day after the live event viewing grew by 25%, mostly outside of the U.S. time zones. So, this is a new viewing in the UK and Canada, Mexico, Australia, Brazil, particularly big markets. So, we're really thrilled to see how that's going so far. In the U.S., our viewing of Monday Night Raw was as big as the Monday Night Raw viewing has been in five years. So we're super thrilled with how that's going and how that's coming out. Again, just not to be overly repetitive, but we're not -- we're going to be mindful of the bottom-line and it's really important that those economics do work and that the big league sports, full league -- full season economics are very hard to make work. And so, right, for us, we want to be able to bring value to the sport like we have to date with WWE, certainly, but like we have with the NFL too, where we were basically able to bring a big audience, a young audience, a more global audience than linear television, but that has to be reflected in the deal as well.
Spencer Wang: Thanks, Ted. And that's a good segue to our last question on sports. To round it out from Vikram of Baird, "Could you elaborate on the decision to acquire rights to the FIFA Women's World Cup in 2027 and 2031? What were the features of the event that made it attractive? And how does this fit into your broader strategy for live sports?" |
5,222 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: I think it fits perfectly into the strategy. Women's World Cup is a real TV event. It's totally consistent with what we're trying to do here. These matches set a bunch of viewing records in 2023, and women's sports have only become more interesting and more popular since. It's a month-long event filled with drama played by some of the greatest athletes in the world. We're thrilled to be the home for those games in -- starting in 2027, and we're thrilled to have the time to start telling the stories of these teams and these athletes like we've done so well with other sports, with our series and our documentaries.
Spencer Wang: Great. Another question from Rich Greenfield of LightShed Partners. "Did Carry-On prove that movies can break through without a theatrical release? In less than two months Carry-On was well reviewed and has racked up 313 million view hours. And the film generated significant buzz across social media and is set to surpass Bird Box viewership. Was there an unusually high level of marketing spend for this film, or did the buzz build organically on Netflix?" |
5,223 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: This was a great example, I think, of a movie born on Netflix that can generate an enormous audience and tons of buzz. The movie -- in fact, one of the producers called me over the break to tell me that this is exactly what it feels like when I have a big movie in the theaters, which was a great thing to hear. And we even got injected into the debate the age-old is Die Hard, a Christmas movie debate. And is Carry-On the new Die Hard, which is we're definitely in the zeitgeist in the culture, drawing a big audience for a movie that premiered on Netflix and had a very modest marketing spend like we typically do. And I think it actually draws a lot of attention to the -- how powerful the platform is to promote to our own members, how Netflix can talk to our members where they are, which is on Netflix, to tell them about a great new movie they're going to love. And the -- and then we have our social channels with over 1 billion subscribers that actually keep that conversation going. So, I think it's a really strong proof point that a movie born on Netflix can be a big hit and be the center of culture as well.
Spencer Wang: Thanks, Ted. And for the record, I do think both Die Hard and Carry-On are Christmas movies.
Ted Sarandos: To be continued.
Spencer Wang: And I think that's a great segue to Doug Anmuth's question from JPMorgan. "Ted, does the agreement to debut Narnia in the theater in 2026 suggest any shift in your overall theatrical strategy?" |
5,224 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: No change at all to our theatrical strategy. Our core strategy is to give our members exclusive first run movies on Netflix. The Narnia IMAX release is a release tactic. We routinely release movies in theaters before -- a couple of weeks before to qualify for awards, to meet festival requirements, and to prime the publicity pump a bit. In the case of Narnia, it's a two-week special event. I think it's very differentiated from other runs because I doubt anyone has a screen as big as an IMAX screen at home. So, it is kind of a differentiated consumer experience. But we've done variants of these releases many times, and doing it with IMAX kind of greatly simplifies our release process as well. But mostly I want to say, I'm incredibly excited to be working with Greta on this movie. We're super excited to get it into production so we can talk about how great this movie is more so than which screens it's on. She's an incredible director and this is a really exciting project.
Spencer Wang: Great. Our next question comes from Vikram from Baird, and it's about plans and pricing. "How do you plan to approach the cadence and magnitude of price increases going forward, particularly in your largest markets? What are the signals that inform those decisions across the different regions and plans?" |
5,225 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: I can take this one. Our pricing philosophy hasn't changed. It's pretty much the same as we've talked about for the last several years. Of course, we look to continually provide more value to our members seeking to wisely invest to increase the variety and quality of our entertainment offering. And then, we listen to those members. We listen for signals like engagement, retention, acquisition, there's more secondary signals as well, all to tell us when we've achieved that increase in value. And when we've done that then we ask them to pay a bit more to keep that virtuous cycle going. You've seen us take up price across a number of markets in EMEA and APAC and LatAm over the last couple of quarters across most plans and including ads too. And those changes have gone smoothly. You can see those in our results. We certainly expect the same for these latest changes. And I think it's worth noting and reiterating that we believe that our starting price $7.99 in the U.S., [C$17.99] (ph) in Canada for standard with ads is an incredible entertainment value and it's a highly accessible entry point. So, ultimately, we feel really good about our long-term monetization opportunity. We earn right now only 6% of the revenue opportunity in the countries and segments that we currently serve. And as long as we continue to deliver on improving the variety, the quality of our TV and film slate, we gradually expand the offering with newer content types, we'll believe we'll be able to increase that share progressively every year. |
5,226 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: If I could just chime in on you, Greg, I just, when you're going to ask for a price increase, you better make sure you have the goods and the engagement to back it up. And I feel like what we have going into 2025 is just that. We have the returning seasons of our biggest shows ever Wednesday, Stranger Things and Squid Game, Night Agent, Ryan Murphy's Monster, You, Alice in Borderland from Japan, Delhi Crime from India, a new season of Drive to Survive. And on the film side, we've got new movies from Oscar winners like Guillermo del Toro, Kathryn Bigelow, Noah Baumbach, the Russo Brothers' new film, Happy Gilmore 2, a new Knives Out film. And live, obviously, we've got the SAG Awards next month, Christmas Day Football, Monday Night Raw every Monday night. And a few surprises there, too. So, I definitely feel like the strength of slate has never been better.
Spencer Wang: Great. I'm going to now turn to a few questions on engagement. So, our first one comes from Peter Supino of Wolfe Research. "Engagement is stable in -- based on data from third-party panels. Is engagement growth a strategic priority for Netflix?"
Ted Sarandos: Absolutely. And I think we look at this and say, what we're trying to do is, entertain the world and you'd measure that and how are people pushing play and sticking around for the things that they love. And Bela and her team are really kind of programming into those moments of breadth and of quality of trying to meet people where they are finding the -- something for everybody and something for every mood, in every language, in every part of the world. It's tough work and that they have cut out for them. But they're doing the job of winning over those moments every night and getting people who spend right now at about 200 billion of hours of programming -- of streaming last year, our average member is watching for about two hours a day. So, we've still got plenty of work to do to do to grow that. And that's what the team is very highly focused on.
Spence Neumann: Yeah, just... |
5,227 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Spence Neumann: Yeah, just...
Greg Peters: Yeah. Not just...
Spence Neumann: Go ahead, Greg.
Greg Peters: Sorry, I'll do so. And not surprisingly, I would say we consistently see that engagement -- improvements, engagement are correlated with the other key business drivers that we have. So, it obviously drives retention, acquisition, et cetera. And so, we're excited that we've seen continuing growth in engagement and look forward to more of that. Spence?
Spence Neumann: Well, you hit it. It's it all start -- we talk about it a lot, the flywheel starts with engagement. It's engagement, revenue, profit, and it drives the flywheel. And the rest of the numbers here are points you hit on I think other than maybe one other is just kind of note that as a reminder, in the letter we talked about the fact that we will now going forward twice a year on the same day as earnings release our engagement report starting with our Q2. So, in July, our earnings report will also include our engagement report, just to emphasize a kind of a steady drumbeat with earnings and with our performance.
Ted Sarandos: And to get a little more granular even sooner, our next engagement report is going to publish in February, so it's next month.
Spence Neumann: Yeah, good point.
Spencer Wang: Great. And then, our second question on engagement is a little bit broader. It's from Justin Patterson of KeyBanc. "What are the key steps to competing more with short-form video platforms for engagement?" |
5,228 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Well, look, our goal here is to entertain all audiences, including younger audiences who may be watching disproportionately more short-form content. Now, the beauty is that those folks all love film and TV shows as well. So, we're constantly entertaining them with projects that get them so excited that they push play, they stick around, they go on their social media accounts and talk about the shows. They do tributes to the shows. You see how many -- when do you see the new season. When Wednesday comes out, you're going to see all the social media platforms get flooded with tributes to this work. Our core is in kind of professional longer-form storytelling and that's a very big and enduring business. But again, as things get pulled -- as eyeballs get pulled into other places, we definitely want to do -- be there for them as well. I do find that the short-form services also are a great breeding ground for new storytellers. So, you see we're super excited to bring Ms. Rachel over onto Netflix. Parents are excited about that too. But we also have got a rich history of finding projects in other places and having them up the game and be very successful on Netflix. Things like Cobra Kai and CoComelon and Somebody Feed Phil, which is now shooting its eighth season. So, I feel like there's -- the work we have to do there is to win over audiences with programming that they love. If it's Heartstopper or Stranger Things or Ginny & Georgia, Alita, Outer Banks, that's what we have to do. We have to outcompete for those moments of entertainment truth. |
5,229 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: I think consistent with that, and just expanding on it, I think we see ourselves as playing a specific and differentiated role in the ecosystem. So, whether it's being a place where those great storytellers that Ted mentioned can graduate to from -- whether it's from places like YouTube or the theater or any other place that they come from. We know that consumers want a spot to enjoy great movies and TV shows to have a user interface and user experience which designed specifically around that. We know that our creative partners need someone that can participate in investing in those to share the risk that's inherent in bringing those stories to life. So, we want to double down on supporting that part of the ecosystem and we want to make sure that shows like Stranger Things or Wednesday or Heartstopper, Outer Banks, which have huge viewing and fandom, especially with those younger audiences, continue to have a place to be found, loved and enjoyed.
Spencer Wang: Great. Thank you. Our next question comes from Alan Gould of Loop Capital. "How do you assess your progress in the video game space? How have the engagement trends been? When do you anticipate video games will have an impact on subscriber growth or retention?" |
5,230 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Okay, so a lot there. I'd say, we've learned quite a bit and made some good early progress since we've launched games. We've, of course, launched a bunch of games, with some highlights amongst them, the critically acclaimed OXENFREE II stands out. Certainly Grand Theft Auto where we drove tens of millions of downloads. We've got fan favorites based on Netflix IP, things like Too Hot to Handle, Emily in Paris, Selling Sunset, and to our latest big release Squid Game: Unleashed, which we really think validates our Netflix game formula, which is enabling this virtuous cycle between linear content and simultaneous game offerings. And we are just scratching the surface today in terms of what we can ultimately do in that space. But we already see how this approach not only extends the audience's engagement with the universe and a story, but also creates a synergy that reinforces both mediums, the interactive and the non-interactive side. So, based on all of those learnings, and under the leadership of Alain Tascan, we continue to refine our strategy. And we're going to be focusing on more narrative games based on Netflix IP. These are consistent fan favorites, and we've got a lot in the library to work with there. We'll also be introducing party and couch co-op games on the TV delivered from the cloud. We think of this as a successor to family board game night or an evolution of what the game show on TV used to be. So, we're excited about delivering some cool experiences in that space. We'll deliver games for kids. This is no ads, no in-app payments. It's a safe space for kids, just included with your subscription. And of course, we want to do more recognizable mainstream titles, whether that is licensed titles like GTA, and we're going to have more of those big licensed business titles to come that we're looking forward to, as well as homegrown titles based on our IP like Squid Game: Unleashed, which I'll just reiterate, Squid Game: Unleashed reached #1 in action games in the app stores in 107 countries. |
5,231 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Unleashed, which I'll just reiterate, Squid Game: Unleashed reached #1 in action games in the app stores in 107 countries. It's on pace to become our most downloaded game. And so, to your question about impacts on the subscriber side, we already see positive impacts in acquisition and retention from our game playing members. Now, those effects are relatively small currently, but frankly so is our investment in games relative to our overall content budget. And we're going to stay disciplined about scaling that investment as we see continued scaling and member benefits. So, to try and summarize, there's plenty more to do in this space, but we're breaking into a whole new content category, which by the way, drives approximately 140 billion in consumer spend ex-China, ex-Russia, and not even including the ad revenue. So, we're iteratively showing our members that we are a place to discover and play games and we look forward to continuing to launch bigger and bigger games every year. |
5,232 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thanks, Greg. We have a couple late breaking questions on the forecast that analysts have submitted, so I'll wrap up with two of those questions. This comes from Jason Helfstein of Oppenheimer. "You spent roughly $17 billion on cash content spending in 2024 and will spend about $18 billion in 2025. How should investors think about long-term spending levels? Is there a point where you reach an equilibrium where you don't need to increase spend beyond inflation?"
Spence Neumann: You want me to take that?
Spencer Wang: Sure. |
5,233 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Spence Neumann: You want me to take that?
Spencer Wang: Sure.
Spence Neumann: Sure, I'll take that one. I think we're a long way from equilibrium, as you say. We're taking up our cash content spend this year estimated from $17 billion to $18 billion. That's in the context of we're small in terms of view share and penetration everywhere around the world. We're less than 50% penetrated into connected households. You heard from Greg that we're only capturing about 6% of our estimated revenue market. So, we have a long way to grow. It's really about where do we put the next billion dollars and then beyond that to work in the most impactful way over the next year or so. You'll see that in areas like continuing to build into big scripted TV series. As you heard from Ted, we're continuing to build out live, we're continuing to build out our original programming in each of our regions around the world, and also seeing more and more kind of impactful licensing opportunities. And I think we kind of grow from there. So, the opportunity there's a long runway to continue to grow. We do it in a disciplined way, right? So, we kind of set our growth based on our top-line growth and our margin targets and then we kind of allocate as we can across the business for highest impact. And I think you've seen us do that in a responsible way where our cash spend and our content cash amortization, it's sort of 1.1 ratio roughly, plus or minus between our content amort which runs through the P&L and the cash spend which runs through cash flow. And both are growing slower than our revenue growth. So, I think you should see us continuing to grow in that way for the foreseeable future as we continue to grow more and more engagement and please more and more hopefully growing audience around the world. |
5,234 | NFLX | 4 | 2,024 | 2025-01-21 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thanks, Spence. And our last question comes from John Blackledge of TD Cowen. "Can you please talk about the drivers of raising your 2025 operating margin guidance? What are the biggest points of leveraged driving higher margins this year?" Spence, you want to take that?
Spence Neumann: Yeah, sure. So, we're always kind of looking to balance our revenue growth with strategic investment into the business. And we think we've balanced that well this year. You see we guided to 12% to 14% top-line revenue growth. If you kind of do the read through in terms of based on our margin guidance, what that we would expect in terms of our implied expense growth, you can see it's sort of high single digit, 9% plus or minus expense growth expected for 2025. And if you break that down, we're expecting sort of high single digit, roughly, content amortization growth. So, still below revenue growth. So, some margin there. And that's based on again that $18 billion of plus or minus expected content cash spend. And the amort moves around a bit based on the timing of titles and releases, but high single digit is a pretty good estimate. And then, we're investing into our growth priorities. We're pretty heavily investing into our product and engineering teams to build out ads and live and games capabilities and also our new user interface to enhance our product discovery. We're also investing in the marketing and sales line, mostly on the sales side as we build out our ad sales organization and go to market capabilities. And beyond that, our support areas are kind of growing sort of mid low-single-digits. So, across the board, for the most part, we're driving margin improvement in a way that we think is appropriate for the business while investing into our growth.
Spencer Wang: Great. Thank you, Spence. And thank you all for joining us for our Q4 earnings call. And we look forward to speaking with you all next quarter. Thanks very much. |
5,235 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Good afternoon, and welcome to the Netflix Q3 2024 Earnings Interview. I'm Spencer Wang, VP of Finance, IR and Corporate Development. Joining me today are Co-CEOs, Ted Sarandos and Greg Peters; and CFO, Spence Neumann. As a reminder, we will be making forward-looking statements, and actual results may vary. We will now take questions submitted by the analyst community, and we'll begin with questions about our Q4 results and our outlook.
A - Spencer Wang: The first question comes from Eric Sheridan of Goldman Sachs. Can you please frame your key investment priorities for 2025 and beyond? And how have they evolved in the past 12 to 18 months? |
5,236 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Thanks a lot, Spencer. Let's start with looking into 2025. We're feeling really good about the business. We had a plan to reaccelerate growth and we delivered on that plan. You can see that in our 2024 financials. We expect to deliver 15% revenue growth and six percentage points of operating margin improvement and engagement, which we view as our best proxy for member happiness because when people watch more, they stick around longer. So that's retention. They talk more about Netflix, which drives acquisition. And they place a higher value on their Netflix subscription. This year, we've maintained very healthy engagement, about two hours of viewing per member per day, and engagement on a per owner household is up to the first three quarters of 2024. So if you look at where we're sitting now, we finished Q3 with some big hits: Perfect Couple, Monsters: The Lyle and Erik Menendez Story, Nobody Wants This. And we're really excited about our Q4 slate because it's filled with great big titles from the U.S., from Brazil, from Korea, from the U.K., from Germany. And we also have got some really amazing live events coming up. So when we look forward into 2025 and beyond, we want to build on that success. We plan to build on that success. And we've been making original programming now for more than a decade. And the core has become very strong. We have a team of people who are the best creative talent around the world. We have a culture and an operating model that allows us to create stories in more than 50 countries and thrill audiences of more than 600 million people all over the world. So our 2025 slate, I look at that as another ambitious step towards this push to make us even greater for our members. So it really showcases the scale and the ambition and reflects the investment that we've made and the steady cadence of programming. So looking into 2025, you've got new seasons of our biggest shows: Wednesday, Squid Games, Stranger Things, on top of new shows from Shonda Rhimes and Ryan Murphy, a new |
5,237 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | of our biggest shows: Wednesday, Squid Games, Stranger Things, on top of new shows from Shonda Rhimes and Ryan Murphy, a new Knives Out film from Rian Johnson, Guillermo del Toro's, Frankenstein, even the return of Happy Gilmore. So we could not be more excited about where we sit right now and where we're heading. |
5,238 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Just jumping on that, we've always been focused on trying to constantly improve every aspect of our service. It served us quite well for the last 1.5 decades. We hope and expect it will serve us well for decades to come. And then the question I may mention priorities, too. And our top priority is really bringing that mindset to improving our core film and series offering. I think just to double down on what Ted was saying, we've seen really good progress on that front and on our plan. One of the things that I like the most is increasingly seeing a steady drumbeat of hit titles from countries around the world. Ted mentioned a bunch, but you've got Japan, you've got Korea, you've got Thailand, you got India. This represents, again, that decade-plus investment in those creative communities, working with local storytellers there and making sure that they have the capability to tell their stories in a compelling way. So that's super exciting and we expect to see more of that. Also improving the product experience. We tested a new more intuitive version of our TV homepage. We're excited about the progress that we've seen there, so we're polishing it up and we're excited to bring that to our subscribers around the world. Our second set of priorities are about planting seeds, these investments and new initiatives that help us expand and strengthen our entertainment offering and that we believe will be incremental levers for growth in the coming years. We've got initiatives like games. We're excited about games based on Netflix IPs. We got a Squid Game game coming. We've got a Virgin River Christmas. We've got The Ultimatum. We've got games based on storied game classics like Monument Valley 3 that's coming out. We're also expanding into live. We've got the Tyson-Paul fight NFL in December. We got 52 weeks of WWE coming in January. John Mulaney and more and more. And then we're also growing advertising as the principal goal here is the more effective way to give members and members to be a lower-priced plan |
5,239 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | growing advertising as the principal goal here is the more effective way to give members and members to be a lower-priced plan to access all of that great entertainment. I think it's worth noting, it takes time to build these new initiatives to the point where they're significant, given that we already have a fairly large core business. And ads is a great example of how we approach growing these seeds. It takes a lot of work but we know the path, and we're hustling to move down that path as quickly as possible. And you can sort of see some of the benefits that we're getting. We're roughly doubling revenue each year but it's off a small base. So it starts to become a material contributor of revenue over the next several years. But if you step back and you think about this opportunity ahead of us, over $600 billion in consumer spend in the areas and countries that we operate. We're only capturing roughly 6% to 7% of that today. That's a tremendous upside if we can just stay focused on that continuous improvement and drive to that future. |
5,240 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thank you, Ted and Greg. Our next question on our outlook comes from Jessica Reif Ehrlich of Bank of America. At a high level, when we think about the Netflix revenue growth algorithm, can you please provide some color on the pieces moving forward between organic membership growth, ARM increases and advertising? Spence, maybe you can take that one?
Spencer Neumann: Sure. I'll try that on, Jessica. So really, those investment priorities and that focus that Greg and Ted just talked about really are the engine that kind of drives that growth equation. But if you look at our 2025 guide as a proxy for that evolving mix or components of our growth over time, I'll walk through that a bit as an indicator. So we expect to deliver roughly $43 billion to $44 billion of revenue next year based on FX rates at the end of Q3. That represents about $4 billion to $5 billion of incremental revenue over our kind of 2024 expected landing where think of it as about 11% to 13% growth. And that's from a combination of membership and ARM growth. The majority of growth next year, we expect to be a membership-driven growth from the full year impact of this year's strong net adds plus solid pay net adds expected next year. We still have hundreds of millions of households that aren't members, and we'll grow into that opportunity, thanks to a great '25 slate and our improvements in converting consumer demand. And we will have ARM growth. ARM's a combination of continued plan evolution and pricing, building off the actions we've been taking this year and growing our ads revenue, as Greg just talked about, not yet a primary growth driver but to be a more meaningful contributor in '25. So overall, healthy double-digit revenue growth, more balanced across multiple drivers and strong outlook.
Spencer Wang: Thank you, Spence. Building on that question from Justin Patterson at KeyBanc, given what appears to be a moderating competitive environment, how are you thinking about the puts and takes around operating margins going forward? |
5,241 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Sure, I'll take it again. So as we said in the letter, we see plenty of room to increase our margins over the long term. And we feel great about what we're delivering in '24. We expect to be up six percentage points, as Ted mentioned, and our approach to margin is unchanged. We believe we built a stronger and more lasting business by gradually increasing margins as we grow. We set margin targets, and we do that by investing to improve our service while making trade-offs and prioritizing like growing our costs slower than revenue and operating like owners. The amount of margin growth each year, it will bounce around a bit based on the strategic opportunities in a given year, FX moves, and things like that, but we'll aim to increase each year. And what you see in our '25 guide is consistent with that approach. So coming off such a big year of margin expansion in '24, which exceeded our target, we want to be sure we're actively investing to deliver more value to our members and strengthen and grow our business. So the things you just heard about from Greg and Ted, further investing in our core film and TV offering, improving product discovery, expanding into new areas like live and ads and games. So we think this strikes the right balance for our '25 kind of planning with lots of room to grow profit margin and absolute margin dollars for many, many years to come.
Spencer Wang: Thank you, Spence. We have a specific question on our Q4 results that I think is worth touching on from John Blackledge of TD Cowen. Perhaps Spence and Ted, you could tag team on this one. Could you please discuss the dynamics that drove the slight LatAm member net loss in Q3 and provide further color on drivers of the pickup in LatAm early in Q4?
Spencer Neumann: Sure, Ted. I can start off if you like…
Ted Sarandos: Yes, sure. |
5,242 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Sure, Ted. I can start off if you like…
Ted Sarandos: Yes, sure.
Spencer Neumann: Okay. Overall, the underlying business trends in LatAm are healthy. Q3 revenue, which is our primary kind of north star for top line growth, was up 9% year-over-year. Year-to-date, it's up 10% on a reported basis. That's in line with our 2023 growth of 9% and we've got much more significant currency headwinds in '24 relative to '23. So actually, growth at the local level is much accelerated in '24 relative to a year ago. On Q3 membership specifically, the slight decrease you saw was primarily due to some recent price changes in some of our bigger LatAm markets, which always dampens near-term member growth. But the good news is we're already seeing a nice rebound so far in Q4. LatAm memberships are growing nicely in the fourth quarter, early in the fourth quarter. And fun fact, if the quarter lasted one more day, net adds would have been up instead of down so overall, we feel good. And maybe, I don't know, Ted, if you want to speak to it a bit more.
Ted Sarandos: No, I'd just say we obviously don't time those things for quarter ends. The thing that's really, really excited about in Q4 in Latin America is this incredible slate upcoming. They've got Senna from Brazil, which is going to be - we think it's going to be a large hit around the world, but most importantly, loved in Brazil. A Hundred Years of Solitude from Colombia. Rodrigo Prieto is making his directorial debut on a new film for us in Mexico called Pedro Páramo, which is an epic book in Mexico that's being adapted. So we're really thrilled with the creative output in Latin America. And as Spence alluded to here, we're also thrilled with the underlying business climate too. |
5,243 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Great. I'll now move us on to a series of questions about advertising, and we'll begin with a question from Steve Cahall of Wells Fargo. Can you please discuss the levers that will move advertising to a more - to a primary contributor to growth after 2025? How is ad tier engagement tracking versus ad-free? What kind of CPMs are you attaining in the U.S. market? And how should we think about improvements in terms of your ability to monetize your advertising inventory? |
5,244 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Okay, there's a lot there. We'll see if we can't take them all on. I would say the most important part is we've been carrying two top-level priorities when we think about our ads business. Priority number one was we have to grow our ad tier membership so that we can get to sufficient scale, to be relevant in each market for advertisers. And the big priority number two was we have to improve our capabilities and attractiveness to advertisers and therefore, the monetization of all that inventory. So on that first one, we've made some really solid progress. Q3, we mentioned in the letter, ads plan accounted for over 50% of sign-ups in our ads countries. That's a leading indicator about how you think about sort of ads membership there. Our ads plan membership base was up 35% quarter-over-quarter. That's over probably four quarters of really significant growth as well so that's growing nicely. As we said last quarter, we expect to be at critical scale as our advertising partners tell us they need us to be in each of our 12 ads countries in 2025. An engagement that was mentioned, that remains healthy. Our ads plan members are watching similar amount of view hours and similar titles, too, which is probably interesting to note relative to comparable non-ads plan members. So this was our top area of improvement. I'm incredibly proud of the significant progress that our teams have been able to deliver on that front. And because they've been able to do that, that allows us to turn more attention to our second priority, and that's effectively monetizing all that growing inventory. I think it's worth noting we've got a lot of work still ahead of us to achieve that goal, to make our offering better for advertisers. It's going to be a priority for us for several years coming but we're moving. Our first-party ad server, which is a key component of unlocking value in the space, that's on track to launch in Canada this quarter, and then the rest of our ad markets in 2025. We've got our partnerships with Trade Desk |
5,245 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | track to launch in Canada this quarter, and then the rest of our ad markets in 2025. We've got our partnerships with Trade Desk and Google Live and those are going well. We've got a road map for more formats, for more features, for more measurement, that's all coming. So while we've got lots of work to do, we are very confident in our ability to execute and grow our ad business much like we did with the paid sharing initiative. |
5,246 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Thank you. Could I just follow up on Greg for a second? Obviously, the teams are making great progress. We have a ton of work to do. And it's seemingly new to us, but what's great about it really is that it calls on all of our deepest skill sets, both technologically and creatively. It depends heavily on thrilling engagement, which is true for both of our subscription business and our ad business. So what advertisers want to do is they want to be close to the stories that people are watching, the stories that people are talking about, the events that people are gathering to be part of. That's all part of the exact same equation. So when we have a Nobody Wants This or a Perfect Couple, that fandom, that buzz, that's what advertisers want to be close to, and that's why I'm excited about what we're doing here. |
5,247 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, and I think that's right. And stepping back and sort of just putting that into broader context, our goal over the next five or 10-years is to combine the best of digital advertising. So this is all the things that we know from that targeting, personalization relevance with the best of TV advertising. So this is an elevated creative format. We've got highly engaged viewers and positioned against those culture-defining shows and films that Ted mentioned. And so that's really the north star. We see ads revenue growth on a good trajectory. We've got healthy CPMs at the high end of that premium CTV ad market. That's where we want to be positioned. And while ads won't be a primary driver of revenue in 2025, because we're still scaling that audience and that inventory faster than our ability to monetize it, we definitely see already the momentum growth in the monetization and our opportunity to close that gap. So for 2025, we expect that ads revenue will roughly double year-over-year, albeit off a small base, but just as a confidence point in that, this year's U.S. upfront, we're seeing 150% - over 150% increase in our ads sales commitments. So I think it's also worth noting that like ads against premium video, it's a proven model. So if we take the potential size of that opportunity, the growth trajectories that we are seeing, that's what makes us so excited about ads being able to be one of those growing levers to support our sustaining healthy revenue and profit growth in the years to come.
Spencer Wang: Great. Thank you, Ted and Greg. We do have some questions about ad tech probably in two parts. First, from Justin Patterson at KeyBanc. What are your initial learnings from your partnerships with The Trade Desk and DV360? And secondly, from Rich Greenfield. Netflix has decided to use Trade Desk to build demand. But longer term, how important do you see partnerships like Trade Desk versus building your own walled garden? |
5,248 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: A couple of parts there, so I'd say these partnerships are going well. We're live both with one-to-one private marketplaces in UCAN and LatAm. We've got some always-on agency deals in the U.S. and Australia. We're going to be adding more programmatic capabilities, next month in UCAN and LatAm. And just sort of building from there. So that sort of gives you a sense of the roadmap. What have we learned? I'd say, not surprisingly, that more demand creates positive pressure on CPMs. More channels mean it's easier for more clients to buy. So we're learning, I think, what you'd expect to learn. As we mentioned previously, just this last question, we're seeing a solid trajectory on ads revenue growth, and this is going to be part of how we build that trajectory over time. But it's going to take us a while to catch up to that significant inventory expansion, we've been able to drive. But I really see that as growth potential that we're building in, right. So, we're going to progressively work our way into that inventory, and effective monetization of that inventory over the next several years. And the good news is like, we've got a long roadmap of things that we know, will make our ads more valuable. So, we're excited about that. As to Rich's walled garden question, I would say we've learned, not to be too rigid in our position. So, we're going to always evaluate and we'll evolve based on, how our business is evolving and frankly, how the ecosystem is evolving around us. But we believe these partnerships are very positive for us.
Spencer Wang: Thank you, Greg. I will move us on now to a few questions, on content and engagement from Ben Swinburne of Morgan Stanley. And this is for Ted. How did last year's Hollywood strikes impact your 2024 slate, and ultimately engagement and retention? And did it disproportionately impact UCAN, given a shutdown production here in the states? At what point, if not already, will you be back to a more normalized slate with no lingering effects of the strikes? |
5,249 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Thanks, Ben. Look, our aim here, is to always have a very steady drumbeat of great new TV shows, and films, and games for our members to watch throughout the year. So a drumbeat so steady that, when you're watching the last episode of whatever you're watching, you start expecting the next thing to be great, too. So however, in the first half of this year, our lineup was much lumpier than we liked, and it was, and that was primarily, because of the work stoppage. It did hit UCAN the hardest, but there were some effects of that felt in production, around the world. We're moving closer and closer, to a more normalized output schedule now, series a little more on track than film, but neither fully-fully recovered. We've had returning favorites like Bridgerton that managed to get into the first half of the year, but many of our other high profile returning hits like Cobra Kai, Emily in Paris, Outer Banks. And even our new shows like Perfect Couple and Nobody Wants This, were scheduled for much earlier in the year, and got in kind of a late in Q3. And that delay was again, because of the strike and its impact on the UCAN slate. By the end of the Q3, a lot more normalized as you see, Perfect Couple, Monsters. Nobody Wants This accident that, nice steady drumbeat that we keep, we're trying to hit on all the time. Our film slate obviously was impacted as well, and it's getting back to normal. We also had a change in the leadership there, which changed the cadence of release a bit. We have a really strong Q4 lineup, coming up with Carry-On, Piano Lesson, Spellbound, Six Triple Eight, Emilia Pérez, and things are getting much steadier. In 2025, we're largely back to normal, I mentioned earlier. But a new Knives Out film, Guillermo del Toro's Frankenstein, Happy Gilmore 2, a new film from the Russo Brothers with Millie Bobby Brown, Electric State, I mean, a lot of - and plenty more on top of that, but largely back to normal starting in '25. |
5,250 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Awesome. Thank you, Ted. The next question comes from John Hodulik of UBS. The Nielsen gauge indicates that U.S. engagement for Netflix, has been stable recently that's his nice way of saying flat I think. With page sharing now in the run rate, when can U.S. engagement begin to grow again? Do you see expansion into live programming as a major driver?
Ted Sarandos: Well, look total hours up roughly 1% in the first half of the year, compared to the same period last year. Engagement is super healthy, I mentioned earlier two hours per day, per member and then owner household engagement, which is much more of an apples-to-apples comparison of pre-account sharing is up, and we're very happy with that. The contribution from live, you have to think about it this way. We have about 200 billion hour every year on Netflix. Very few of them are actually live, but they all promise to be extremely high value. So the excitement of the Tyson Paul fight, which is growing every day and certainly Christmas Day NFL football, is going to be a blast all day on Netflix. So we're really excited that we're going to be capturing, even more of the excitement that comes when the whole world gets together to watch something, and that's really fun part of live. The contributor to growing engagement is going to be across the board on our scripted and unscripted or documentary programming, all the kind of things that people love, including now the addition of some live hours. Greg mentioned earlier, but weekly live with WWE and the new John Mulaney show upcoming, but then at a steady cadence of exciting events more and more upcoming. But pretty hard to swamp the on-demand hours, which I said are over 200 billion. But thankfully, all hours are not created equal.
Spencer Wang: Thank you, Ted. From Rich Greenfield. We have the perennial question on theatrical, which is, is it possible for films to pierce the cultural zeitgeist without a theatrical release? So over to you, Ted. |
5,251 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Thanks again for that question again, Rich. Hi look guys, I'm just going to reiterate. We are in the subscription entertainment business, and you can see in our results it's a pretty good business, and it appeals to a very large segment of consumers and fans. Our top 10 films that premiere on Netflix, all have over 100 million views, among the most watched films in the world. It's our desire to kind of keep adding value to our consumers, for their subscription dollar. We believe that not making them wait for months, to watch the movie that everyone's talking about, adds that value. So what we do for filmmakers, is we bring them the biggest audience in the world for their films, and then we help them make the best films of their life. That could be any one of the nine best picture nominee films that we've released so far, or it could be any of those top 10 films that are as big as $1 billion box office movies. So I'm sure that we can continue to pierce the zeitgeist, and have those moments in the culture, even when those moments begin on Netflix.
Spencer Wang: Thank you, Ted. Last question on content from Alan Gould of Loop Capital, which is - are you planning to change the talent compensation structure to pay less upfront, and more on the backend based on success? |
5,252 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Thank you for that. Look, we like our model, and talent likes our model. It's so much more impactful for our business if we can make our films, our shows, just a little bit better, so much more impactful than making them a little bit cheaper. Bela said this very clearly a couple of weeks ago, to all the talent agencies. We're not changing our compensation structure. Paying upfront, something that Netflix actually pioneered benefits creators, and it benefits Netflix. So for creators, Netflix takes all the financial risks so that they can focus on making the best possible version of what they're working on. And for Netflix, that model enables us to attract the best talent in the world. Now, with all that said, we have been and we continue to be, and we are open to more bespoke deals where talent is interested. Now, they rarely happen, because typically the talent chooses the upfront model. So we think that we have - the right model, and we are not looking to change it.
Spencer Wang: Thank you, Ted. I'll now move us along to the next topic, which is around pricing and plans. This one comes from Rich Greenfield of LightShed. And the question is, what is holding you back from raising price into one of the strongest content periods in recent memory, starting in late Q4 of this year and into 2025? Greg, did you want to take that one? |
5,253 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Sure. We're going to invite Rich to join our pricing committee. I think it's worth starting by just noting that our approach towards pricing, it's been remarkably consistent over many, many years. And our core theory is that we got to work really, really hard to make sure that we are delivering more value to members every quarter. And then we sort of assess, based on how that's going, metrics like engagement, like acquisition, retention. Did we do a good job there? How we actually delivered on that promise of more value? And when we do, then we occasionally ask members to pay a bit more, so we can invest that forward and keep that whole process going. So you've seen us do that, this past quarter in a couple of countries. We did it in Europe, in several countries. We did it in Scandinavia, we did in Japan. I'd say those changes that we've done have been going well. The results have been in line with expectations. You saw in the letter that we announced that we're doing it in Spain, Italy as well. And of course, we'll continue to evaluate that. We'll look at those signals and we'll figure out where and when we think it's appropriate to ask those members to pay a little bit more as well. And I would say, just stepping back, we look at the long-term monetization opportunity, and we feel that there's a tremendous amount of potential there. As long as we can continue to deliver on improving, the variety and quality of our TV and film slate. You've heard a lot about that, and what we're excited about over the next year to come, as well as expand our offering into new areas. We've got the live events, Tyson Paul, Christmas Day, NFL, those should be exciting things. And then games. So if we do a good job there, then we feel like we can continue to keep that long-term monetization cycle flowing. |
5,254 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thanks Greg. From Robert Fishman of MoffettNathanson. You've increased prices for your non-ads plans, but have kept the ad tier at the same lower price, while other streaming services have been increasing prices on both. How do you think about the right spread, between the ad tier and the non-ad tiers?
Greg Peters: Yes, we try to think about our pricing mostly not in relationship to competitors, but from the value that we're delivering to members. So, we want to have a range of price points. We think that that's healthy. We want to have that range of price points, be able to deliver different features, for different consumers. While also making sure that, we're not adding too much complexity, or too much choice tax, which we think is a real thing. So and the other thing that I think is important to note here, is that our North Star through this process is optimizing long-term revenue rather than ARM. We look at a variety of signals, to sort of help assess how we're doing in that regard. An important one is the relative balance of sign-up mix across these various options. That's sort of an indicator of healthy offering. I think it's also important to say that, we love the low price point and increased accessibility that comes with our ad plan. If you take the U.S., just as an example, $6.99, I think it represents an incredible value. You get an amazing offering of TV shows, films and games, two streams, HD plus downloads. That's an exciting part of that plan. So I'd say with all of that in mind, we'll continue to evaluate based on those factors. We'll continually try to offer consumers a spread of plan choices, the right features at the right price point, and evaluate that and evolve it based on what we think works.
Spencer Wang: Thanks, Greg. From Doug Anmuth of JPMorgan. He's asking about the phasing out of the Basic Plan across the U.K., Canada, U.S., and France. Are there any sort of learnings you can share there? And any expectations to phase out Basic in other ad markets going forward? |
5,255 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. I think it's a good example of what I just mentioned before, how we sort of continue to evolve plans and pricing, thinking about expanding that range, especially the low end on our ads plan, but also keeping the number of choices manageable. And I think of this as that every plan has to earn its spot on the roster, right? It has to deliver enough value to consumers in that offering. Otherwise, it just sort of adds to the complexity and choice tax. I think what we've done in this regard, is also a good example about how we generally try out changes, and judged by how consumers react, whether or not that change makes sense for the business. So I'll let our actions speak for themselves. The change has gone well in line with our expectations. We announced one more country. We'll do that in the letter, and then nothing more to say on it beyond that.
Spencer Wang: Thanks, Greg. Spence has been a bit quiet, so I'll now ask him a question from Ben Swinburne of Morgan Stanley on capital allocation. Spence, the company looks poised to generate tens of billions in free cash flow over the next several years. What are the possible uses of all this capital? Will you look to maintain a minimum net leverage level? |
5,256 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Sure, I'll get into it. I was actually just - I was quite reflecting on getting off the pricing committee so that Rich could get on it, but I think the team would welcome that. In terms of kind of future free cash flow, well that future of throwing off tens of billions of free cash flow that will be a great future. It would be a nice challenge to have. But no change to our capital allocation policy. We prioritize profitable growth by reinvesting in our business, maintain ample liquidity, second priority. And then we return excess cash to shareholders beyond several billion dollars of minimum cash that we have on our balance sheet and then any that we use for selective M&A. But beyond that, we return to shareholders through share repurchase. We have made some tactical moves recently, consistent with our policy. We upsized our revolver to $3 billion for additional liquidity if we need it on a rainy day. And we raised $1.8 billion of investment-grade debt earlier in the quarter to refinance upcoming '25 maturities. But no plans to increase leverage to buy back stock or to issue a dividend. We put a real premium on balance sheet flexibility. So in other words, to be clear, no minimum leverage targets.
Spencer Wang: Thank you, Spence. Now the next question comes from John Hodulik of UBS. It's regarding YouTube. Do you see YouTube's growing share of TV consumption as friend or foe? Is user-generated content via AI a threat to your business? |
5,257 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Let me take AI. We'll take the second one first on the AI side. Lots of hype, good and bad, about how AI is going to impact or transform the entertainment industry. I think that the history has been that entertainment and technology have worked hand-in-hand throughout the history of time. And it's very important, I think, for creators to be very curious about what these new tools are and what they could do. But AI needs to pass a very important test. Actually, can it help make better shows and better films? That is the test and that's what they got to figure out. But I've said this before and I will say it again, we benefit greatly from improving the quality of the movies and the shows, much more so than we do from making them a little cheaper. So any tool that can go to enhance the quality, making them better is something that is going to, actually help the industry a great deal. When I look at YouTube specifically, I'd say look, we compete directly with YouTube for people's time, for the time they spend on that TV screen. But we have very different strengths. And we continue to invest in ambitious premium content to grow our share of engagement. We think that Netflix is the best place for premium stories, because we're the home to the best storytellers. We have an enormous reach, 600 million watchers. We assume the financial risk when you're making your content. Our subscription model generates higher returns for creators. Those higher returns let them make more ambitious investments in their next projects. So Netflix and YouTube, while we do compete for that time, we're interestingly complementary as well. So we put up our trailers on YouTube and they get - a lot of viewing, which is great because it drives a lot of viewing on Netflix. So we think among those advantages that we have here, is that streaming is the future. It's what consumers want. We give that to consumers. We give them choice and control. We have that enormous reach that we talked about. So you're looking at really incredible |
5,258 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | We give them choice and control. We have that enormous reach that we talked about. So you're looking at really incredible watching, incredible fandom. We continue to lead the industry in engagement. And the other investment we have is benefits for consumers, because it brings a great deal of value for money. Creators get big audiences on both platforms. But when you look at it and say, how do you do all this and how do I get the best return? We like what we said. And we think it also brings great value to shareholders, because you get higher revenue and profit. Greg, do you want to jump in on either of those or both? |
5,259 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, maybe just to reiterate, I think the core message. I think that Netflix fulfills an important and different role, for both consumers who want these great movies and TV shows, but also for creators who want partners that can share in the risk that's, inherent to bring those stories to life. And if you think about some of the titles we'll launch this quarter, you mentioned a couple: Squid Game, Outer Banks, Black Doves. You mentioned A Hundred Years of Solitude, Senna, both coming from Latin America, which are huge, ambitious projects. It's hard to imagine how those kind of big creative bets would be possible with YouTube's model. So while it's certainly a competitive environment, that's absolutely true. But we feel our focus and our model, which is the best storytellers, ambitious premium storytelling, those work well for consumers and for creators while also generating significant operating margin for the business, too.
Ted Sarandos: Yes. And like we said last quarter as well, we are really focused on the 80% of watching that happens not on YouTube or Netflix yet. So we got a lot of - we still got plenty of work to do.
Spencer Wang: Thank you, Ted and Greg. We have time for one last question, and this one comes from Michael Morris of Guggenheim. His question is Netflix doesn't need to bundle with other streaming services, but could there be an opportunity to leverage your industry-leading global member base, be it offering a bundle with a less scaled streamer, potentially one or more services with complementary content like live sports, and in exchange for a share of subscription economics, or advertising inventory? |
5,260 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes. So look, we're seeing a lot of our competitors use bundles to find growth in their businesses, and I get that. It's a comfortable business model for legacy media companies. And kind of given the narrow scope of the libraries on these services, and the fairly limited engagement, it makes sense for them to kind of replicate some of the older media models, of kind of creating these bundles. But what we're focused on, is adding more and more value to this package, amazing series and films and now games at a remarkably low price, all in one place. We have first-run films. We have a variety of original series from all over the world that, are the most watched and the most talked-about shows. And you don't have to go anywhere else if you also want unscripted shows, and competition shows and great animated series and great animated films. The best of stand-up comedy and increasingly, buzziest live events on TV, things like the Brady Roast or the Tyson-Paul Fighter, NFL football on Christmas Day or next year with the WWE. So, we are really betting on our ability to reach consumers, and our ability to continue to grow value of this package. |
5,261 | NFLX | 3 | 2,024 | 2024-10-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, I think that's right. And it's worth noting that our share of viewership in even our biggest countries is still less than 10% of TV time. So we look at this as there's a huge opportunity to grow that share, by doing what Ted said, invest more in our slate, continue to improve the variety and quality of our offering. I think it's also worth noting that we've got a lot on our plate right now. We've got a lot of hard work building new capabilities. We're building ads, we're building games, we're building live. Those all expand that offering. They deliver more value to members. So we want to focus on building those capabilities. And before we're taking on anything new, let's take care of that. And I think, we believe strongly based on our history that if we can just keep focusing on that, be a little bit better every day at delivering more entertainment value to our members, we're going to have an incredible business. So let's stay focused there.
Spencer Wang: Great. Thank you, Ted and Greg and Spence for your answers on this call. Thank you, analysts, for your questions, and we thank all the listeners for tuning into our quarterly earnings call. And we look forward to speaking with you all next quarter. Thanks again. |
5,262 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Welcome to the Netflix Q2 2024 Earnings Interview. I'm Spencer Wang, VP of Finance, IR and Corporate Development. Joining me today are Co-CEOs, Ted Sarandos and Greg Peters; and CFO, Spence Neumann. As a reminder, we'll be making forward-looking statements and actual results may vary. We'll now take questions from the sell-side community that have been submitted and we'll begin with a set of questions on our Q2 results and our forecast.
A - Spencer Wang: So the first question on our results come from Doug Anmuth of JPMorgan. So Spence, Doug asks, how -- can you provide some color on how churn is trending and perhaps share some color on what drove revenue growth in the quarter? |
5,263 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Yes, sure. Thanks, Doug, and thanks, Spencer. We're pleased with our performance in Q2. There was strong performance across-the-board, good momentum across the business, strong revenue growth, member growth and profit growth. In terms of that member growth and churn, I'd say that the kind of outsized paid net-adds in the quarter was primarily driven by stronger acquisition, a little stronger than we expected, but also very healthy, continued healthy retention in the quarter and that's across all regions. In terms of growth generally, there's probably kind of three key factors that drove member growth. First, strong performance of our content slate, a wide variety of titles that delivered across genres and regions and I'm sure we'll talk more about that. There was some positive impact from paid sharing that continues. As we've said on recent calls, it's tougher and tougher to tease that out. We're clearly seeing healthy organic growth in the business, but we're also continuing to get better and better at translating improvements in our service into business value, including getting better and better at converting unpaid accounts. And at least on the paid member front, we're also probably benefiting from that attractive entry point in terms of price point and feature set for our ads plan. So you put all that together and it was a nice quarter for subscriber growth, but even more importantly, a nice quarter in terms of driving healthy revenue growth and healthy profit growth. So 17% reported revenue growth and margins that were up 5 percentage points year-over-year.
Spencer Wang: Thanks, Spence. Doug also has a follow-up question on the results. We noted -- or Netflix noted that India was our number two and number three country in terms of paid net-adds and percent revenue growth in the second-quarter. Do you feel like you're hitting more of an inflection point in that market? Or is that more about a very specific successful content slate in Q2?
Spencer Neumann: Ted, do you want to take it or? |
5,264 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Ted, do you want to take it or?
Ted Sarandos: Yes. Well, look, I think India's growth is a story that we see around the world playing out very similarly. So you look at the concept, the product market fit is what drives our ability to attract members and retain members and monetize with them as well. So I feel like what's going on in the quarter has been this ongoing build. We had this great show here on Monday. Sanjay Leela Bhansali, SLB, is one of the most celebrated filmmakers in India and he took on this incredibly ambitious series and brought it to screen on Netflix, directed every episode, and it's our biggest drama series to date in India. So on-top of that, our original films and our licensed films as films in the pay-TV window immediately following theatrical have continued to thrill our members. So if we pick them well, we program well, we improve the product market fit, we improve engagement, we grow members, we grow revenue. It's the same formula I think everywhere else, everywhere we go and there's certainly plenty of room to grow in India as long as we keep throwing our audiences there.
Spencer Wang: Thank you, Ted. Our next question on the results relate to operating margin and the question comes from Jessica Reif Ehrlich of Bank of America. For Spence, how should we think about the pace of margin expansion going-forward and the drivers of the margin outperformance this year? |
5,265 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Well, thanks, Jessica. Well, when we think about margin expansion, we're obviously pleased with how it's trending so-far. Our focus -- kind of stepping back, our focus is to sustain healthy revenue growth and grow margins each year. So we feel good about what we've been delivering. As you see in the letter, we're now targeting 26% full-year operating income margin, that's up from our prior guide of 25% and it's up 5 percentage points year-over-year assuming we kind of land there. But the amount of annual margin expansion as we look-forward, it could bounce around each year. And we've talked about this in recent quarters. It could bounce around because of foreign-exchange in a year where that moves or other business considerations. But we're committed to grow margins each year and we see a lot of room to continue to grow profit margin, absolute profit dollars and do that over an extended period of time for years to come.
Spencer Wang: Thank you, Spence. Our next question comes from Steven Cahall on -- from Wells Fargo and it's regarding free-cash flow. So the question is, Netflix has raised their full-year revenue and margin outlook, but did not change their free-cash flow forecast of approximately $6 billion. Is this just a pull-forward in cash content spend or is there anything else that is impacting your free-cash flow guidance?
Spencer Neumann: I'll take that. Nothing else impacting it. As we've noted -- as you noted, we continue to expect approximately $6 billion of free-cash flow for the year. There's always some uncertainty in terms of timing of things like content spend, sometimes timing of taxes. So that kind of keeps us right now holding at approximately $6 billion, but no other read-through beyond that. |
5,266 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thank you, Spence. We have our quarterly question on paid sharing next from John Hodulik of UBS, which I'll direct to Greg. The question is, do you still have upside from the paid sharing initiative? And have you moved forward on mobile paid sharing? And if so, how big of an opportunity is this? |
5,267 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, Spence already gave some commentary on this quarter's performance, I'll talk about it sort of more from a long-term perspective. And as we said for a couple of quarters now, we're at the point where we really operationalize paid sharing. So it's just a standard part of our product experience. And we think about the improvements there. And to be clear, we do see still some significant areas for improvement there. But we see those as part of all the opportunities essentially we have to improve the product experience. So we're constantly prioritizing all those opportunities based on what we think is the expected value. And just to give you a sense of how wide that is, even things that we've been working on for over a decade like our sign-up flows or the user experience that a consumer has when they want to sign-up for Netflix. We have found multiple improvements just over the last couple of quarters in those flows, which have delivered material incremental revenue wins. So we're going to continue to look at all these opportunities. We're going to improve things for members and for the business. We'll iterate, we'll improve them. And we think of this as just a constantly improving value translation mechanism. So we want to take all the value that's created by Bela's teams in film and series. We got more live events, games and we want to translate that more effectively into revenue, so we can continue to invest and keep that flywheel spinning. And if we can keep improving that value translation mechanism each quarter and keep improving the entertainment offering that it operates on top of, those two things compound and drive the business, will drive the business through the rest of the year, will drive-through '25 and beyond. And that really allows us to more effectively get more of those 500 million plus and growing Smart TV households around the world that aren't currently members to sign-up. And it also drives our other levers of growth like plan optimization, extra member, ads revenues and |
5,268 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | members to sign-up. And it also drives our other levers of growth like plan optimization, extra member, ads revenues and pricing into more value. So I just -- I think about this as more of the constant work we are doing to improve for decades to come. |
5,269 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thank you, Greg. I'll now move us along to a series of questions about advertising. And we'll start first with Barton Crockett of Rosenblatt and I'll point this question to Spence. You say that advertising is not a "primary" driver of revenue growth yet. Can you provide a little more clarity on what that means for both '24 and '25? |
5,270 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Yes, sure. Thanks. So stepping back, I'd say we're very pleased with how we're scaling our ads business. We talked about that in our letter. We've been primarily focused on scaling reach. But if you think about even just the revenue portion of ads, it is growing nicely. The rate of growth, it just happens to be growing off of a relatively small base because we're starting from only 18 months into ads so to have the kind of a primary revenue impact across a business that has been primarily subscription for a long-time that just takes some time. So we're scaling well through reach, through engagement, through growing inventory and that represents opportunity for us over a multiyear trajectory to have a big and increasing revenue and profit impact on the business. So again stepping back, we feel really good about our position, our ability to sustain healthy revenue and profit growth. Ads is kind of one more tool in our tool chest there. We're doing the hard work now to improve our service across-the-board. So we finished the year strong in '24 and drive growth into '25 and beyond. We're small in every measure. We talk about it a lot. We're small in share of TV time. We're small in terms of penetration of connected TV homes. We're small in revenue market-share. And we're going to grow in those areas across-the-board and ads going to be a bigger piece of that puzzle. Just we won't have it be primary in '24, '25, but it contributes. It's a meaningful contributor. That's what we've said and that's what it is doing. And then when you get into '26 and beyond, it can be even more meaningful and hopefully becomes to the point where it is a primary contributor given all of that engagement and reach that we're building. |
5,271 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thank you, Spence. A follow-up question on advertising comes from Ben Swinburne of Morgan Stanley and I will direct this to Greg. Looking into your advertising revenue ramp into 2025, what are the key areas that need to improve to bring in significantly more revenue? Can you talk about the opportunities and challenges scaling up your direct sales efforts and leveraging third-party sources of demand, primarily programmatically? |
5,272 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, we've said many times our priority -- number-one priority, first priority is scale, so we've been heavily focused on that. And the great news is we've seen great progress in that regard. We've been scaling our ads member base very quickly from zero two years ago to where we are today. And we're excited to say that we're on-track to achieve our critical scale goals for all of our ads countries in 2025. Clearly, we expect further growth beyond that, but that represents a great threshold to get to and then to build more scale and more attractiveness from there. So that allows us to shift more of our energy now on more effectively monetizing that rapidly-growing inventory. And there's sort of two main fronts here. One is our go-to-market capability. So we're adding more sales folks, we're adding more ads operation folks, building our capabilities to meet advertisers. A big component of that is giving advertisers more effective ways to buy Netflix. It's a big point of feedback that we heard from advertisers. So by adding demand sources that are already integrated into their processes and their systems, that just makes it easy for them to buy. And in some cases, that was a threshold item for them to buy in us, so we're going to expand the number of buyers as a result of that. And then the other big area of growth for us is the sort of product and technology stack. We mentioned we're building our own ad server now. We're excited to launch that in Canada this year and then the rest of our ads markets in '25. That unlocks a whole set of innovations that we expect that are focused on a better user experience for our members on those ad tiers and better advertiser features. So I think a lot about this is targeting relevance, more capabilities in that space as well as thinking about how do we do ROI, ROAS, incrementality measurements, all the things that we want. And ultimately, really this is about bringing what has been amazing about digital advertising in terms of targeting relevance, measurement, et |
5,273 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | really this is about bringing what has been amazing about digital advertising in terms of targeting relevance, measurement, et cetera. And what we think is amazing about TV advertising, which is an incredible creative format, better creative format in many cases than digital as well as the ability to put those advertisements next to content to titles, stories that are impacting the social conversation, which is important for advertisers. So lots of work ahead. We've got years of work to do, but that's the line that we're moving forward with. |
5,274 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thank you, Greg. From Steven Cahall, his question is, given what we think are pressures on AVOD CPMs and the 10 hours per account per month viewing time you disclosed at the upfront for ad-supported members, what's the likelihood that ad support ARM drops below ad-free member arm in the second-half? Would you consider raising the price of ad-supported tiers as an offset? |
5,275 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Okay. So perhaps starting by just providing some clarification here, our engagement on our ads plans is very similar to what we see on our non-ads plans. That's close to the approximately two hours of viewing per member per day across all the plans that you can calculate globally from our engagement reports. You should think of that as roughly how our ads plan members are engaging as well. And then on terms of ads ARM, so ads ARM which is of course a combination of the subscription amount plus the ads revenue, currently because we've been scaling so rapidly, we are not -- we're racing behind essentially to fulfill all of that increasing inventory and we're lagging in that regard. So currently our ads ARM is lower than our non-ads ARM. And that's obviously we look at that as both -- it's a go do, but it's a revenue growth opportunity for us as we scale into that, that represents an opportunity to accelerate our revenue growth as well. So you mentioned price. We think about pricing for ads tier very similarly to how we would think about pricing for our non-ads tier. First of all, I just think it's worth noting that we love having an entry price that's lower. That means we are more accessible for more people in our ads markets. That's a great thing because they get access to all the amazing storytelling that we are doing there. But in terms of raising that price, we think about it similar to how we think about pricing in general, which is where it's our job to increase the value that we are delivering all of our members. We've got more amazing film, more series, the live events that are coming, more games. And when we have signals from our members, this is the amount of acquisition that we've got going on, engagement, what our retention and churn looks like, then we find the right moment to ask our members to pay a bit more to keep that flywheel spinning. And we'll think about that in the ads context just like we would in the non-ads context. |
5,276 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thank you, Greg. John Hodulik from UBS asks, can you provide an update on the CTV ad environment and update us on initial feedback from advertisers on your ad tech initiative. What features do you expect to add with the ad tech build? And anything you can tell us about the costs associated with it?
Greg Peters: Sure. Well, there's a lot of excitement amongst advertisers to -- about the work that we're doing. I'd say the primary one and again one that we're responding to, which is sort of very tactical and immediate is being able to provide advertisers more ways to buy on Netflix. So those demand sources is something we heard very clearly from advertisers that it was either a real improvement for them or it was a necessary point for them to be able to buy on Netflix. So then beyond that, we hear lots of enthusiasm for the things I mentioned before, increasing ads relevancy, targeting personalization, better measurement, incrementality, all these things that we'll be building over the next several years, lots of excitement about that. The biggest negative feedback we get is that we aren't there right now. So advertisers want us to have all those features in place today. We would love to have all of those features in place today for sure. So we're -- got the hard work ahead of us of building those as quickly as we possibly can and closing that gap as soon as we can. But this is -- it's years ahead of us to go-ahead and keep building these things. And quite frankly, as we build those features, I am quite certain that there'll be more that will come onto the roster that advertisers will be asking for us and more that we'll be excited about doing.
Spencer Wang: Thank you, Greg. And our next question is for Ted, coming from Rich Greenfield of LightShed Partners...
Spencer Neumann: Hey, Spencer.
Spencer Wang: Yes. |
5,277 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Hey, Spencer.
Spencer Wang: Yes.
Spencer Neumann: Spencer, sorry to interrupt you. We didn't really answer the kind of cost thing unless I missed it. Did I missed that in terms -- sort of I can chime in, if you like. All of what Greg talked about in terms of investing in the business, suffice it to say that is all embedded in our margin guidance. So we're -- we make trade-offs all-the-time with the business where our expenses are up 7% year-to-date where if you kind of step-back, we're on track to be -- you can do the math, it's probably north of $28 billion in total expenses across our business for the year and we're still expecting to deliver five percentage points of margin improvement. So we try to run the business like owners, make smart trade-offs and invest into growth like live, like ads, like games, like product innovation and ads as part of that, both for this year as well as into next year where again we expect to drive revenue growth and increase our margins while investing into ads?
Greg Peters: Thanks, Spence [Multiple Speakers]
Spencer Wang: Yes, thanks for keeping us on this, Spence. So next question is for Ted coming from Rich Greenfield of LightShed Partners. Is your recent agreement to stream two NFL games on Christmas Day signaling that you need live sports to build a robust advertising business or are you trying to create a regular cadence of high-profile live events to bring advertisers onto Netflix platform who will then spend across your broad array of entertainment content? |
5,278 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Thank you, Rich. It's a great question. And let me back up a minute. We're in live because our members love it and it drives a ton of engagement and it drives a ton of excitement. And those two things are very valuable. So the good thing is that advertisers like that too and they like it for the exact same reason, the excitement and the engagement. So everyone's interests here are perfectly aligned in that way. What we signaled to the world when we went live with the Chris Rock: Selective Outrage special last year-ago is that this company, Netflix, who you love for on-demand viewing of your favorite TV shows and movies is also -- I say also going to surprise you with amazing exclusive buzzy live entertainment. And since then, we've launched a golf tournament with the great -- the biggest stars in PGA golf and Formula 1 drivers; a tennis match with two like generational titans of professional tennis, Nadal and Alcaraz; a live comedy with Katt Williams; an entire week of groundbreaking live talk show episodes from John Mulaney; that epic roast of Tom Brady, our biggest live stream yet. And still to come, we've got a live show with Joe Rogan. We have this hot dog eating grudge match between Chestnut and Kobayashi that people are remarkably excited about. We have this long-awaited boxing match between Mike Tyson and Jake Paul in November. And on Christmas Day, not just one, but two great NFL football games. So I would call that a really fast ramp and it leads right into weekly live coverage of WWE. So it's that thrilling excitement, engaged, watching that people are really thrilled about and we're thrilled about and that we're thrilled that our advertisers are excited about it too.
Spencer Wang: Thank you, Ted. Rich has a part two to this question, not surprisingly, how do you thread the needle on licensing sports to drive advertising spend without becoming beholden to leagues at renewal? |
5,279 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Well, hopefully exactly the way we're doing it by making these Netflix events, not necessarily taking on a lot of tonnage from any one league, but actually making these games -- events like having two NFL football games on Christmas Day and two great games, the Chiefs and the Steelers and the Ravens and the Texans, they're both going to be great games and it really creates a lot of real excitement with the service and it's one day of football. So when I look at that and I think along those lines, you'd see how we solved for that in our WWE deal, which was economics that we like and live with and can grow into and contemplate with that expansion of cost and viewing would be over the -- over in that case as long as 20 years if we wanted to be. So I think it's really not a matter of -- there's an automatic disconnect between you can't do sports and net profit. It's very difficult to have big league sports and profit until -- when you offer them entire seasons. But when you offer them in this event model that we're building on, we're really excited about our opportunity to do that without the risk that you're talking about right now. So -- and then beyond that, we are in love with the kind of very profitable storytelling version of sports. So if you can't wait for those football games on Christmas Day, you can watch Receiver right now. It just started on July 10th on Netflix, which is part of that storytelling version of sports.
Spencer Wang: Thank you. Thank you, Ted. Our next question comes from Kannan Venkateshwar of Barclays. It's a question regarding our engagement. So Ted, could you speak to the underlying engagement health at Netflix and what are you seeing there? |
5,280 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes. Look, I think I talked about this a bit on the last call as well, but competition for entertainment is super intense and we compete for every second of view time we get. So beyond that, kind of the competitive intensity that's always been out there, we also anticipated some headwinds in our engagement because of paid sharing. Remember, we're taking folks who were watching Netflix and not paying-off the service. So we thought our engagement would go down. We took a deep-dive into how that was impacting and how we could isolate that impact and look at it as owner households, so those folks who were not impacted by paid sharing at all. And what we saw was in last quarter is that engagement was holding steady, so that much of the engagement headwind was coming from that. And I look then -- but now we look-forward a quarter. Now I'm not going to get in the habit of releasing this as a new metric every quarter, but looking at that same segment again, that segment's engagement is actually not just steady, but up year-on-year. So we're very excited about that. I think it's a very healthy sign of engagement growth. And even with all of that, so beating down the headwinds of that and beating down competition, we're still about 10% of TV time in every country we operate in. So still lots of room to grow, but very pleased with our engagement, but not fully satisfied.
Spencer Wang: Thank you, Ted. Our next question comes from Ben Swinburne of Morgan Stanley. Your primary competitor for more passive home entertainment engagement increasingly looks to be YouTube. What are you doing in terms of programming and product to try and take share from YouTube in the future? Or is this not a focus? Are there key verticals like kids programming where you see YouTube as particularly advantaged? Perhaps Ted, you and Greg can tag team on this one. |
5,281 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes, sure. Looking at the Nielsen data that just released for June, what you see there is Netflix and YouTube are the clear leaders in direct-to-consumer entertainment. So our two service -- us and YouTube represent about 50% of all streaming to the TV in the US and we use the US only because that's where we have the data. So really what we're focused on here is focusing ourselves on that other 80% of total TV time that isn't going to either us or YouTube. So that's a ton -- even that's both streaming continuing to expand, which it did in June, so that share of TV time grew against linear. And as linear continues to give, I think there's a lot of opportunity for us to grow as long as we keep executing well. Now we clearly do compete with YouTube in certain segments of their business and we certainly compete with them for time and attention, but our services also feed each other really well. So remember, our shows are the most-watched and talked about and award nominated. We just came out of 107 Emmy nominations for our slate this year yesterday. And so our teasers and trailers and behind-the-scenes clips and all those kind of things are incredibly popular on YouTube. So in that way, we kind of feed each other pretty nicely. Greg, I don't know if you want to add anything? |
5,282 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Sure. I think it's also important to note that Netflix fulfills an important and differentiated need for both consumers who really want -- they want amazing spectacle movies and TV shows as well as an important need for creators who want partners that can share in the risk that's inherent in bringing those stories to life. So you think about shows like Stranger Things or Wednesday, Heartstopper, Outer Banks, these shows create amazing view and fandom in especially with younger audiences. So it's not just one generation. And it's really hard to imagine how that kind of big creative bet would happen and be possible within YouTube's model. So to Ted's point, it is very competitive out there. And we also feel confident that our model works. It works well for our consumers, it works well for creators and it works well for our business and helps us generate significant operating margin.
Spencer Wang: Thank you, Ted and Greg. Our next question comes from Maria Ripps of Canaccord. Netflix's CTO, Elizabeth Stone, recently appeared on a podcast where she said that Netflix is exploring how to integrate generative AI into the platform to improve the member experience. Do you think that technology could have more of a potential impact on the content creation or discovery side? How do you think about the relative impact on engagement from improving discovery versus content? Greg, over to you for this one. |
5,283 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, we've been using similar technologies, AI and ML for many years to improve the discovery experience and drive more engagement through those improvements. We think the generative AI has tremendous potential to improve our recommendations and discovery systems even further. We want to make it even easier for people to find an amazing story that's just perfect for them in that moment. But I think it's also worth noting that the key to our success stacks, right, it's quality at all levels. So it's great movies, it's great TV shows, it's great games, it's great live events and a great and constantly improving recommendation system that helps unlock all of that value for all of those stories. Ted, you want… |
5,284 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes, it begs the question about the impact on creative with AI going-forward, which is hard to predict obviously. But I would say this, I think that AI is a great -- is going to generate a great set of creator tools, a great way for creators to tell better stories. And one thing that's sure, if you look-back over 100 years of entertainment, you can see how great technology and great entertainment work hand-in-hand to make -- to build great big businesses. You can look no further than animation. When animation didn't get cheaper, it got better in the move from hand-drawn to CG animation and more people work in animation today than ever in history. So I'm pretty sure that there's a better business and a bigger business in making content 10% better than it is making it 50% cheaper. So remember, I think that shows and movies, they win with the audience when they connect. And it's when the -- it's in the beauty of the writing, it's in the chemistry of the actors, it's in the plot, the surprise and the plot twist, all those things. And I'm not saying that audiences don't notice all these other things, but I think they largely care mostly about connecting with the storytelling. And I'd say they probably don't care much about budgets and arguably maybe not even about the technology to deliver it. So my point is they're looking to connect. So we have to focus on how to tell on the quality of the storytelling. There's a lot of filmmakers and a lot of producers experimenting with AI today. They're super excited about how useful a tool it can be. And we got to see how that develops before we can make any meaningful predictions of what it means for anybody. But our goal remains unchanged, which is telling great stories. |
5,285 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thank you, Ted and Greg. We now have a question from Ben Swinburne regarding our product. And the question for Greg is, can you dimensionalize the opportunity from a new homepage? You said that this is the biggest update in a decade, which sounds meaningful. What are the primary areas of improvement you're targeting with this? |
5,286 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, it's hard to know exactly at this moment how much benefit that new homepage will derive. I think it's worth noting that it's less about the improvements that we're going to deliver initially, but it's more about creating a structure that allows us to evolve and advance more freely than the current structure does. And in terms of what are the pain points, what are we trying to solve, a lot of this is getting to the increase in diversity of entertainment that we are now offering. So we've been amazing at film and series for a long period of time, but now increasingly, we're adding live events into it -- live events like the Brady roast, which was incredible, but it's a sort of one-off event that we have to create demand for. It's live events like WWE, which are consistent and repeating that we want to make sure that fans of that experience have an easy way to access those things. We're increasingly promoting games as well into our service. So what we found is we need to create structures that allow us to flexibly go from one-type of content and entertainment to another in terms of how we're promoting and connecting those. So there's things like that. There's also things like we want to increasingly recognize that we're doing -- even in the same content type, we're doing different jobs for our users in different moments. And that could be Sunday afternoon family movie time, that'd be a great experience if we want to provide exactly the right discovery and choosing experience for versus maybe late on Thursday night when you're coming home and you just want to get into the next episode of the series that you're currently cruising through. So it's that kind of flexibility we want to provide. This is -- our expectation is that this new structure will allow us to deliver as the old structure did for a decade, multiple repetitive material benefits to users in terms of engagement, which lead into retention and then revenue. But again, that will be a long iterative journey and mostly we're trying to take |
5,287 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | which lead into retention and then revenue. But again, that will be a long iterative journey and mostly we're trying to take that first step and set us up for that. |
5,288 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: And less technical too, Greg, it's -- the UI is beautiful.
Greg Peters: There we go. We like beauty as well…
Ted Sarandos: It is -- it really is.
Spencer Wang: Thank you. Next question is from Jason Helfstein of Oppenheimer. What have been the early results from phasing out the basic tier in a handful of your markets? And how does that tie-back to success in selling ads? Greg, would you want to take that one?
Greg Peters: Sure. As you've seen us do multiple times before, we spent a lot of energy on the right product experience for doing this migration. And then what we do is we roll it out and we test it and we see how that goes and I let our members tell us if we did a good job there or not, we make whatever changes in iterations before we then scale it out and roll it even further. And I think it's worth noting here that we feel like in this migration, we've got a very strong offering for our members. Essentially, we're providing them a better experience, two streams versus one. We've got higher definition, we've got downloads. And, of course, all at a lower price, $6.99 in the United States. We think that represents a tremendous entertainment value and it includes ads. And for members who don't want that ads experience, they, of course, can choose our ads free standard or premium plans as well. And then in terms of performance, I'll just let our actions speak for ourselves. When those things go well, we typically roll it out and that's -- we've had the confidence to move forward with that change in the U.S. and France. So that's an indicator of how it's going.
Spencer Wang: Thank you, Greg. Next question comes from Eric Sheridan from Goldman Sachs. The question is regarding gaming. Can you provide any update on your gaming initiative and user engagement and your ability to scale your gaming efforts? |
5,289 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Sure. Games is a big market. So it's almost $150 billion ex-China and Russia and not including ad revenue, which we aren't participating in our current model. And we're getting close to three years into our gaming initiative. And we're happy with the progress that we've seen. We've had set ourselves pretty aggressive engagement growth targets. And we've met those -- exceeded those in many cases. In 2023, we tripled that engagement. We're looking good in our engagement growth in '24 and we've set even aggressive -- more aggressive growth goals for '25 and '26. But worth noting that engagement and that impact on our overall business at the current scale, it's still quite small. And it's also probably worth noting that the investment level in games relative to our overall content spend is also quite small and we've calibrated the growth in investment with the growth in business impact. So we're being disciplined about how we scale that. So now obviously the job is to continue to grow that engagement to the place where it has a material impact on the business. And I think you've seen this trajectory with us before, whether it's been a new content genre like unscripted or film or maybe getting the content mix right for a particular country, you can think about Japan or India, which we're now in an amazing place through the hard work of our teams there. We continually iterate, we refine our programming based on the signals we get from our members. And if you look over several years with that model, we can make a huge amount of progress. We've launched over 100 games so far. We've seen what works, what doesn't work. We're refining our program to do more of what is working with the 80-plus games that we currently have in development. And one of those things that really is working is connecting our members with games based on specific Netflix IP that they love. And this is an area that we've been able to move in quickly in a particular space, which is interactive narrative games. These are easier to build. |
5,290 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | that we've been able to move in quickly in a particular space, which is interactive narrative games. These are easier to build. And we place those in a narrative hub that we call Netflix stories. Q2, we launched Virgin River and Perfect Match. Starting this month in July, we're going to launch about one new title per month into Netflix stories. And this is amazing IP like Emily in Paris and Selling Sunset. And we have lots more, including very different types of games yet to come in the quarters and years ahead. |
5,291 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes. I just want to chime in for a second, Greg, if you don't mind. This is why I'm really excited about the opportunity in games, which is the way that it's pretty rare for the content -- new content vertical like this to actually complement or draft off of each other. So every once in a while, we get something like Squid Game: The Challenge following the Squid Game with the scripted series. But I think our opportunity here to serve super fandom with games is really fun and remarkable. I think the idea of being able to take a show and give the super fan a place to be in between seasons and even beyond that to be able to use the game platform to introduce new characters, the new storylines or new plot twist events. Now you could do those kind of things and then they can then materialize in the next season or in the sequel to the film. It's a really great opportunity and a rare one where one-and-one equals three here. And to kind of replicate some of the success we've seen building fandom and with live events and consumer products, this actually fits really nicely into that. So I'm really excited to see where this goes.
Spencer Wang: Thank you, Ted. Thank you, Greg. Our last question comes from Jessica Reif Ehrlich of Bank of America. The question is regarding content spend. Ted, you have targeted $17 billion in cash content spend this year. You're increasing your sports spending within that. How should we think about your spending on entertainment or non-sports entertainment and what's the overall content spending growth going-forward? |
5,292 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Well, thanks for the question. I would like to just back up a little bit and say that creating TV and films for a big global audience is a creative process. So -- and we're programming for more than 600 million people around the world who are watching us for a couple of hours a day every day. So we're -- we've got our work cut out for us. And that $17 billion, all those exciting things we talked about earlier are all tucked into that $17 billion and that $17 billion will grow as our revenue grows. It won't grow as fast as our revenue grows, but it will grow to accommodate that. And I think what's really important and where I think we have a real interesting advantage here is that we have these distributed creative teams all over the world. So what's great about that is they are very tightly wound into the creative ecosystem in all these different countries, the star systems, the producer systems and more importantly, the culture, what fans in those countries really love. So we've got all these folks working at the same time so that in this creative process, which does have hot streaks and cold streaks, they can be operating pretty simultaneously to create a very steady cadence of big exciting hits. We certainly compete with Hollywood to make the best and most popular programming in the world. But we're also doing that in India, in Spain, in France, in Italy, in Germany, in Korea and Japan, all over Southeast Asia and Mexico and Colombia, Spain, Argentina and the U.K. And the program that create -- the programming that we create in those countries, all -- again, all part of that 17 bill are all designed to thrill the local audience. And when they really, really thrill the local audience, there is a possibility and sometimes a probability that they could find a gigantic audience all over the world, including in North-America. So the team in EMEA, particularly in the UK, is doing a remarkable job of this right now. So they have been able to deliver big global hits, but they've been sensational in |
5,293 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | is doing a remarkable job of this right now. So they have been able to deliver big global hits, but they've been sensational in country. So Baby Reindeer and The Gentleman, both landed with Emmy nominations yesterday and have been sensations in the US, but they are a phenomenon in the UK. So more than 50% of all of our members in the UK have watched or watching Baby Reindeer and The Gentleman. Similarly with One Day, our original film Scoop. So those things that are thrilling the world are super serving the British audience. The same thing just came out of Paris or out of France with under Paris, which was 90 million views, 157 million view hours around the world, more than half of every French member loves this movie. Same thing with The Asunta Case in Spain. More than 50% watching in Spain and big watching all over the world. Queen of Tears in Korea is another example that's happening in APAC right now. So this kind of like super serving local audiences, creating global content around the world, gives us an efficiency that I think is getting better and better and a muscle that's getting stronger and stronger that I'm really excited about. And how does that play-out, our slate coming up is unbelievable. So in -- as we've currently forecast, what we're going to deliver for the rest of this year and what we're going to deliver into the net -- in through '25 just for -- just before the end of this year, we've got Squid Game return, we've got Emily in Paris return. You've got a new season of Selling Sunset, Lincoln Lawyer, The Diplomat, Virgin River, Love is Blind. Ryan Murphy has an incredible new season of Monsters that tells the Erik and Lyle Menendez story. That's all just coming up before the end-of-the year. And then looking-forward over the next -- through '25, you've got new seasons of Wednesday and Stranger Things and Night Agent. We're in production on One Piece. So there's a ton of excitement there just in our series. This week, we kicked-off the finale of Cobra Kai, which is going to blow your mind. |
5,294 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | ton of excitement there just in our series. This week, we kicked-off the finale of Cobra Kai, which is going to blow your mind. August 8th, we've got the finale of Umbrella Academy kicking off and a brand-new series that we're also thrilled about. Susan Beer's Perfect Couple with -- this has got Nicole Kidman and just a really fun, fun thriller. Nobody Wants This from Kristen Bell and Brody, Black Doves, a beautiful show out-of-the UK. Beauty in Black from Tyler Perry, No Good Deed which is bringing Ray Romano and Lisa Kudrow back to TV, A Classic Spy with Ted Danson. From Brazil, we have Senna. From Colombia, we've got Hundred Years of Solitude. And then, of course, all those live events I talked to you about. And our movie slate is fantastic with Rebel Ridge, Will & Harper, The 688, The Piano Lesson, Carry-On. These are -- we have got a lot packed into that. Our goal and our mission here is we have to spend the next billion dollars of programming better than anyone else in the world and there's no one better at doing it than Netflix. So we're excited. |
5,295 | NFLX | 2 | 2,024 | 2024-07-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Spencer, how do you not get excited about that and then also get excited about that we're going to do all that while growing content spend slower than revenue. That's a lot of stuff going on. Thanks, Ted.
Ted Sarandos: It's all in. It's all in there.
Greg Peters: And a hot dog contest too, Spencer, don't forget that.
Spencer Wang: All right. Well, I'm going to leave it at that since it sounds like we're going to have a lot to watch. So we all need a little bit more time. So we'll end the Q2 call here. So thank you, Ted, Greg and Spence for joining us today. Thank you, investors and analysts for dialing into our call and we look forward to chatting with you next quarter. Thank you very much. |
5,296 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Good afternoon, and welcome to the Netflix Q1 2024 Earnings Interview. I'm Spencer Wang, VP of Finance, IR and Corporate Development. Joining me today are Co-CEOs, Ted Sarandos and Greg Peters; and CFO, Spence Neumann. As a reminder, we will be making forward-looking statements and actual results may vary.
A - Spencer Wang: With that, we will now take questions that have been submitted by the analyst community. And we'll begin first with some questions about paid membership reporting in our results and forecast. So for our first question, it comes from Justin Patterson of KeyBanc. And I'll direct this at Greg initially. Greg, could you please talk about the decision to stop reporting quarterly membership and ARM data in 2025? Why eliminate this? And since you said success stems - starts with engagement, how are you thinking of expanding these disclosures? |
5,297 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. As we noted in the letter, we've evolved and we're going to continue to evolve developing our revenue model and adding things like advertising and our extra member feature, things that aren't directly connected to a number of members. We've also evolved our pricing and plans with multiple tiers, different price points across different countries. I think those price points are going to become increasingly different. So each incremental member has a different business impact. And all of that means that historical simple math that we all did, number of members times the monthly price is increasingly less accurate in capturing the state of the business. So this change is really motivated by wanting to focus on what we see are the key metrics that we think matter most to the business. So we're going to report and guide on revenue, on OI, OI margin, net income, EPS, free cash flow. We'll add a new annual guidance on our revenue range to give you a little bit more of a long-term view. We'll also - we're not going to be silent on members as well. We'll periodically update when we grow and we hit certain major milestones, we'll announce those. It's just not going to be part of our regular reporting. And we want to do all of this thoughtfully and give everyone time to adjust this transition. So we're going to continue to report subscribers until Q1 of next year, which links into our next annual revenue guidance for 2025. So we think that provides some long-range continuity. And we expect that will provide an effective bridge and transition. But ultimately, we think this is a better approach that reflects the evolution of the business and it more matches and is consistent with how we manage internally to engagement, revenue and profit. |
5,298 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes. And on engagement, Greg, just a reminder, we currently report our engagement on our biannual engagement report, leading the industry in viewing transparency and granularity. And we're going to look into building on that both in granularity, which will be kind of tough. Our current report covers about 99% of the viewing on Netflix, but we'll look at the regularity in different ways that we can make it even easier to track our progress on engagement. And - but importantly, why we focus on engagement is because we believe it's the single best indicator of member satisfaction with our offering, and it is a leading indicator for retention and acquisition over time. So happy members watch more, they stick around longer, they tell friends, which all grows engagement, revenue and profit, our North Stars. And so - and we believe that those are the measurements of success in streaming.
Spencer Wang: Great. Thank you, Ted and Greg. I'll move us along to the next question from Ben Swinburne of Morgan Stanley who asked two years ago, Netflix stopped adding members. What changes inside Netflix and/or the broader industry explain the significant improvement in member growth we're seeing today, excluding the paid-sharing initiative? In other words, what are you doing better today as a company than in the first half of 2022? |
5,299 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: That's a great question. I would say, the thing we're doing is we're thrilling our members. That's the thing we set out there to talk about why we all bounce out of bed in the morning. I look at this last quarter, eight of the first 11 weeks of the year, we've had the number one film on streaming. Nine of the first 11 weeks, we've had the number one original series. And I'm talking about hits like Avatar: The Last Airbender, Griselda, Damsel, Love Is Blind, 3 Body Problem, all of that just in the last few months. So this consistent and dependable and expected drumbeat of hit shows, films and games, that's the business that we're in. And that's what we have to do every day and we have to do it all over the world. So if you think about that and how we're doing about kind of quality at scale in multiple cultures in multiple regions, I look at this last quarter, you see Fool Me Once, One Day, Gentleman, Scoop, The Super-Buzzy, Baby Reindeer, all that from the U.K., all in the last few months. Berlin, Society of the Snow, Alpha Males, all from Spain and all just in the last few months. So that's been one of those things that we just keep building and building and building on. And local unscripted, which is a fairly new initiative for us, and we're finding huge success with things like our second season of Physical 100 in Korea recently and Love is Blind, Sweden. These are all kind of hard to replicate things that we keep getting better and better at every day that we're really proud of the teams for doing that. So - and remember, engagement captures all of this and none of that's possible without great tech and product. We need to do both. |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.