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5,300 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, I think that's right. The fundamental is all those amazing series, film, games, live events, but a key component of our success and something that we're seeking to get constantly better at is that ability to find audiences for all those great titles. Part of making that happen is just the number of people who look to us for entertainment. We mentioned over 0.5 billion people in this letter, but part of that is that, that product we do to effectively connect those folks with titles that they will love, which then enables us to find the largest audiences for those titles that we think that they could get anywhere. And I think as you mentioned, Ted, this applies globally to titles from all over the world, which is super-exciting. So - and then of course, we seek to maximize the fandom and the impact on the conversation and the cultural zeitgeist that all those titles have. And when we do that well, that just feeds positively into that cycle as we launch new titles. So in terms of what are we doing better, what do we do better, we seek to get better at all of those things. And if we can make that whole flywheel spin a little bit faster, then that's great for our members, it's great for our titles and it's great for our creators.
Spencer Wang: Thank you, Ted and Greg. Moving us along, we have Barton Crockett from Rosenblatt. There's a question about our revenue guidance. I will direct this question to Spence. Spence, can you please explain what drives the revenue deceleration for the full year, so 13% to 15% revenue growth for the full year compared with the 15% to 16% growth in the first and second quarters of this year? Secondly, he also has a question about second quarter subscriber growth. Will that be higher or lower than Q2 of 2023? |
5,301 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spence Neumann: All right. Sure. Well, thanks for the question. So first, regarding revenue growth overall, full year outlook, I feel really good about where we are in our growth outlook. So I just want to be clear about that. We've done a lot of hard work over the past 18 months or so to reaccelerate the business and reaccelerate revenue through combination of improving our core service, which Greg and Ted just talked about and rolling out paid sharing, launching our ads business and that reacceleration really started in the back half of '23 and it built through the year. So our growth in the back half of '24 is really kind of comping off of those harder comps. And at the high end of our revenue forecast, our growth in the second half is consistent with our growth in the first half, even with those tougher comps. And it's still early in the year. We still got a lot to execute against. We also, as you see in our letter, there's been some FX that with the strengthening dollar, that's a bit of a headwind. So we'll see where that goes throughout the year. But we're guiding a healthy double-digit revenue growth for the full year, which is what we set out to deliver and that's what's reflected in the range. And I guess maybe it's in the question, I guess, seeded and this is a little bit of like what's really kind of the outlook for our growth of the business, not just the back half of this year, but into '25. And it's too early to provide real - specific guidance, but we're going to work hard to sustain healthy double-digit revenue growth for our business. And we really like the kind of the opportunity ahead of us. We're so small in every aspect. We're only 6% roughly of our revenue opportunity. We're lesser than 10% of TV share in every country in which we operate. There's still hundreds of millions of homes that are not Netflix members and we're just getting started on advertising. So the key is to, as you just heard from Greg and Ted, continually improve our service, drive more engagement, more member value. As we |
5,302 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | is to, as you just heard from Greg and Ted, continually improve our service, drive more engagement, more member value. As we do that, we'll have more members. We'll be able to occasionally price in that value and also have a big highly engaged audience for advertisers. So more to come on '25 guidance, but that's - we feel good about the outlook. And then, I guess the second part of the question, I'm trying to remember Spencer. I'm sorry. |
5,303 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: I can take - I'll be the bad guy on this one, Spence. So the second question was, do you expect Q2 subscriber growth to be higher or lower than Q2 of the prior year? So Barton, as you know, we don't give formal subscriber guidance. We did give an indication in the letter for you that we expect fairly typical seasonality. So paid net adds in Q2 of this year will be lower than Q1 of this year. And that's the limit of the color we'll provide there.
Spence Neumann: Thanks, Spencer.
Spencer Wang: No problem, Spence. So to follow-up on the revenue guidance question, we have Jason Helfstein from Oppenheimer, who is asking for some more color on the drivers of the full year revenue guidance with respect to subscriber growth versus ARM growth and how that - those two dynamics will play into the revenue forecast, Spence?
Spence Neumann: Yes. You want to take this one as well?
Spencer Wang: Yes. |
5,304 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spence Neumann: Okay. I'll jump in. Others can chime in as well. But when you think about the outlook for the year, it's in terms of the mix of revenue growth. It's kind of pretty similar to - we expect it will be pretty similar to what you see in Q1 where it's primarily driven by member growth because of the kind of the full year impact of paid sharing rolling through the year and continued strong acquisition and retention trends. But you are - we are seeing some ARM growth as well. We saw it in Q1, about 1% on a reported basis, 4% FX-neutral. And what's - I just want to be clear, what's happening is that with ARM is price changes are going well. And that's why we're seeing those strong acquisition retention trends because it's testament to the strength of our slate, the overall improvement in the value of our service. But we've only really changed prices in a few big markets and that was U.S., U.K., France late last year. And only on some of the planned tiers in those markets, not even all the planned tiers. And since then, it's been mostly pretty small countries other than Argentina. And Argentina, as you can see, we're sort of pricing into the local currency devaluation and you see that in the difference between FX-neutral and reported growth in Q1. So mostly, what you're seeing in our growth profile this year is the fact that we haven't taken pricing in most countries for the past two years really. And we also have some ARM kind of headwinds in the near-term that you see in Q1. You'll probably see throughout most of this year, which is that one, we have some this planned mix shift as we roll-out paid sharing. So while it's highly revenue accretive, as you can see in our numbers and our reported growth - strong reported growth in Q1 and outlook for the year, that growth - as we spin-off into new paid memberships, they tend to spin-off into a mix of planned tiers that's a little bit of a lower-price view than what we see in our tenured members. And we're also growing our ads tier at a nice clip as you've |
5,305 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | bit of a lower-price view than what we see in our tenured members. And we're also growing our ads tier at a nice clip as you've seen. I'm sure we'll talk about it and monetization is lagging growth there. I'm sure we'll talk about that a bit as well. We also have some country mix shifts. So that whole combination of factors results in pretty modest ARM growth, still some ARM growth, but pretty modest in Q1 and probably throughout the year. But again, the key there is that this is all we're kind of managing this business transition in a way that's really healthy for overall revenue growth as you see with 15% reported revenue growth in the quarter, strong outlook for the year and we're building into a much more kind of durable and healthy foundation for revenue growth going forward across a larger base of paid members and a really kind of strong and scaled highly engaged audience to build into our advertising over time and a strong paid sharing solution and also to kind of penetrate into those households. So we'll increasingly kind of see that mix in our revenue growth and we start to see some of it this year. |
5,306 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Great. Spence, the next question comes from Kannan Venkateshwar from Barclays and it's for you, which is do you expect margin growth trajectory to continue being on the present path for a few years? Can you attain margins that are comparable to legacy media margins?
Spence Neumann: Well, thanks, Kannan. Our focus is on sustaining healthy revenue growth and growing margins each year. That's what we talk about a lot of we also talked about in the letter. And we feel good about what we've been delivering, 21% margins last year, that's up from 18% in the year before. And now, we're targeting 25% this year, which is up a tick from the start of year when we were guiding to 24%. So I'd say, just like we have in the past, we'll take a disciplined approach to balancing margin improvement with investing into our growth. We've managed that balance historically pretty well, growing content investment, growing profit, growing profit margin and growing cash flow. You should expect we'll continue to do that, but the amount of annual margin expansion in any given year could bounce around a bit with FX and other investment opportunities. But again, we're committed to grow margin each year. And we see a lot of runway to continue to grow profit and profit margin over the long term.
Spencer Wang: Thank you, Spence. Our next question comes from Alan Gould of Loop Capital. Which inning are we in with respect to enforcing paid sharing? Two years ago, you said 100 million subscribers were sharing passwords with 30 million in UCAN. How many do you estimate still borrow passwords? And I'll turn the floor over to Greg to answer that question. |
5,307 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. As we mentioned last quarter, we're at the point where we've operationalized the pay sharing work. So this is just now part of that standard mechanism that we've been building and iterating on over time to translate more entertainment value and great film, series, games, live events into revenue. And like we do with all of the significant parts of our product experience, we're iterating on that, testing it, improving it continually. So rather than thinking beyond sort of specific cohorts or specific numbers, we really think about this more as developing more mechanisms, more effective ways to convert folks who are interacting with us, whether they be borrowers or folks that were members before that are coming back, we call them rejoiners or folks that have never been a Netflix member. So we want to find the right call to action, the right offer, the right nudge at the right time to get them to convert. And just to be clear, we still see opportunities to improve this process. We've got line of sight on several improvements to this value translation mechanism that we expect will deliver and contribute to business growth for the next several quarters to come. But I also very much believe that just like for the last 15 years, we're going to - we've always found something to improve in this process. And even beyond those, for years and decades to come, we'll be working on this and making it better and better and better. So all of those improvements could allow us to effectively get more of that 500 million plus smart TV households to sign up and become members. Spence mentioned hundreds of millions yet to come. This is a way to effectively get at more of those folks and make them part of our membership base. And as we mentioned earlier on the call too, I think worth noting that while we're fully anticipating continue to grow subs, the overall business growth now has extra levers and extra drivers like plan optimization, including things like extra members, ads revenue, pricing into more value, which |
5,308 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | and extra drivers like plan optimization, including things like extra members, ads revenue, pricing into more value, which is important. So those levers are also an increasingly important part of our growth model as well. |
5,309 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Great. I'll move us on now to a series of questions around advertising. The first of which comes from Doug Anmuth of JPMorgan. What are the most important drivers of scaling your ad tier when you think about adjustments you could make to pricing and plans, partner bundles and marketing? How do you get people over the hump for a - that a few minutes of ads an hour can still be a very good experience at the right price. Greg, why don't you take that one? |
5,310 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, all the things mentioned in the question matter. And I would say we're generally taking our entire playbook, everything that we've learned about how do you grow members and we're applying it to our ads tier now. So clearly, that means partner channels, it means device integrations, bundles, integrated payments. Those are all important tools for growth just as they are and will continue to be in our non-ads offering, increasing awareness of the quality of our ads experience, especially relative to the linear TV ads experience, which in many countries is really quite poor. That's an important and iterative tool when we talk about sort of marketing and awareness building that's, that's going to be part of our growth mechanism. Low price, that's important to consumers. 699 is an example in the United States for multiple streams, full HD downloads. We think that's a great entertainment value, especially at the industry-leading low ad load that we've got. So that's critical as well. So I think you can see the results of leveraging all of these mechanisms and more and how our ads tier has been scaling over the last couple of quarters. So we're 65% up quarter-to-quarter this last quarter. That's after two quarters of about 70% quarter-over-quarter growth. For me, it's exciting to see that growth rate stay high even as we've grown the base so much because obviously, the numbers indicate. That means that there's more absolute additions each quarter. So we're making good progress there. But look, we've got much, much more to do in terms of scaling. We've got more to do in terms of effective go-to-market, more technical features, more ads products. There's plenty of work ahead for us on ads. |
5,311 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Great, Greg. Our next question on advertising comes from Rich Greenfield of LightShed. He has a three-part question. Part one, can you update us on your thinking around the optimal spread between the ad tier and the ad-free tier? Secondly, is your advertising ARPU, excluding the subscription fee, up meaningfully versus your original comments that it was in the $8 to $9 range last year? And then lastly, can you give us a sense of what ARPU would look like if supply was not outstripping demand?
Greg Peters: Yes. I'll take the first one and then maybe hand the ARPU/ARM points to Spence. We don't have a fixed operator position on sort of the optimal pricing spread. And much like we've done with price changes in general, we really use signals from our customers, things like plan take rate, conversion rates churn to guide us along an iterative path to get to that right pricing. And I think it's also probably worth noting that sort of right pricing is not really a static position. As we continue to evolve and improve our offering, that's going to change as well. But I think a good general guideline for us in the long term is that it would be healthy for us to land overall monetization between our ads and non-ads offerings in roughly an equivalent position. So it really comes down to what works best for any given member. And it's really a member choice about which plan they think serves them the best. And then I'll hand it over to Spence on ARM questions. |
5,312 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spence Neumann: Sure. Thanks, Greg. So in terms of ARM and your question, Rich, in terms of how we're doing now relative to what we discussed when we first launched the business. And as Greg said, we've been growing our inventory at quite a fast clip. And so, monetization hasn't fully kept up with that growth in scale and inventory as we're still early in building out our sales capabilities and our ad products. But that is an opportunity for us, because we're still a very premium content environment, a very highly engaged audience that's at an increasing scale. So our CPMs remain strong and we're building out our capabilities, as Greg talked about. So the revenue is going to follow engagement over time and it's already kind of growing nicely, which is great just off a small base. So then really as Greg said, what that means for ARM is right now, it is a bit of a drag on our ARM because of we're kind of under-monetizing relative to supply. But over time, we expect to be similar in revenue on our ads tier, a combination of subscription as well as ads revenue with those kind of non-ads offering. So that's how to think about it, but we're building to it over time.
Spencer Wang: Great. Last question on advertising comes from Jon Hollick at UBS. How are you approaching this year's upfronts? And do you believe the base of ad-supported users is now of the scale that upfront commitments can drive a meaningful change in advertising revenue and be a contributor to ARM growth in 2025? So perhaps Ted, maybe you could start and then Greg follow after that. |
5,313 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes, of course. Look, first and foremost, this is our second upfront. We're really excited to go and share with advertisers this incredible slate that we're very, very proud of. So they're going to get a look at some of the shows that are upcoming right away like brand new seasons of Bridgerton and Sweet Tooth and The '90s Show, some of our big unscripted events upcoming like our Tom Brady Roast by way of example and brand new shows like Dead Boy Detectives and Shane Gillis' new show Tires, Eric, a great new limited series out of the U.K. with Benedict Cumberbatch that we're super excited about. And then, they'll even get a longer look at what's all coming up in the second half of the year, which is again returning seasons at Cobra Kai, Emily in Paris, The Night Agent, Outer Banks and Squid Game, our big one and a brand new season of Monsters from Ryan Murphy, which is The Lyle and Erik Menendez Story this year, which is going to be really incredible thing to share with our advertisers. And brand new original series and limited series like American Primeval from Pete Berg, Heartburn with an all-star cast, Nicole Kidman and Liev Schreiber, Senna, which is this great limited series on the Great Brazilian Formula One Driver that we're really excited about. And also, I look at our early - at our movies coming up that we'll end the year with like Eddie Murphy in his most iconic role, Axel Foley and Beverly Hills Cop Axel Foley, Carry On, a big new animated feature, Spellbound. So we've got a lot of entertainment in store for the audience at the upfronts. |
5,314 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. I think this is an opportunity to reengage with advertisers and look at the fundamentals of what our offering is. I mean, first and foremost, that's an incredible list of titles that brands want to be connected with. It's just super exciting to hear that roster. We've got great engagement from our members on our ads tier. We've got an opportunity to grow that even further. We think that's connected again to the power of those titles. We're rapidly growing scale, as we mentioned. That's the number one request we've had from advertisers. So that's exciting. We're making progress on technical features like measurement, on ads products. So we're excited to get that out there. And really, this is just an opportunity to bring all of that progress in a package to advertisers and then of course, to get input from them because we know that they're going to have comments and they're going to have things that they're going to want us to continue to work on. And then really then just to continue that journey, because we know there's plenty more to go do to realize the potential we have in this space. And so, I would say, we're continuing to grow here. We're growing off of a relatively small base in terms of the impact against already big and substantial business. So even though it's growing quite quickly, it takes a while to grow that into the point where it's material. So we look forward to that increasing in '25 and then increasing further '26 and beyond.
Spencer Wang: Great. I'll now transition us to several questions around content. And this first one, I'll direct to Ted. It's a rare question around why don't we spend more. Given what seems like a very favorable current backdrop for Netflix to acquire and license content, why not lean in even more aggressively? Could it make sense to spend more than $17 billion in cash content this year? |
5,315 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes. Look, independent of the availability of licensed content, you should look at it, I think we're - we've always been very disciplined about the way we invest in the business and how we grow it. And we can get a lot of bang for our buck by spending our money well and producing our shows really well and also by acquiring the right content. And the floodgates have opened a little more on licensing for sure. But again, we're very focused on the ones that we think will drive the business. So I think we're at our current level of spending at our current level - rate of growth and we're pretty comfortable spending just behind that anticipated rate of growth.
Spencer Wang: And Ted, Jason Helfstein's follow-up is also about licensed content or second-run content. And his question is, how would second - more second-run licensing impact your margins and free cash flow?
Ted Sarandos: Well, the budget is the budget. So it's all part of how we spend against the content and the free cash flow economics. We've gotten pretty close in our cash flow against P&L on our content spend generally. So I don't think it would have much - very much impact on that. Let's want to add some color to that, Spence.
Spence Neumann: I just love you talking about the discipline on our content budgets, Ted, it makes me happy. No, I agree with all of it. I mean, we spend the opportunity, but with I think, prudent constraints and discipline. And to be clear, like we as you say, there has been more licensed content opportunity. But the vast majority of our content spend is still into original programming. It's - and it is and is likely to continue to be. So we'll always complement it with great license content for that variety and quality for our members, but the original content is still our future too. |
5,316 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Yes. Great. Next question is from Michael Morris of Guggenheim. Specific about the Jake Paul, Mike Tyson fight for Ted, what are the characteristics of the upcoming Jake Paul, Mike Tyson fight that make this the type of sports programming you're interested in investing in? How does that content benefit your member base and advertising growth goals?
Ted Sarandos: And so, we're in the very early days of developing our live programming. And it's - I would look at this as an expansion of the types of content we offer, the way we expand it to film and unscripted and animation and most recently, games. On-demand and streaming have been unbelievable for consumer choice and control. And it's really put the controls of television back in the hands of consumers, which has been really phenomenal. But there's also something incredibly magic about folks gathering around the TV together in the living room to watch something all at the same time. We believe that these kind of eventized cultural moments like the Jake Paul and Mike Tyson fight are just that kind of television that we want to be part of winning over those moments with our members as well. So that for me is the excitement part of this. We have - beyond the fight itself, we have several nights of live comedy coming from the Netflix Is A Joke Festival next month and starting in January, we've got 52 weeks of live sports with WWE RAW that's going to be coming to our members every week on Netflix. And we think it's going to be a real value-add to watch those things in real time. And we're going to continue to try a lot of new things, but the core of it is, do our members love it? And judging from the early excitement around the Jake Paul, Mike Tyson fight, there's going to be a lot of people waking up in the middle of the night all over the world to watch this fight in real time. |
5,317 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: I think worth noting that just as what's relevant to members in terms of these large cultural events that Ted talks about, that's what has relevance to advertisers as well. So it's an opportunity for us to expand our advertising offering and give those brands access to these kind of culture-defining moments.
Spencer Wang: Thanks, Ted and Greg. And I'm personally looking forward to that event and my money is on Iron Mike Tyson. But as a follow-up on the sports. You still got it, I think. But as a follow-up to the sports question, for Ted, as you continue to scale Netflix and become bigger and bigger and potentially gain more leverage, how could your sports strategy change beyond what you're doing today around primarily sports entertainment?
Ted Sarandos: We've said this many times, but not anti-sports, but pro profitable growth. And I think that's the core of everything we do in all kinds of programming, including sports. So our North Star is to grow engagement, revenue and profit. And if we find opportunities we can drive all three of those, we will do that across an increasingly wide variety of quality entertainment. So when and if those opportunities arrive that we can come in and do that, which we feel like we did in our deal with WWE. If we can repeat those dynamics and other things, including sports, we'll look at them, for sure. So I think it's - we have the benefit of building an enormous business without a loss leader. And we continue to believe that we can grow on that path just as you've seen. So I think the core of it is, is that we're going to look at those opportunities with the same discipline that we do when we talk to movie producers and television networks about putting our content on the air. |
5,318 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Great. The next question comes from Rich Greenfield from LightShed about our film strategy. So for Ted, a recent New York Times article cited internal communications from new Netflix film, Chief, Dan Lin stating quote. The aim is to make Netflix's movies better, cheaper and less-frequent. Lin wants his team to become more aggressive producers developing their own material rather than waiting for projects from producers and agents that come to them unquote. Everyone wants to make better, cheaper films, but we find it hard to believe we being rich, find it hard to believe that there is a magic formula. Help us understand the strategy shift under Dan Lin versus Scott Stuber. |
5,319 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Well, thanks for that question, Rich. I would send you back to that New York Times article because that was not a quote from Dan. And I would say that and nor did we participate in that article. I would say, just to be clear, there is no appetite to make fewer films. But there is an unlimited appetite to make better films always, even though we have made and we are making great films. We want to make them better, of course. We're super excited to have Dan join the company. He just joined a couple of weeks ago and he's joined us running 100 miles an hour. Bella has said this publicly that our strategy remains variety and quality. And she's doing an amazing job of bringing new fresh-thinking to our content and our content organization, bringing Dan on board is a great example of that. We want to have a lot of movies. We want them to thrill our audiences and they all have different tastes and we want them all to be great. And so, we take a very audience-centric view of what quality is. And Dan knows that from having produced for us as the CEO, Ride Back, he produced the Oscar-nominated film, the Two Popes. For us, he did Avatar, The Last Airbender for us recently. So he understands Netflix and the audience really, really well and his success in live action and animation is very hard to define in the business. So we're thrilled he's doing it here.
Spencer Wang: Great. Thank you, Ted. The next question comes from Kannan Venkateshwar from Barclays. Could you please provide an update on engagement trends now that paid sharing is mostly behind you. So I'll kick it over to Ted first and Greg, you can feel free to add-on. |
5,320 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Well, it's important to note that we compete for every hour of viewing all the time, every day, everywhere we operate. And we think that engagement report is very important and that metric is important because again, it's the best indicator of customer satisfaction. I know I just said this 10 minutes ago, but I'm going to repeat it. Eight of the first 11 weeks of this year, we've had the number one movie and nine of the last 11 weeks of this year, we've had the number one series. And that's according to the Nielsen streaming data. And for us, that is what we're personally focused on. And we've actually seen in that Nielsen data, our share tick up a little bit even in this incredibly competitive space, where you've got a lot of folks competing for attention, for time and for money.
Greg Peters: Yes, Ted, I think you can repeat that eight, 11, 9/11 as many times as you want as far as I'm concerned.
Ted Sarandos: I'm going to close with that two. |
5,321 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: I'm going to close with that two.
Greg Peters: So as we have said, due to the work that we're doing on password sharing, we're essentially cutting off some viewers who are not payers and therefore, we're going to lose some viewing associated with that. So when you see our next engagement report, you are going to see some impact to our overall absolute view hours as a result of that. But despite that impact and despite the general pressure from strong competition that Ted noted, we think our engagement remains healthy. You can see it in the stat that Ted indicated in terms of the Nielsen ratings and our modest growth in TV time in the United States, but we also wanted to do an apples-to-apples view of engagement. So we looked at the population not impacted by paid sharing, it will be called owner households. And in Q1 of '24, the hours viewed per account were steady with the year-ago quarter. So that's a pretty good sign that our engagement is holding up and it sort of cuts through the noise around paid sharing. And again, I just want to reiterate, we think we have plenty of room to grow engagement, right? We're still less than 10% of TV hours, even in our most mature matrix markets. So there's tons of room of growth ahead of us.
Spencer Wang: Thank you, Ted and Greg. I'm going to move us along now to a series of questions around plans and pricing and pricing strategy. So from Steve Cahall from Wells Fargo. Greg, as you continue to expand, do you think there is a ceiling for pricing? If so, how close are we to that ceiling in mature markets? And do you envision Netflix having content here, so that you can continue to expand your content genres and further segment your customer base? |
5,322 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. We don't have a set position on a ceiling. I mean, I'm sure, you can look at pay TV as a potential markers for where people have spent before, but we really actually don't think of it so much as defined by that. We see it as an opportunity to continue the process that we've been working on, which is let's continue to try and invest wisely, add more entertainment value. And as we add more entertainment value, then of course, we can go back to our subscribers and ask them to pay a little bit more to keep that virtuous cycle moving. And really the markers for us in terms of the upside potential, more around the hours on TV that we are winning, how many moments of truth we call it that we are winning. Again, less than 10% in our even most mature markets, there's tons of room there. You can use total consumer spend on entertainment in the markets and categories that we compete in. That's between 5% and 6%. So there's just a lot of runway still ahead of us to go do a good job at making that investment happen, deliver more value and then ask folks to pay a little bit more.
Spencer Wang: Great. Next question on pricing comes from [Mark Shmulik] of Bernstein. Can you please share progress on how the retirement of the basic plan is going in the U.K. and Canada? And is there any color you can share on if when we could expect a similar rollout in the U.S.? Greg, why don't you take that one? |
5,323 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. As we shared in the Q4 '23 letter, we were planning on retiring our basic plan in some of our ads countries. We've now started that process in Canada and the U.K. and very similar to what you saw us do with paid sharing, we're going to work hard to make this a smooth transition. Part of that is listening to our members before we make any further moves. So we've got nothing more to announce and we really want to see how this goes. Yes. We know that this is a change for our basic members, but we think we've got a strong offering for them. They're going to get more for less, two streams versus one, we've got higher definition, we've got downloads, all at a lower price. And of course, it goes without saying hopefully that members can always choose our ads free plans as well if they prefer.
Spencer Wang: Great. Thank you, Greg. A couple of questions on overall capital allocation. So these would be for Spence, primarily from John Blackledge of TD Cowen. Excuse me, you mentioned evolving capital allocation strategy in your investor letter with the - with your new investment-grade status. Can you please talk about changes in how investors will see that change? |
5,324 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spence Neumann: Yes, sure. Thanks for the question. It's really quite a modest evolution of our capital allocation strategy to better reflect our investment-grade status. And that's really what it is. We're still going to have the same financial policies and principles in terms of prioritizing profitable growth by reinvesting in our core business, maintaining a healthy balance sheet with ample liquidity and returning excess cash beyond several billion dollars on the balance sheet of minimum cash and anything that we use for selective M&A to return to shareholders through share repurchase. So really the only change is that now that we're solidly investment grade, we're going to - while we will hold still several billion dollars in cash on the balance sheet, we won't have the same marker of two months of revenue - the equivalent of two months of revenue on the balance sheet. So it allows us to be a bit more efficient there. We also upsized our revolver, which was announced today, up to $3 billion from $1 billion, which also gives us more access to capital and better cash efficiency. And then again, any cash beyond that, we'll return to shareholders. We've historically been mostly a build versus buy company with select strategic kind of acceleration through M&A. And that there's nothing right now planned, but that still is kind of our philosophy is to build predominantly. And we're also going to kind of refinance our existing kind of debt as those maturities approach, but we don't plan to kind of lever up through stock buyback. We want to - we really do value that balance sheet flexibility.
Spencer Wang: Great. Thank you, Spence. Last question on capital allocation for you. This comes from Vikram of Baird. What are your latest thoughts on the appropriate level of content spend for the business beyond 2024. Specifically, in the past, you have referenced a 1.1 cash content spend to amortization ratio. Is that still the case? And what would you need to see in an opportunity to meaningfully exceed that framework? |
5,325 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Spence Neumann: Yes. It still holds. It still holds. So still basically the short of it is we're really kind of managing to that. So as we said, we've been like - we've been focused on driving that acceleration of our revenue growth, continuing to grow our business, grow our profitability. As we do that, we would expect to continue to grow our content investment as we have historically into the highest impact areas, but also be quite disciplined there. So we want to grow our free cash flow. So we believe we can manage to that roughly 1.1 times of cash content spend relative to expense on the P&L and that leads to overall revenue growth, increased profit, profit margins, growing free cash flow. And that still gives us a lot of opportunity to spend into the all those kind of content and entertainment categories that Greg and Ted have been talking about.
Spencer Wang: Thanks, Spence. We have a few more minutes left. So we'll wrap-up with a few higher-level questions. The next one comes from Eric Sheridan of Goldman Sachs. And I think both Ted and Greg can tackle this one. The question is, what are your thoughts on the competitive impact from short form video consumption? |
5,326 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: So I look at how - what people watch and when they watch it, have a lot to do with one another. What are the choices and how much time do they have. So our version of short-form is more like giving our members the ability to watch 10 minutes of an episode of a series that they're binging right now if they only have 10 minutes. But some and those when I look at the short-form viewing on YouTube and TikTok, some of it is adjacent and quite complementary to our viewing. So our trailers or creators expressing their fandom for our shows like doing posting a Wednesday Dance or Ugly Crying, Watching One Day, all those kind of things that become viral sensations and actually increase the fandom of our shows. Now that being said, some of that viewing is directly competitive with us, the same as it is with other media companies who provide content to YouTube by way of example. The art of this has always been finding the right balance of both. So and also would point out that these platforms have been a way to have new voices emerge, and we've got our eye on them as well to try to develop them into the next-generation of great storytellers on Netflix.
Spencer Wang: Great. And I think for our final question, we'll take that from Dan Salmon of New Street Research. What is the opportunity for Netflix to leverage generative AI technology in the near and long-term. What do you think great storytellers should be focused on as this technology continues to emerge quickly. I'll turn that over to Greg, please. |
5,327 | NFLX | 1 | 2,024 | 2024-04-18 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, worth noting, I think that we've been leveraging advanced technologies like ML for almost two decades. These technologies are the foundation for our recommendation systems that help us find these largest audiences for our titles and deliver the most satisfaction for our members. So we're excited to continue to involve and improve those systems as new technologies emerge and are developed. And we also think we're well-positioned to be in the vanguard of adoption and application of those new approaches from our just general capabilities that we've developed and how we've already developed systems that do all these things. We also think that we have the opportunity to develop and deliver new tools to creators to allow them to tell their stories in even more compelling ways. That's great for them. It's great for the stories and it's great for our members. And what should storytellers be focused on. I think storytellers should be focused on great storytelling. It is incredibly hard and incredibly complex to deliver thrilling stories through film, through series, through games. And storytellers have a unique and critical role in making that happen and we don't see that changing.
Spencer Wang: Great. Thank you very much, Greg. And we are now out of time. So I want to thank you all for taking the time to listen into our earnings call. And we look forward to speaking with you all next quarter. Thank you |
5,328 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Good afternoon, and welcome to the Netflix Q1 2025 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'll now take questions from the analyst community and we will begin first with our results, outlook, and forecast.
A - Spencer Wang: And our first question comes from Robert Fishman of MoffettNathanson. Robert's question is, the Wall Street Journal report this week discussed Netflix's internal goal of doubling revenue and tripling operating income by 2030. How should investors think about Netflix leaning into more content spending over the next five years?
Ted Sarandos: I'll take this, and thanks, Robert. Look, we have a unique culture, and part of it is this open information operating style, and it has served us very, very well. On rare and very disappointing occasions, our confidential and internal discussions can leak into the press, and while we wouldn't normally comment about leaked internal information, we do want to be extra clear about this. We often have internal meetings and we talk about long-term aspirations, but it's important to note that this is not the same as forecast. Our operating plans is the same as our external forecast and guidance. We don't have a five-year forecast or five-year guidance, but you can assume that we are long-range thinking, and that we're working hard every day to build the most loved and valued entertainment company for all of our stakeholders. |
5,329 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: And maybe to pivot the conversation. We're happy to comment on and discuss the detail. We do have big long-term aspirations, and those aspirations are really grounded in the potential for growth that we see in the business. Now, we think we got a pretty good business today, over $40 billion in revenue. We've got over 300 million paid households. Those represent an audience of over 700 million individuals. We're leading in streaming view share. But we also think that we're a minority of our addressable market -- our potential across any of those measures. You think about engagement, we're less than 10% of TV hours from an audience or a connected households perspective. We still got hundreds of millions of folks to sign-up, and from a revenue perspective, we're about 6% of consumer spend in ad revenue in the countries we serve, in the areas that we serve. So, we believe we've got plenty of room to grow our engagement, our revenue, and our profit. And as Ted said, do that to become the most valued and loved entertainment company for all of our stakeholders.
Spencer Wang: Thanks, Ted and Greg. Our next question, or I should say, we have received several questions actually understandably, about the economic environment and consumer sentiment as well. For example, Jason Helfstein from Oppenheimer asks, this is the first time you are potentially entering a recession with a low-cost ad plan. How do you think about consumers downgrading plans relative to the behavior you've seen in prior recessions? |
5,330 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. Given that we've got a bunch of questions on sort of the general economic environment. Maybe, just start with some comments on that. We're paying close attention, clearly, to the consumer sentiment and where the broader economy is moving. But based on what we are seeing by actually operating the business right now, there's nothing really significant to note. So, what are we looking at? Primary metrics and indicators would be our retention, that's stable and strong. We haven't seen any significant changes in planned mix or planned take rate, to part of that question. Our most recent price changes have been in line with expectations. Engagement remains strong and healthy. So, things generally look stable from that lens. Stepping back, we also take some comfort in the fact that entertainment historically has been pretty resilient in tougher economic times. Netflix specifically also has been generally quite resilient, and we haven't seen any major impacts during those tougher times, albeit, of course, over a much shorter history. And then to the point of the specific question. I think that having the low-cost ads plan in our largest markets also gives us more resilience, and we think that we represent an incredible entertainment value starting at $7.99 in the U.S. and Canada, with that as planned. It's an accessible price point, and we really do expect the demand for entertainment to remain strong. |
5,331 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes. And just to add to that, Greg, a bit, we remain focused on the things that we can control, and improving the value of Netflix is the big one. Historically, in tougher economies, home entertainment value is really important to consumer households, and Netflix is a tremendous value in absolute terms and certainly in competitive terms. So, there are some international risks that folks talk about with what's happening now, and I'd say, look, there always has been. We are -- we pay taxes and levies around the world consistent with all sorts of local regulations, and so there's always some of that that has existed, always has. But what we're seeing today, we're not changing anything in the forecast. So, got to keep in mind, that while the U.S. represents our largest spend for content and employees, production infrastructure, we produced original content in 50 countries around the world, and we're a net contributor to many of those economies and cultures. So, in our letter, we talked about our commitment to the U.K. We also recently announced $1 billion commitment to production in Mexico. In 2023, we announced we're $2.5 billion and committed to Korean content in Korea, and all of these are just examples of the global commitment. So, when we produce in these countries, we create and support employment, training. We work with local producers and local talent. We help export local stories and local cultures around the world. We even drive tourism. So, we believe we're additive to the local economies and the local cultures all around the world where we're working. So, perhaps a little bit less exposed.
Spencer Wang: Thanks, Ted. So, that sort of takes care of the question we got from Dan Salmon specifically on tariffs as well. So, I'll move us along to a question now from Rich Greenfield of LightShed Partners. Does your price increase cadence change due to the global economic uncertainty, or is that outweighed by the strength of your slate and increased time spent watching Netflix? |
5,332 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. It really links to how we think about price changes. As we stated before, we really rely on our members to let us know when we've invested enough, grown the value in our offering, and then determine based on that when we adjust pricing to be able to reinvest back into our service. So, we're going to continue to follow that philosophy and that path rather than some predetermined plan. We certainly seen periods of challenging economic conditions historically in different countries, and we've generally been able to keep that positive flywheel spinning even in those situations and I think that speaks to the gap between value and price that -- and that we are for many people, a very good value even as they're being careful about where they spend. We've also been expanding that range of price points, including the low-priced ads plan in our ads market, which better allows us to offer the right plan at the right price to a wider range of consumers. So, that's all to say that we're proceeding largely as we've done in the past, while continuing to work to improve both value and accessibility.
Spencer Wang: Great. Thanks, Greg. Our next question is from John Hodulik of UBS. How has member retention been trending, given the Q4 strong paid net additions? Have you retained the bulk of these subscribers? And can you give us a sense of how churn has been trending? |
5,333 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Yes, sure. Spencer, why don't I take that one, give Greg and Ted a break for a sec. As Greg mentioned, we're seeing strong, stable acquisition and retention trends in the business generally that resulted in healthy member growth in Q1. Last quarter, we did provide some color on the retention characteristics for some of those bigger live events in Q4. Recall, we had the Paul Tyson fight, we had NFL on Christmas Day, we also had Squid Game, which was an event in and of itself. But we did mention at the time that those three big events were still a minority, a small minority of our net adds in Q4. But we also noted that the retention characteristics for the members that came in for those big events were similar to members that joined for other big titles, and that continues to be the case. So, really no meaningful changes to our retention story, which, no news on that front is good news from our perspective.
Spencer Wang: Thanks, Spence. We have another question about our outlook and forecast from Michael Morris of Guggenheim. Given the strength in operating margins in the first half of the year, can you discuss the key incremental costs that will drive lower margins in the second half? Do you expect these costs to be more heavily weighted to the third quarter or the fourth quarter? Spence? |
5,334 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Yes, I'll take it again. Okay. Thanks, Michael. So, look we are -- as you've seen in our letter and as you mentioned, we're still forecasting 29%, 29% full year margin, operating margin for the year, and we primarily manage the full year margin. As you know, our margins bounce around a bit quarter-to-quarter, that's usually based on the timing of our content slate. That's the primary driver. And that's what's reflected in our forecast. So, content expense will -- we expect will grow and ramp in Q3 and Q4 on a year-over-year basis, given the timing of our slate. We've got our biggest titles returning in the back half of the year. I'm sure Ted will talk to some of that later in the call, and also typically in Q4, we have a heavier film slate. We've also got sales and marketing expenses that will probably -- that we expect would ramp in the second half of the year both to support the slate, but also ad sales that this go-to-market operations and are hitting in our marketing and sales line, so we're continuing to build out our sales operations and capabilities and some of that is hitting there and growing in the back half. So, all of that is expected and reflected in our guidance. Other than, as I said, a little bit of a heavier slate typically on the film side in Q4, no meaningful differences between Q3 and Q4.
Ted Sarandos: The one thing maybe I'll also just add, Spencer, is we obviously beat a bit in operating income in Q1. But at this point, most of that was -- there's a little bit on the revenue side, mostly on the expense side, and it looks to us that most of that was timing of spend, but still spend that we would expect to hit in the full year. So, there's still a long ways to go in the year, a good bit of macro uncertainty out there. So, this is still our best estimate for kind of outlook for the year. |
5,335 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Great. Thanks, Spence. I'll move us along now to a set of questions around advertising from Dan Salmon of New Street Research. Does the current macro environment change your approach to the television upfronts? Any broad thoughts on how you're approaching upfront versus the scatter market would be great.
Greg Peters: Sure. Similar to commentary on the consumer sentiment, we're keeping a close eye on the marketplace, but we aren't currently seeing any signs of softness from our direct interactions with buyers. Actually, to the opposite, we're seeing some positive indicators from clients as we approach our upfront event. I think worth noting perhaps that the fact that we're currently relatively small in ads and that sort of ads as a revenue contributor to Netflix, but probably more importantly, the amount of ad spend that we're seeking to win relative to the big ads pie, that smallness probably provides us some insulation to market shifts right now. And we are rolling out our proprietary ad tech suite. We've rolled that out in Canada and United States. We've got our remaining 10 markets coming. That offers a bunch of new capabilities that advertisers have told us they want. So, we're just starting to sell into those new capabilities that opens up new opportunities for us, opens up new demand for us as well. So, I would say, based on everything that we're seeing right now, we continue to expect that we will roughly double our advertising revenue in 2025 through a combination of both upfronts, programmatic expansion, and scatter.
Spencer Wang: Thanks, Greg. And that's a very good segue to our next question, which comes from Vikram of Baird. Could you provide an update on your first-party ad-tech platform? How has the rollout in Canada performed relative to your expectations? And do you have any observations so far in the U.S.? |
5,336 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes. It's a big milestone for us to roll out our own ad suite. We've been working on it for a while. We're still in the middle of that rollout, but our Canada and U.S. launches have gone well. They're consistent with our expectations. We're learning and improving quickly now, based on the feedback we're getting from having those live and operating them. Then we'll roll out across the remaining 10 ads markets in a few stages over the coming months. So, that's sort of all lined up and ready to go. The biggest initial benefit that we are seeing, again, as expected from being on our own ad servers, it just enables more flexibility for advertisers, more ways that they can buy. There's fewer activation hurdles. We have the ability to improve that overall buyer experience iteratively. It just makes it easier to transact with Netflix, and that, of course, drives increased sales, so we're seeing that. And then we expect over time that our first-party ad-tech platform will allow us to do other things, deliver more critical capabilities more quickly to advertisers. These are things like more programmatic availability, something we definitely hear demand for, enhanced targeting, something we're excited about. We can leverage more data sources, and of course, something we hear all the time, more measurement and reporting capabilities. So, those are all things that we've got in work. Some of those have been delivered already in some of the territories, and those will come over time. And then the other big space of benefit by being on our own ads tech stack is, it enables us to have more control to create a higher quality ad experience for our members. This is things that are really important like increasing ad relevance, which is just good for everybody in the whole ecosystem. So, just getting started, excited to get it out there. We got many years of building ahead of us, but we've got a clear roadmap. We know what we're committed to, and we'll just continually to iteratively improve and innovate in advertising, |
5,337 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | clear roadmap. We know what we're committed to, and we'll just continually to iteratively improve and innovate in advertising, just like you've seen us do in all sorts of other areas. |
5,338 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thanks, Greg. And speaking of ads relevance, Justin Patterson has a longer-term question on ads. Netflix has solved personalized content recommendations. What are the key steps to solving ad content recommendations or relevance, and which inning do you believe you're in? |
5,339 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Not sure I would characterize this completely solved. We hope that we can be even better day to day in recommending the main titles, but we do have an ambition to achieve that same level of sophistication and maturity capability that we did on the personalized recommendations in the ad space. That means matching the right ad with the right audience, the right viewer, and the right title. And we think putting those three things together drives superior campaign outcomes for advertisers. We think it's a better experience for members. So, it's win, win, win. Where are we at in that process? I would say that we are literally just beginning to get that going. So, the first stage of that is actually being on our own ads platform. We've launched that, as I said, in Canada and the U.S. We've got the remaining markets coming over the next months to come. And in doing that during this time, we've been able to significantly already expand our targeting capabilities. So, that now includes targeting features that are based on Netflix's unique data. So, think life stage, interest, viewing mood. In the U.S., we've also recently enabled advertisers to do more significant targeting. So, this is targeting on their own onboarded audiences, targeting on Netflix's modeled audiences, targeting against audience segments that are provided by a select set of third-party vendors. So, we've got a lot of exciting work going on in that space. And then looking ahead, in 2026, we'll do more of that. More data targeting capabilities. We'll move more of that globally. So, a lot of things we do, we start in the United States and expand across more territories. You'll see that. And then of course, more measurement functionality in all markets. And then in 2027, when we get to look to specific focused investments at a higher order in data capabilities, such as ML-based optimizations, we've got advanced measurement, advanced targeting, we'll be really opening a rich space there. Another big benefit we get on our own ad stack is we'll |
5,340 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | advanced targeting, we'll be really opening a rich space there. Another big benefit we get on our own ad stack is we'll be able to innovate and develop more quickly new ad formats. So, we'll have more spaces that we can point all of that improved targeting capability against. So, just getting started in this space, we've got a lot of work to do for sure, but we think we'll be able to move very quickly. And frankly, more quickly than other streamers because we believe we're going to be able to leverage not only pre-existing tech that we have, data that we have, but also data science expertise and the rapid product innovation experience that we've got. |
5,341 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: And just going via the inning analogy gives us a little more flexibility than crawl, walk, run, right? So, when you walk through all that, it's nice to have all those innings ahead of us. Nine options instead of three.
Greg Peters: That's right. Stepping up to the plate, starting to swing. That'd be where we're at.
Spencer Wang: Thanks, Greg. I'll move us along to a series of content-related questions from analysts, beginning with Rich Greenfield from Light Shed. There are four major sports properties available right now. How should we think about the strategic fit for Netflix in terms of number one, the UFC, number two, WWE premium live events, number three, F1, and number four, Major League Baseball? |
5,342 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Thanks, Rich. Just, I do want to remind you that our live strategy is beyond just sports. So, I'm not going to comment on any of those specific opportunities at this time. But I will steer you back to the letter to show you that our live event strategy is unchanged and we remain really focused on the big breakthrough events. Our audiences love them. And so anything we chase in the event space or the sports space is a deal that'd have to make economic sense as well. So, live is a relatively small part of our content spend. We have about 200 billion view hours. So, small relative to view hours too. But that being said, all viewing is not equal. What we have seen with live is this very outsized positives around conversation and acquisition. And we suspect retention. And we're really excited to keep building on that. We have the Taylor-Serrano fight in July. That's a rematch from when they fought the first time on the Tyson-Paul fight night. It was the most watched women's sporting event in U.S. history. So, there's a lot of excitement around that. The NFL, of course, is a great property and we're happy to have the Christmas day game. So, we opted into the second NFL game for Christmas Day. So, we'll be presenting all day football again on December 25th, 2025, really exciting. And then today our live adventures have all been primarily in the U.S. but we intend to grow the capability to do it around the world in the years ahead. So, very pleased with the progress so far and excited about the future for live sports and non-sports.
Spencer Wang: Thanks, Ted. The next question is from Matt Thornton of FBN Securities. Do you think video podcasts could perform well as a category on Netflix? |
5,343 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: So, we're constantly looking at all different types of content and content creators. The lines between podcast and talk shows are getting pretty blurry. We want to work with kind of great creators across all kinds of media that consumers love. And podcasts to your point have become a lot more video forward. And today we actually produce a lot of podcasts ourselves as part of our kind of publicity and publishing efforts. So, some are really show specific like Sweet Game and Diplomat. Some are genre focused, some are talent focused. We have a great one called You Can't Make This Up all about Netflix docs. And they live everywhere podcasts live today. But as the popularity of video podcasts grow, I suspect you'll see some of them find their way to Netflix.
Spencer Wang: Thanks, Ted. From Rich Greenfield again, how do you create iconic animated franchises? What does it really take to build out culturally relevant animated IP? Is the answer a different team, acquisitions, or something else entirely? |
5,344 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Well, thanks, Rich. Keep in mind, in this -- we're relatively new at this and it's a completely creative process. We've had some hits and we've also had some misses so we know we have work to do. But I would point out that we've had some really nice hits with Leo, with Sea Beast, Guillermo Del Toro's Pinocchio, certainly Pierce Culture, even won the Oscar for us for best Animated Feature film. And the other thing we keep in mind about why we're excited about this space, there's a lot of demand for animated film. In 2024, nine out of the top 10 most-streamed movies were animated features. So, just like in our live action strategy, we want to make some, we want to license some. And we have more access today to license than we did when we began in-house animation. And we get to that now through output deals with Universal, Illumination and with Sony. But the animation team, Hannah and Dan, they're working really hard on a very promising slate of exclusive originals they're going to roll out through 2027, including one called In Your Dreams coming out in Q4, which is really fun, really entertaining, beautifully produced film that I think you're going to love. So, we got our work cut out for us, but it's a big prize.
Spencer Wang: Thanks, Ted. Our next question comes from Robert Fishman of MoffettNathanson. As you think about the competitive landscape over the next five years, should investors expect Netflix to move into short-form or creator-led content to compete head-to-head with YouTube? |
5,345 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Sure, I'll kick this one off. I think just starting at the macro lens, we've always had very strong competitors, including YouTube, many others. We're all definitely competing hard for people's entertainment time. So, we absolutely have to earn every hour that we win. We don't take anything for granted. We don't do anything for free. We wake up every day eager to improve our service for our members and for our members-to-be. We also think in that broadest competitive lens that the biggest opportunity we've got is actually going after the roughly 80% share of TV time that neither Netflix nor YouTube have today. We think of that as a real immediate opportunity. And then when it comes to the specific head-to-head competition with YouTube or other platforms like YouTube, we believe we are a more competitive, better service for a certain class of creators and certain types of storytelling. And most importantly in that is that we lead monetization for those kinds of titles. And that means we can provide a better opportunity than YouTube or other services for those creators and those stories. And Ted, maybe you want to comment on the creator and content type expansion? |
5,346 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Yes, sure. We're looking for the next generation of great creators and we're looking everywhere. So, they're not just in film schools and certainly not just in Hollywood. Creators today have tools that were unimaginable a decade ago to tell stories, to reach audience. The question that's out there is that, is it premium? Well, some of it is. And we believe we have the best monetization model on the planet for premium storytelling. I think we can help those creators reach an audience. Our model can also support more ambitious efforts for them, can help de-risk them, unlike the kind of typical UGC models. Look at people, folks like Ms. Rachel. She's been in the top 10 every week since she launched on Netflix. Kill Tony right now is killing it with our standup fans. We're working with Sidemen. We just launched Pop the Balloon. So, we think it's really exciting when you put this all together. We believe it's the best place for premium content as defined by fans and the best home for storytellers wherever they're working on honing their skills today.
Spencer Wang: Thank you. From Ben Swinburne of Morgan Stanley, we are starting to see some of the fear around AI and content creation subside and major directors like the Russos, Jim Cameron, et cetera, begin embracing the technology. What is Netflix doing to leverage AI for its creative partners? How meaningful can this be? And are there any examples that you can share? |
5,347 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Ted Sarandos: Well, Ben, there's a ton of excitement about what AI can do for content creators. I read the article too, what Jim Cameron said about making movies 50% cheaper. I remain convinced that there's an even bigger opportunity if you can make movies 10% better. So, our talent today is using AI tools to do set references or previs, VFX sequence prep, shop planning, all kinds of things today that kind of make the process better. Traditionally, only big-budget projects would have access to things like technical -- advanced visual effects such as de-aging. So, today you can use these AI-powered tools so to enable smaller budget projects to have access to big VFX on screen. A recent example I think is really exciting, Rodrigo Prieto was the DP on the Irishman just five years ago. And if you remember that movie, we were using very cutting edge, very expensive de-aging technology that still had massive limitations, still created a bunch of complexity on set for the actors. It was a giant leap forward for sure, but nowhere near what we needed for that film. So, this year, just five years later, Rodrigo is directing his first feature film for us, Pedro Paramo in Mexico. Using AI-powered tools, he was able to deliver this de-aging VFX to the screen for a fraction of what it costs on The Irishman. In fact, the entire budget of the film was about the VFX costs on The Irishman. So, same creator using new tools, new better tools to do something that would have been impossible to do just five years ago. That's incredibly exciting. So, our focus is simple, find ways for AI to improve the member and the creator experience.
Spencer Wang: Thanks, Ted. Our next question is from David Joyce of Seaport Research Partners. The question is, with so much content in your library, what can you do for discovery to help drive further engagement with the platform? Is there anything further structural you can do with the recommendation engine, or is it going to require more marketing? |
5,348 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, a fact that surprises many people is that even our most popular, most buzzy titles that you're hearing tons of conversation around, those still drive less than 1% of viewing. So, that discovery and recommendations capabilities are really critical to unlocking all the value from the investments that Bella's team is making around the world. And we believe, and we continually see this in test results quarter after quarter, that there is more room to improve that discovery and recommendation experience, and therefore provide more value for members and therefore find the biggest audiences for -- around the world for our titles. To that end, some examples of this last year, we began testing a new, simpler, more intuitive TV homepage. This is something that we hadn't made big structural changes to in over a decade. And we believe that that will significantly improve the discovery experience on Netflix. We've been polishing and improving that experience based on the input we got from members who used it. And we plan on rolling that out later this year. So, that's very exciting and a pretty significant structural shift that we anticipate will move things forward significantly. But we're doing things at the other end of the spectrum too. So, we're also building out like new capabilities. An example would be interactive search that's based on generative technologies. We expect that will improve that aspect of discovery for members. So, there's many, many specific improvements that we've got in works. So, a lot more to come in this space. And really, frankly, no foreseeable limit on those improvements in the years to come.
Spencer Wang: Great, thanks, Greg. Michael Morris from Guggenheim has our next question. It's actually about extra member accounts. How is adoption of extra member accounts trended since launch? Can you share how this offer has contributed to revenue growth to date and whether you see it as additive to future growth? |
5,349 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg PetersA -Greg Peters: We see extra member as a part of our plans and pricing model. So, it's an option that provides flexibility and choice for members. It allows them to tailor the Netflix offering to their needs. We know some members want to share Netflix with family or friends. An extra member gives them an easy way to do that. It's a lower cost way to do that as well. We see good retention and engagement on that plan, which is really important to us and says it's a sort of healthy part of the offering. But while we love it from a member convenience perspective, responding directly to the question, extra member isn't a major driver for our business, and we expect it'll remain relatively small in the foreseeable future.
Spencer Wang: Thanks, Greg.
Spencer Neumann: I just say that to Greg's point, I agree with all that. It is, I think, part of the question. It is still growing, honestly, but it's a, so it's healthy for all those reasons, but it's just not a big driver in the business.
Spencer Wang: Thanks, Spence, for clarifying. Justin Patterson from KeyBanc with the next question. Alain, who leads our Netflix Games business, spoke recently at the Games Developer Conference about making gaming more accessible and achieving mass market appeal. What types of games have resonated on Netflix so far, and where do you see opportunities to improve the user experience and drive even more engagement for games? |
5,350 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Greg Peters: Yes, we have learned quite a bit and made some decent progress since we launched games, but we continue to see this as a multi-year iterative journey much like we've seen and you've seen from us when we launch a new content category or we launch a new country and we develop product market fit and improve that over time. You asked what games have worked for us so far. You can see much of the answer to that question embedded in the genres that we're going after and focusing on right now. So, that starts with immersive narrative games based on our IP. Squid Game Unleashed is a really good example. We'll have an update for that game with the latest season of Squid Game that's coming. More recently, Thronglets, which is our Black Mirror-based Tamagotchi-style game that has a dark twist in the end, very consistent with Black Mirror. Another category that we're going after is mainstream established titles. This is Grand Theft Auto, which really worked for us, and you'll see us launch more titles like that in the future. There's also games for kids. Being able to give kids a game experience that's free of ads, it's free of any in-app purchases, safe for parents with a subscription. We just announced Peppa Pig, a Peppa Pig game, which is coming soon, so that's an example of that. And the fourth category, which I would say we don't have a lot of data points demonstrated in yet, but we're excited about, and we'll be delivering some to understand the space better is socially engaging party games. Think about this as either an evolution of the family board game or an evolution of the game show on TV that becomes interactive in your living room. So, lots of excitement there. And then you mentioned in terms of areas to improve, there's tons of areas to improve. Frankly, we can improve everything that we're doing from user experience and discovery, and getting to play, but also just in having more compelling games. So, that's a real top priority for us at this point. And maybe just a few comments with regard to how |
5,351 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | more compelling games. So, that's a real top priority for us at this point. And maybe just a few comments with regard to how we think about investment and growth in this space. We've always said that we were in this to win. We want to invest enough to ensure that we are playing to win, but we also are coming knowing that we've got a lot to learn, and we still have a lot to learn despite all that we've learned so far. We don't want to grow our investment too much until we iteratively develop high confidence that we know how to translate that investment into member value, like the increased retention we see when members play our games. So, our investment by our scale is still relatively modest. It's a small fraction of our overall content budget. And as we continue to see incremental proof points, we'll ramp up that investment in a measured way. But we think this approach, this sort of measured growth and planned scarcity actually yields a better business in the long term. And the long-term opportunity is large. It's about $140 billion in consumer spend, ex-China, ex-Russia, not including ad revenue. We believe in our top-level strategic thesis, and we continue to learn into that executional capability to incrementally unlock that potential. |
5,352 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Wang: Thanks, Greg. I'm actually going to bring us back to a question on the results because we do have a late breaking question from Steve Cahill of Wells Fargo. Can you unpack the key drivers of the expected UCAN revenue growth reacceleration in Q2? Is it mainly pricing or are there other aspects like advertising or subscriber growth? Maybe, Spence, you want to take a stab at that one?
Spencer Neumann: Yes, sure. So, you saw in our report, our UCAN revenue growth was 9% year-over-year in Q1. That was deceleration from about 15% year-over-year in Q4. Yes, the deceleration is mostly due to pricing timing. So, there's a little bit of a sequential quarter, tough comparison because we also had the benefit of the NFL games and the advertising resulting from the NFL games in Q4, which also bumped it a bit. But think of it as we plan to reaccelerate again in Q2, and it's really getting the full quarter benefit year-over-year of pricing. And then also, we are -- ads is still a much smaller part of our business than subscription, but ads continues to kind of grow through the year.
Spencer Wang: Thanks, Spence. And I will now close this out with our last question, which comes from Alan Gould of Loop Capital. His question is, you've been guiding to $8 billion of free cash flow in 2025. And one of your goals is to deliver growing free cash flow. You have historically not spent a lot on acquisitions. Should we assume most of the growing free cash flow is redeployed into share buybacks? |
5,353 | NFLX | 1 | 2,025 | 2025-04-17 16:45:00 | Netflix, Inc. | 32,012 | Spencer Neumann: Yes, thanks, Alan. So, there's no change to our capital allocation policy. It's been consistent for years now. We prioritize profitable growth by reinvesting in the business. We maintain ample liquidity. Those are key for us, our top two priorities. And then we return excess cash to shareholders through share repurchase beyond several billion dollars of minimum cash that we keep on the balance sheet. And then anything we use for select M&A. So, that's kind of a long wind-up to the answer is yes. In the absence of any meaningful MBA -- M&A, not MBA, any meaningful M&A, we would expect that our growing free cash flow will be redeployed to share repurchase.
Ted Sarandos: Excellent. Well, before we close, first, thank you all for joining us. I would like to take a moment to recognize and to thank Tim Haley. For after more than 27 years on our Board of Directors, he is elected to not stand for reelection. For all of those 27 years, Tim Haley has been on this journey with us. His counsel and leadership has been a really valued part of our success. I'd like to say a special thank you to Tim for his long service and his many contributions to the Netflix Board of Directors. And let me say also as someone who's benefited greatly from our time with Tim and has been there with him for most of those years, that through so much change and so much growth, Tim has always offered sage advice and counsel and is an important part of the history of Netflix. Tim has helped shape Netflix into the Company that it is today. So, many thanks to Tim. And thank you very much for joining us. |
5,354 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Operator: Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2024 Fourth Quarter Conference Call. For those who want to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer. I would now like to turn the call over to Paul Trussell.
Paul Trussell: Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE Inc.’s fiscal 2024 fourth quarter results. Joining us on today's call will be NIKE Inc. President and CEO, John Donahoe; and our CFO, Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risk and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and non-public financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com, for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral, unless otherwise noted. We will start with prepared remarks and then open up for questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thanks for your cooperation on this. I'll now turn the call over to NIKE Inc. President and CEO, John Donahoe. |
5,355 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: Thank you, Paul. And hello to everyone on today's call. I want to start by briefly commenting on our financial results. For full year fiscal 2024, revenue grew approximately 1% on a currency neutral basis and earnings per share grew 15%. Q4 revenue was flat. For the quarter, we saw strong gains within Performance product. However, this was more than offset by declines in lifestyle. These declines had a pronounced impact on our digital results. These factors, when combined with increased macro uncertainty and worsening foreign exchange, have caused us to reduce our guidance for fiscal 2025. Matt will provide more detail on our results and outlook later in the call. While fiscal 2025 will be a transition year for our business, we continue to make real progress on our comeback. Over the past year, we've highlighted the strategic shifts we're taking as a company, including leadership and organization changes, kick-starting a multi-year innovation cycle, and creating capacity to invest in consumer-facing activities. As I mentioned in last quarter's call, we're making a series of adjustments to position us to compete and win. We're sharpening our focus on sport, accelerating our pace and scaling of newness and innovation, driving bigger, bolder storytelling, and elevating the entire marketplace to fuel brand distinction and be in the path of the consumer. This is our playbook, and we're seeing momentum build in all four areas, particularly on the Performance side of our product portfolio. We have work to do, but we're on it. Our teams are moving with energy and urgency against the opportunity we see in front of us. Now, as we've discussed over the past few quarters, we've been accelerating our innovation pipeline, including pulling forward several innovations, some more than a year. We're moving aggressively to reestablish our innovation edge. We began with a focus on Performance, as NIKE always does. And the early results from newness and innovation are encouraging. Performance grew double digits in the |
5,356 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | as NIKE always does. And the early results from newness and innovation are encouraging. Performance grew double digits in the quarter with growth in many of our key sports. And as we kicked off our multi-year innovation cycle, one of our key priorities has been increasing our speed to the consumer. We believe accelerating the pace and consistency of our innovation will allow us to deliver impact at scale, season after season. Now, as you know, for years, NIKE has had an Express Lane, which enables short lead time replenishment and hyper local design. And we'll continue to leverage Express Lane. But over the past year, we have also built a new way of working across the entire product creation process. We call this [Speed Lane] (ph), and it's part of a broader company-wide effort to move faster and be more responsive to the consumer. For example, through Speed Lane, we're leveraging our Bowerman Footwear Lab to accelerate design. We're leveraging advanced digital tools to quicken development. And we're leveraging key manufacturing partners to speed up product testing and production. We've already accelerated a half a dozen models through this new capability. And in the second half of the fiscal year, you'll see other new innovations come out of Speed Lane, including several exciting new franchises across fitness and lifestyle. As I've mentioned, our sharp focus around newness and innovation starts with Performance and we're seeing the impact across key sports. Let me give you a few brief examples across three, basketball, fitness and running. First, basketball, which was up double-digit growth in Q4 across men's, women's, kids and Jordan. This was driven by new innovation from the GT Cut to Kobe's new footwear and apparel to the Sabrina 1, which in and itself has taken 2 points of share across the entire US basketball market, including both men's and women's. We recently announced Sabrina's next shoe, as well as A'ja Wilson signature franchise. And we announced the signing of Caitlin Clark to a roster of athletes |
5,357 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | next shoe, as well as A'ja Wilson signature franchise. And we announced the signing of Caitlin Clark to a roster of athletes that was already the game's best. All this energy will continue to fuel the rapid growth of our women's basketball business as excitement around the WNBA soars to historic highs amidst an expanding fan base. And, of course, this month's Jason versus Luca NBA Finals matchup marked the first time Jordan's signature athletes met on basketball's pinnacle stage. We celebrated Jason's title with one of the Jordan brand's biggest marketing efforts ever. Next, let's look at our fitness business. Fitness represents one of the largest market share opportunities we see as a company, particularly for our female consumer. We've made intentional decisions to make meaningful investments in fitness, and these actions are paying off. Over the past quarter, we saw broad-based growth for fitness led by double-digit growth in apparel. For example, statement leggings, which is a key focus for us, were up high double digits in Q4, led by innovations we've introduced over the past few quarters with Universa, Zenvy and Go. Women's fitness footwear also had a strong quarter, driven by Motiva and the latest version of Free Metcon, which came out last summer. Free Metcon is now NIKE's number one women's fitness shoe, having expanded from the gym to the street. Next, let's look at road running, which remains a competitive battlefield, but we are playing to win. In past calls, we've discussed that we're now aligned, resourced, and taking this challenge head on with confidence. We've been hustling to accelerate our running innovations and amplify our ground game. While our overall running business was impacted in Q4 by our proactive actions to manage the Pegasus portfolio transition, we're pleased that recent new releases in Vomero, Invincible, Infinity and Structure all grew high double digits over the quarter. We're making it easier for consumers to discover these styles by simplifying our running construct at retail |
5,358 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | over the quarter. We're making it easier for consumers to discover these styles by simplifying our running construct at retail as we highlight our best-in-class cushioning technologies. Now, as you know, a few weeks ago, we launched the Pegasus 41, a new chapter for NIKE's biggest performance franchise. Peg 41 pairs Zoom Air with full length React X foam for a ride that's more comfortable, durable, and responsive than ever. It's received strong reviews from industry experts. We supported the 41 with our full playbook, backed by NIKE's most comprehensive running campaign in years, which will last for several seasons. It was also fueled by a refreshed ground game. This included neighborhood activations to drive consumer trialing at scale and building energy across the full marketplace, including NIKE Direct, our strategic partners, and our performance authenticators such as running specialty doors. This energy drove Peg 41 to a strong start, led by better than expected sell-through in both wholesale and NIKE Direct. And our full running journey for Fiscal 2025 goes beyond the Peg 41 launch. We'll be adding several dimensions for Peg in holiday before introducing additional exciting innovations in the second half of the year, including Pegasus Premium and Vomero 18. We're already seeing strong wholesale order book for running across the next few seasons as we continue to take meaningful strides to assert our leadership in this key sport. Now, let's talk about lifestyle where we're focused on building a more diversified lifestyle footwear portfolio that complement the industry's three largest franchises. We're excited about our pipeline of new lifestyle product. A key example was last quarter's introduction of Dynamic Air, our newest breakthrough innovation platform. We launched the Air Max DN globally, and within just a few months, DN has become a top 10 lifestyle franchise in our men's business and is resonating particularly well with sneaker-engaged consumers in major cities. And importantly, Dynamic Air is an |
5,359 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | business and is resonating particularly well with sneaker-engaged consumers in major cities. And importantly, Dynamic Air is an innovation platform. We're already working on the next two iterations of Dynamic Air. And we will continue to innovate on this platform, including customizing air cushioning to create unique consumer benefits. Another component of fueling a more diversified lifestyle portfolio is taking advantage of NIKE's unmatched vault. One example is retro running. We saw an opportunity in the marketplace for retro and moved quickly and nimbly to fill it with our Y2K portfolio and consumers are responding. We experienced significant quarter-over-quarter retail sales growth for Y2K and now expect to nearly triple our retro-running business by the end of fiscal 2025 compared with the start of fiscal 2024. Now while we are growing new lifestyle offerings, we're also accelerating planned reductions for our three largest franchises. And this will have a meaningful impact near term on our overall lifestyle growth rate. Now while we have work to do, we are very focused on scaling the newness to offset this planned reduction. And we're excited about the pipeline with exciting footwear concepts coming in the second half of fiscal 2025. Finally, the Paris Olympics offers us a pinnacle moment to communicate our vision of sport to the world. This is led by breakthrough innovation and announced by a brand campaign that you won't be able to miss. We recently unveiled our Air for Athletes innovation at our NIKE On Air event in Paris. And we can't wait to bring all this Olympics product to life across the games and in more than 8,000 doors worldwide. And throughout, our brand storytelling will be bold and clear, with sport and athletes at the very center of it all, from brand voice to retail activations. This summer, we will cut through the clutter to create powerful energy for the NIKE brand. We're back doing what we do best, creating impactful storytelling and ultimately brand distinction in sport. In the end, |
5,360 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | brand. We're back doing what we do best, creating impactful storytelling and ultimately brand distinction in sport. In the end, we're taking our challenges head on and we're regaining our edge. Thanks to the heart and hustle of our global team, we're aggressively asserting the future of NIKE. With passion, clarity, and grit, we're driving this business forward. We're excited about the opportunity in front of us, and we're eager to prove what NIKE can do. And with that, I'll turn the call over to Matt. |
5,361 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Matthew Friend: Thanks, John. And hello to everyone on the call. For NIKE, fiscal 204 was a pivotal year to get back on the offense in sport with consumers, led by an urgency to accelerate our pace of innovation and scale newness across our product line. Today, our playbook is in motion. Our teams are focused and hustling to deliver, and we're seeing positive signals from consumers and retail partners across the world. That said, this quarter we have been navigating several headwinds, which we now expect to have a more pronounced impact on fiscal 2025. Although the next few quarters will be challenging, we are confident that we are repositioning NIKE to be more competitive, with a more balanced portfolio, to drive sustainable, profitable long-term growth. Let me provide some deeper insights into the fourth quarter and the implications we see as we look forward before reviewing our financial results and our outlook. First, after double-digit growth over the past several years, our lifestyle business declined in Q4 across men's, women's, and Jordan, more than offsetting strong growth in our Sport Performance business. Second, NIKE Digital declined 10% in the quarter. Although our digital business has grown at an approximately 26% CAGR since fiscal 2019, we missed our Q4 plan on softer traffic, higher promotions, and lower sales of certain classic footwear franchises. More specifically, these franchises underperformed our overall digital business results in the quarter, especially in April and May, and continuing on into early June. This is even as these franchises continue to drive retail sales growth at high full price realization in multi-brand retail. Third, we experience meaningful shifts in consumer traffic in key markets, particularly in Greater China, where brick-and-mortar traffic declined as much as double digits versus the prior year. We also continue to see uneven trends in EMEA and other markets around the world. And last, foreign exchange headwinds worsened, creating an additional one point headwind |
5,362 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | and other markets around the world. And last, foreign exchange headwinds worsened, creating an additional one point headwind on revenue in the quarter. In the midst of these dynamics, our goals to return to strong growth remain the same. Read and react to the consumer, maximize full-price sales across all channels, protect long-term franchise health, prioritize a healthy pull market and create marketplace capacity for new products and new stories coming in fiscal 2025. Therefore, despite continued marketplace demand, we are advancing our timelines to tighten total supply of certain classic footwear franchises at different paces, across different channels around the world. In particular, we are aggressively adjusting our forward-looking plans for these franchises on NIKE Digital, where they have their highest share of business. All told, we expect these actions to create several points of short-term headwinds on revenue in fiscal 2025. However, our past experience gives us confidence that proactively rebalancing our portfolio will strengthen our competitive position and fuel brand momentum as we take the consumer somewhere new. Let me share a few recent examples. Back in fiscal 2018, we recalibrated the supply of select Jordan brand franchises, resetting our launch business and bringing more dimension to our portfolio. Over the subsequent quarters, we turned the page from double-digit declines in the brand to the start of multiple consecutive years of strong double digit growth. And earlier this year, we moved quickly to reshape our lifestyle footwear portfolio in Japan and Korea, two of our most trend forward markets where our teams read and reacted to consumer signals. We reduced supply of some classic franchises, while scaling and creating new energy around other models in our vault. In the fourth quarter, we regained our number one position in Korea in women's lifestyle footwear and extended our lead in Japan with new momentum heading into fiscal 2025. Now, as we accelerate our pace of newness and innovation, |
5,363 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | our lead in Japan with new momentum heading into fiscal 2025. Now, as we accelerate our pace of newness and innovation, the early response from consumers and partners are reinforcing our optimism in NIKE's path forward. First, the sharper focus on sport is creating impact. This quarter, performance grew across men's, women's, kids, and Jordan, across all channels and geographies. And we expect to build on that momentum, leading with Performance in fiscal 2025. We are seeing favorable indicators in key focus areas, including strong double-digit growth in order books with North American running specialty partners in both holiday 2024 and spring 2025. In lifestyle, fresh releases are resonating positively with consumers. For instance, new executions around retro running and field franchises such as Cortez, Killshot, and the Field General are driving strong retail sales growth as we prepare to scale these franchises in fiscal 2025. Our teams are also attacking opportunities across price points, including a refreshed lineup of new footwear products below $100. Building on this quarter's double-digit growth, we plan to scale new performance and lifestyle models in spring 2025. Added up, we expect the business contribution from new products to more than double from the start of fiscal 2024 to where we end the year in fiscal 2025. Last, we are managing expenses tightly through this product cycle transition, while reallocating resources to maximize consumer impact. This is enabled by our Safe to Invest initiative, which is creating investment capacity to fuel our next phase of growth. At the end of fiscal 2024, we have unlocked savings from initiatives up and down our P&L and across our value chain, from reducing small parcel fulfillment costs, to consolidating suppliers, optimizing technology spend, and restructuring our organization to streamline layers and support functions. In turn, we are reinvesting nearly $1 billion in consumer-facing activities in fiscal 2025, which we expect to accelerate our return to strong |
5,364 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | reinvesting nearly $1 billion in consumer-facing activities in fiscal 2025, which we expect to accelerate our return to strong growth. This includes ramping up our ground game offense and running in key cities, increasing resources in design, product creation, and merchandising for our key sport dimensions, deepening our sports marketing portfolio, elevating the distinction of our brand in physical retail, and driving bigger, bolder brand campaigns, starting with EC ‘24 and the Paris Olympics. Now let me turn to our NIKE Inc. Fourth quarter results. In Q4, NIKE Inc. revenue was down 2% on a reported basis and flat on a currency neutral basis. NIKE Direct was down 7%. NIKE stores were down 2%. and NIKE Digital was down 10%. Wholesale grew 8%. Gross margins expanded 110 basis points to 44.7% on a reported basis, primarily due to strategic pricing actions, lower ocean freight rates, and improved supply chain efficiency, partially offset by lower margins in NIKE Direct, unfavorable channel mix, and net foreign exchange impact. SG&A was down 7% on a reported basis as increased investment and demand creation was more than offset by reductions in operational overhead. This includes impact from approximately $40 million in restructuring charges. Our effective tax rate was 13.1%, compared to 17.3% for the same period last year, due to changes in earnings mix, partially offset by decreased benefits from one-time items, such as stock-based compensation. Diluted earnings per share was $0.99, up 50% versus the prior year. This includes non-material impact from restructuring charges. For the full year, revenue was flat on a reported basis and up 1% on a currency neutral basis. Diluted earnings per share grew 15%. Cash flow from operations was $7.4 billion, up 27% versus the prior year on significant improvements in working capital. Inventory declined 11% versus the prior year with continued improvement in days in inventory. Now let me turn to the operating segments. In North America, Q4 revenue declined 1%. NIKE Direct was |
5,365 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | in days in inventory. Now let me turn to the operating segments. In North America, Q4 revenue declined 1%. NIKE Direct was down 9%, with NIKE Digital down 11%, and NIKE stores down 5%. Wholesale grew 6%, due to accelerated shipping timing from Q1 of fiscal 2025, and EBIT grew 5% on a reported basis. This quarter, we saw softer traffic in our factory stores, highlighting increasing pressure being felt by the value consumer. That said, we saw a number of bright spots as well, including strong growth in basketball, fitness, and kids, offset by declines in lifestyle and Jordan. Kids led our results in the geography with performance dimensions of strong double digits. In women's fitness, we gained market share in footwear. In men's and women's running, fall footwear bookings are up double digits, led by the Pegasus 41. In EMEA, Q4 revenue grew 1%. NIKE Direct was down 8% as NIKE stores grew 1% and NIKE Digital declined 14%. Wholesale grew 7%. EBIT grew 2% on a reported basis. In a cautious macro environment, we are seeing performance innovation drive strong sell-through. This is partially offset by overall declines in lifestyle, with new product releases working well. Global football grew double digits across men's and kids. In women's fitness, we drove strong momentum in footwear and new apparel releases such as our Refresh NIKE Pro line. In lifestyle, our retro running franchises continue to scale and our Air Max DM launch drove energy with a full marketplace takeover. In greater China, Q4 revenue grew 7%, including several points of contribution from Tmall's earlier start to the 6/18 shopping holiday. Excluding this timing benefit, we fell short of our plan, with traffic softness persisting across all marketplace channels. NIKE Direct declined 2% with NIKE stores down 6% and NIKE Digital up 8%. Wholesale grew 15%. EBIT grew 4% on a reported basis with continued impacts from foreign exchange. Our kids business set the pace in the geography this quarter, led by running and basketball. Within men's and women's |
5,366 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | exchange. Our kids business set the pace in the geography this quarter, led by running and basketball. Within men's and women's lifestyle, retro running styles and our latest Express Lane releases drove positive consumer response. And in men's and women's running, retail sales for our new releases, Structure, Vomero, and Invincible grew double digits. The China marketplace remains highly promotional, and we continue to manage both NIKE and partner inventory carefully. While our outlook for the near term has softened, we remain confident in NIKE's competitive position in China in the long term. In APLA, Q4 revenue grew 4%. NIKE Direct declined 3%, with NIKE stores up 11% and NIKE Digital down 12%. Wholesale grew 9% and EBIT grew 4% on a reported basis. Mexico and Southeast Asia and India led our growth in this geography. And across APLA, we drove strong momentum in performance with men's basketball, men's global football, and women's fitness up double digits. Jordan Brand drove energy with streetball activations in Tokyo and Manila, and market share gains in basketball footwear. Now let me turn to our fiscal 2025 financial outlook. We are managing a product cycle transition with complexity amplified by shifting channel mix dynamics. A comeback at this scale takes time. With this in mind, we've considered a number of factors and scenarios in revising our outlook for fiscal 2025. Most importantly, this includes timelines and pacing to manage marketplace supply of our classic footwear franchises, lower NIKE Digital growth, especially in the first half of the year due to lower traffic on fewer launches, plan declines of classic footwear franchises given Q4 trends, as well as reduced promotional activity, increased macro uncertainty, particularly in greater China, with uneven consumer trends continuing in EMEA and other markets around the world, and sell into wholesale partners as we scale product innovation and newness across the marketplace and finalize second half order books. Taking all of this into consideration, |
5,367 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | innovation and newness across the marketplace and finalize second half order books. Taking all of this into consideration, we now expect fiscal 2025 reported revenue to be down mid-single digits, with the first half down high single digits. Foreign exchange headwinds have also worsened and will now have a one-point translational impact on revenue in fiscal 2025. Turning to gross margin, we expect full year expansion of approximately 10 basis points to 30 basis points on a reported basis. This reflects benefits from strategic pricing actions and lower product input costs, partially offset by supply chain deleverage, channel mix shifts, and net foreign exchange impact. We expect full year SG&A growth to be up slightly versus the prior year as we increase investments in demand creation to ignite brand momentum and maximize reach and impact, while holding operating overhead largely flat. Other income and expense, including net interest income, is expected to be approximately $250 million to $300 million for the year. We expect our full year effective tax rate to be in the high teens range. Now turning to our first quarter, we expect first quarter revenue to be down approximately 10%. This reflects more aggressive actions in managing our classic footwear franchises, continuing challenges on NIKE Digital, muted wholesale order books with newness not yet at scale, a softer outlook in greater China, and a number of quarter-specific timing factors. We expect first quarter gross margins to be in line with the full year guidance. And we expect first quarter SG&A to be at mid-single digits, as we hold operating overhead flat, while investing in key brand moments, including EC ‘24 and the Paris Olympics games. For NIKE, inspiration starts with the athletes we serve. Their dreams motivate us to create the most innovative product in sport and tell stories that reach millions of people around the world. Above all, they remind us of the hard work and the hustle that is required to win. Before I close, I'd like to thank our NIKE |
5,368 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Above all, they remind us of the hard work and the hustle that is required to win. Before I close, I'd like to thank our NIKE teammates whose passion and drive are the fuel for our comeback. The heart, the focus, and the collaboration that I'm seeing from our teams today are my greatest reasons for confidence as we move forward. With that, let's open up the call for questions. |
5,369 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Operator: [Operator Instructions] Our first question will come from the line of Matthew Boss with JP Morgan. Please go ahead.
Matthew Boss: Great, thanks. Maybe John, just to summarize and think about relative to three months back. I guess, how would you rank changes on the macro front and similarly on NIKE execution that impacted the change in your 2025 outlook today relative to three months ago? And then Matt, just on the gross margin, could you just help break apart maybe the puts and takes to consider over the course of 2025 and how best to model the cadence from a gross margin perspective? |
5,370 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: Well, thanks, Matthew. We set out our -- what we're calling our comeback plan a year ago. And in the last 90 days, I would say our execution continues to stay on pace. Matt, you can talk about macro and the franchise management impacting the numbers, but on the fundamental things we set out to do four things that we are moving aggressively on. One, put sport back at the center of everything we do, serving the athlete, And over the last 90 days, we've completed completely aligning our organization along the lines of sport, are co-locating those teams, and now end-to-end have clear, what we call, field to play -- sport-based field to play teams end-to-end, which is accelerating our pace and also improving our execution. As we talked about the last couple quarters, we've reignited our innovation pipeline, including pulling several innovations forward. So in addition to launching DN and Peg 41 during the quarter, early this quarter, we'll also pull forward key innovations like the Peg Premium and Vomero 18, which are just two examples of what's coming in spring 2025. And as I mentioned earlier, speed is a capability we're building, which we feel increasingly strong about. And brand is getting strong. With [Eurochamps] (ph), you see our awaken your madness campaign, which is really the first of the bigger bolder brand voice you're going to hear and then we're very excited about the Olympics coming. A lot of the work that went into the Olympics happened in Q4, but you're going to get to see it in a few weeks. And then on marketplace, we've spent a lot of time leaning in with our wholesale partners. We've had several wholesale partner summits. We've had RSG groups, neighborhood partners and authenticators to campus. We're exposing our three-year product innovation pipeline to them. And feedback's been very strong. Our order book for holiday spring 2025, holiday 2024, spring 2025 is strong. And so our confidence is building. So on the fundamentals that we are executing against is proven playbook on a |
5,371 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | 2025 is strong. And so our confidence is building. So on the fundamentals that we are executing against is proven playbook on a comeback that will take time, we feel like we've made strong progress. |
5,372 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Matthew Friend: And just hitting the financial implications relative to 90 days ago. Last quarter we said that we thought revenue was going to be down low single digits in the first half and that included a more pronounced impact in the first quarter. We also said that we expected revenue to grow. And what we saw in the fourth quarter were really two things. One lifestyle, our lifestyle business declining more pronounced on NIKE Digital, specifically in April and in May, and those trends continuing into June. And what I highlighted in my prepared remarks is that, those specific classic franchises that we were talking about underperformed our overall digital business results in the fourth quarter. And so, when we look at our updated guidance of down mid-single digits for the full year, there's really three things that are driving the change. One, I'll start with FX, our outlook on foreign exchange and the strength of the US dollar had a one-point impact relative to 90 days ago. We've softened our outlook for greater China, and that also similarly had a level of impact for the full year guidance. And then the majority of the remainder of the change is related to the more aggressive actions that we're taking on our key franchises across the total marketplace, but really with the compounded impact on total digital. And the bigger impact of this will be in the first half of this year, but we are planning for meaningful sequential improvement in the second half of the year. And that's how I think about the revenue differences relative to -- the revenue differences relative to what we said 90 days ago. On the first quarter, the other impact was timing. And we saw the 6/18 period come earlier into May than we had in the prior year, and that had an impact on Q4's results, but also an impact on Q1's results. And we saw some favorable shipment timing in North America as we prepare to go live with our ERP and also just better general product availability. So that also had an impact on the first quarter numbers. |
5,373 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: And I just want to add 1 more thing that you, Matthew, you've heard Matt and I both talk about it. It's an intangible thing, but I think it's just so important, which is, the heart and hustle of our team, which has just been extraordinary over the last year, but also in the last 90 days just accelerating both Heidi's and Craig's teams, the teamwork of how they're working together end-to-end the focus and focus on the consumer, the increasing speed, pulling things forward. There's a palpable shift in the confidence and forward-looking nature of our team. So I want to give huge credit to them, but also just recognize that is so important in NIKE and our teams are, I think, feeling more confident as each day comes along.
Operator: Our next question will come from the line of Lorraine Hutchinson with Bank of America. Please go ahead.
Lorraine Hutchinson: Thank you. Good afternoon. Can you provide some numbers that might help us have confidence in the meaningful second-half improvements? How much less of a headwind is there from the sun setting some of these franchises? How the total order books look? And anything you can provide numerically that helps you to get to that back half improvement. |
5,374 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: Well, Lorraine, as I mentioned, we've looked at a number of different factors and scenarios as we've updated our guidance for the year. And that ranges from looking at different slopes of different curves of different products over time and developing a perspective on how we think the trends are going to play out as it relates to some of our largest franchises. But those franchises continue to drive retail sales growth and high levels of full price realization in the marketplace. And so the bigger impact on the first half are the adjustments that we're taking to manage the health of those franchises starting first with NIKE Digital. And that has a pronounced impact on revenue, which is creating a more meaningful first half impact. We want to continue to let those franchises in the multi-brand environment continue to have the impact that they're having for our partners. And one of the ways that we maintain the health of those is by reducing what we're offering to consumers through our digital channel. As it relates to the second half, we highlighted a couple of things, but we are planning for meaningful sequential improvement in the second half versus the first half. And it starts with the confidence that we have around the new products that we're bringing to market, the Peg 41, the Peg premium, the Vomero 18, the order book for Air Max DN, plus the next Air Max iteration that's going to be coming to market, plus our plans to scale the innovation and the newness that we've been discussing. And so, when we look at where we are today and the ways in which we're working to drive this plan through the balance of the fiscal year, our scaling of newness is on track. And our teams are hustling to see whether there's even opportunities to accelerate the scaling of that newness in the second half. We are confident in the indicators that we're seeing in the marketplace right now. We gave you a couple of specific numbers as it relates to running and running specialty. But what I will tell you is that, our |
5,375 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | We gave you a couple of specific numbers as it relates to running and running specialty. But what I will tell you is that, our initial read of our spring order book is in line with the guidance that we're providing. And so we feel confident that we're creating better balance across our portfolio and also building momentum with our wholesale partners. |
5,376 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Operator: Our next question will come from the line of Bob Drbul with Guggenheim Securities. Please go ahead.
Robert Drbul: Hi. Just two questions for me. I guess the first one is, when you look at the visibility of the business, I think in some of your answers to Lorraine's questions. When you look at the visibility of the business today, with the shifts that are occurring, can you just talk about how you feel looking at that versus what you saw over the last 12 and 24 months, just in terms of your ability to predict? And then, just the second piece of this is, when you look at the channel shift that is going on wholesale to direct or bricks-and-mortar, the digital pieces of the business, can you just give us any more framework around how to think about the P&L impacts at a higher level? |
5,377 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: Sure, Bob. Well, as it relates to the visibility with the shifts, I mean, we were surprised at what we saw on these larger franchises as we are navigating through the fourth quarter and that is what's caused us to revise our guidance. I would say in general, we've driven incredible growth in our digital business over the last four years, and we've had a lot of confidence in our ability to continue to drive those results against the consumer opportunity that's in the marketplace. I think most recently, in the context of managing our overall franchises, the dynamic of increasing supply of these franchises in the wholesale marketplace relative to having the supply of them on digital and the relative balance between those things are -- those factors are what drove some of the volatility this quarter. And looking at the trend in retail sales, but also looking at our overall plans for how we manage franchises, based on our experience of doing this, we've made the adjustments in this forward-looking guidance. And we've been more aggressive with it on NIKE Digital. And so, we're continuing to improve with the capabilities that we're building in terms of demand sensing, leveraging data and insights in order to have better predictability of our owned business. But I feel really good about the adjustments that we're making at this point in time and the aggressiveness through which we are -- the rest of the way that we continue to manage it. I'd also just say that, when I look at the digital business overall, we were already planning for lower launches in Q4, because we had an extraordinary number of launches in the fourth quarter of the prior year. And if I exclude the impact of the biggest franchises on our digital business, the rest of our digital business was healthy. And we were pleased with the growth that it delivered. And so, from that end, we feel comfortable in the way that we're looking at this. As far as the channel shift mix going forward, it certainly will have a headwind in fiscal year 2025, |
5,378 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | we're looking at this. As far as the channel shift mix going forward, it certainly will have a headwind in fiscal year 2025, both in terms of revenue, as I just mentioned in answering a prior question, but also on margin. And these products also have an outweighed impact on margin, just given the high levels of full price realization that we've been driving across these franchises. And so, we are planning for channel mix to be a headwind in 2025. But I'm pleased that we're still able to expand margins 10 basis points to 30 basis points in the year. And that's despite another year of about 15 basis points of foreign exchange headwinds. So we are expanding margins as we look towards fiscal year 2025. And we still believe while channel mix may be less of a driver as we look forward, we have a number of other opportunities to continue to drive more profitable business over the long term. And it starts with a strong brand, and it starts with creating great products that consumers love. |
5,379 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Matthew Friend: And I'd add to that a healthy marketplace, where it's -- channel mix is driven by consumer demand. We said we want to be where the consumer is, whether that's digital or outdoor or wholesale. And so, we're embracing a more balanced approach to growing the whole marketplace. And a couple of nice evidence points of what I think health looks like is, we've mentioned that performance grew double digits in the quarter. It grew double digits in wholesale and it grew double digits on digital. The first couple of weeks of Peg 41 sold through well in wholesale and it sold well in NIKE Direct, both digital and outdoors. And so, over time, our channel mix should be driven by consumer being -- at the consumer at the right time and given shopping occasion. And so, we think it'll settle out in a consumer-friendly way.
Operator: Our next question comes from the line of Adrienne Yih with Barclays.
Adrienne Yih: Great. Thank you very much. I was wondering if you can talk about the amount of newness that is coming down the pipeline, kind of over the next six to 12 months. Has there been another time when NIKE has historically launched this magnitude of newness? And how do you read sort of the second degree of the consumer rates as going into the wholesale channel first? How do you read the success of that at the end consumer as it goes through the wholesale pipeline? Thank you. |
5,380 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: Well, as we've said, we've said it for now for a couple quarters, we are very excited about this multi-year innovation pipeline and cycle. And it's just -- if you've seen some early examples of it in this past quarter with DN and Peg 41, and as we are saying, as we move into the end of this -- second half of this fiscal year, which we talk about is spring 2025 and summer 2025 of this season, the amount and breadth and depth of the innovation is just accelerating significantly. And at our size and scale, we know we need to both innovate broadly and deeply, but also provide innovations that can scale. And so, we've set a goal of doubling the growth of our new innovations by the end of 2025 versus the beginning of 2024. And we're on track to achieve that. And one of the ways when you ask how do we know that, the wholesale partner feedback on what they see both in the second half of this year and into 2026, because we're showing them three year roadmaps in many cases around running, around basketball, around lifestyle. The wholesale feedback has been strong and their order books, as Matt mentioned a minute ago, are reflecting that. And so, we view our job to be able to deliver season in, season out, strong innovations, also the ability to scale those innovations over time, both to delight consumers and also bring us to healthy and sustainable growth. So we feel very good about the track we're on, and we think it will accelerate as the year goes on. |
5,381 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Matthew Friend: Adrienne, I would just add that one element of newness is also in the lifestyle side of the business. Over the last four years, we have driven double-digit growth and created an extraordinary amount of energy. We've created iterations and dimensions to Air Force 1, to Air Jordan 1, to the Dunk business. And as a result of that, we've created extraordinary consumer demand. And so, one element of us bringing newness to the market is actually going into NIKE's vaults, what no one else has, and being able to create energy the way that we've done over the last four years to be able to move consumers on to a new place. And it's something that we can do, that we have a proven track record doing. In fiscal year 2019, the Dunk represented 0% of NIKE's business. And we’ve scaled that dramatically with strong consumer appeal and response over the last three years. And now we're managing that franchise back to continue to ensure that demand in the marketplace is greater than the supply that we're offering. And that is how we're managing these franchises. And so, on the one hand, there's certainly a performance innovation side. And what we showed in Paris and what John was highlighting in terms of what's coming, we feel great about. But there's also an element of NIKE taking advantage of its vault of assets and bringing new innovation, new stories, new partnerships to bring new products to market to capture an incredible amount of sneaker demand out in the marketplace.
Operator: Your next question comes from the line of Brooke Roach with Goldman Sachs. Please go ahead. |
5,382 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Operator: Your next question comes from the line of Brooke Roach with Goldman Sachs. Please go ahead.
Brooke Roach: Good afternoon, and thank you for taking our question. I wanted to follow up on Adrienne's question and your comment about the franchise management that you're focused on for FY 2025. Can you contextualize the importance of these larger classic franchises in relation to NIKE's current sales in comparison to historical averages? Do you expect to be remixed to typical franchise penetration rates by the end of the year as you scale these new innovations? And then perhaps a follow up for Matt. Can you provide some additional color on how you're thinking about the gross margin bridge and the tailwinds that you expect from input cost, and pricing relative to some of the headwinds that you see? Thank you. |
5,383 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: I mean, these franchises are the largest franchises in industry history. And so -- and they've gotten that way based on consumer demand. And so, we certainly started managing these franchises a couple years ago. And what we were most focused on was the fact that we needed to restrict supply of these franchises into the marketplace, because we didn't -- because we had a gap in innovation in our pipeline, which we've talked about over the last couple of calls. And so, the intentionality around managing these franchises is that, newness is what's moving the consumer, and we wanted to move to more newness. And so, the significance of it is the impact that it's going to take in fiscal year 2025 on our financial outlook as we're pulling the amount of supply down and creating better balance in our portfolio. And when I say that, I don't mean that lightly. I mean, better balance between performance and lifestyle, better balance between high price points and lower price points, better balance between wholesale and direct, even within wholesale, between sporting goods and athletic specialty or other channels. And so, that is where our focus is. And I think the actions that we're taking and the guidance that we've provided is to follow through on those actions. And I've been at NIKE for over 15 years, and we've gone through these product cycle transitions before. And while this is challenging, and it's going to be challenging over the next couple of quarters, our history has demonstrated that when we take action and we do it aggressively, and we get behind the things that are new, and we build marketing and storytelling around it, we move the consumer fairly quickly to a new place. And what we're doing here is nothing different than that.
Operator: Our next question will come from the line of Michael Binetti with Evercore. Please go ahead. |
5,384 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Operator: Our next question will come from the line of Michael Binetti with Evercore. Please go ahead.
Michael Binetti: Hey, guys. Thanks for taking our question here. And thanks for all the details as we look out for 2025. I guess as we look beyond 2025, you've given us a work -- a year where you've got a lot of work you're going to do here. As you know, you’ll have classics cleaner, you'll have the channel mix more stable, you'll have the innovation working. Can you just help us think about within a historical context in the past, I think you spoke to a NIKE that could grow high single digits, but I think in the future wholesale plays more of a role. China maybe doesn't grow what it once did. So a few things like that that are kind of different than the old world. Maybe you can help us think about what you see as the longer term opportunity for this business as channels, geos, and franchises come back into alignment. And then I guess just at a bigger picture, we could see the lab is back at work bringing out new technologies on the performance side, but maybe walk us through how you can use innovation and performance and how you can create the halo for lifestyle, which is really just more cyclical product. I'm curious how you guys look at the catalog and how you lean on innovation to try to drive the lifestyle stuff back to growth. |
5,385 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: Well, I might just start, Michael, by saying as we get to a more -- through some of this portfolio adjustment, we still have significant tailwinds in our industry. The fact is, sport is growing. The definition of sport is growing. Healthy lifestyles is becoming embraced globally. I was in China a couple weeks ago. It was very striking, the focus on healthy lifestyles. So I think there's a structural tailwind for the industry. I also think where sport happens, it's one of the derivatives of the post-COVID environment. You don't have to go to the gym or the field. You're working out in your backyard or working out or taking a walk or -- So sports happening in many more places. And that line between sport and lifestyle is blurring with that leisure. And so, people want to look, have great style while they're doing sport, and they want to have sport inspired style when they're not doing sport. And so we view all those things as tailwinds. And you ask about lifestyle innovation, we want to be sport-based in our lifestyle innovation, both in footwear and apparel. And we think there's a tremendous opportunity to do that across men's, women's, and kids, and Jordan. Jordan Streetwear being an example of it. |
5,386 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Matthew Friend: Yes, I'll just finish up this question, and then I'll come back to the start, Michael, where you asked. I would also say that the lines that blur between performance and lifestyle are really as much about how consumers are using products. The one thing that's undoubtable is that the consumer wants more comfort. And you can see that across the marketplace. Our teams are absolutely focused on fit and comfort as we bring these new iterations to market. And I think that when you look at products like Peg Premium or even the Peg 41 or the Vomero 18, I think you're going to start to see consumers carrying those over into lifestyle because they're new, they're fresh, they've got a particular look. And so, we're balancing the fact that the consumer is voting for performance and innovation. And we need to make sure that we've got performance and innovation that they can wear every day, in addition to leveraging the vault, as I said before, leveraging the vault to bring classics back, because there will always be a classics business. There will always be an energy business around classic lifestyle products. And we've got a great vault to be able to leverage doing that. As it relates to your question about the long-term model, I guess here's what I would say. We're focused on driving unit growth. And I think I said that a couple quarters ago and the importance of that point was that, it wasn't about one particular channel or the other, it's growing the overall marketplace. And so, we're focused on driving unit growth where the consumer is. And given where we see the dynamics in the marketplace right now, we're also focused on taking back market share. And we see opportunity in the performance dimensions in particular to come strong with a strong pipeline of innovation to come back and to take market share. But this product transition is going to take a little bit of time for us to work through. And so, over the course of the next couple of quarters, we're going to execute the plan that we've laid out here |
5,387 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | work through. And so, over the course of the next couple of quarters, we're going to execute the plan that we've laid out here for fiscal 2025. At Investor Day in November, we will provide an updated outlook on growth and profitability, taking into consideration the marketplace dynamics that we're dealing with across the portfolio, where we are in the product transition, and also some of the strategic shifts that we've put into place over the last year. |
5,388 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Operator: Your next question will come from the line of Aneesha Sherman with Bernstein. Please go ahead.
Aneesha Sherman: Thank you. I have a -- I start with just a quick follow-up. Matt, you talked about the challenge for the next couple of quarters on private life cycle management. Can you clarify, are you expecting this reset to be done by the end of the fiscal year? So are you expecting to exit FY 2025 at a normalized run rate on the top line without the headwind? And then second, I'm curious about where you are on the organizational reset and kind of shifting of the cost base. How much of that $2 billion cost reallocation do you expect to be done with by the end of the fiscal year? Is it going to be front loaded or is it going to be spread out for the next couple of years? Thank you. |
5,389 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Matthew Friend: Yes, no problem. So on your first question, the actions that we're taking on NIKE Direct and Digital are more aggressive. And so, the adjustments that we're making to our plan, specifically as it relates to our own channels, are going to be largely taken into consideration in the first half of this year. We will continue to manage franchises, because you can picture a curve that goes up and a curve that comes down. And as the curve comes down, it doesn't happen in a moment. It happens naturally over time as consumers react to supply coming out of the marketplace. But the actions that we're taking are also causing us to look at the broader marketplace in the second half of the year and ensure that we're reducing supply there as well to maintain a healthy marketplace and also to ensure that we've got capacity in the market to bring newness in. So I mentioned that we're planning on scaling newness, that newness is scaling as we make our way up through the year from minus 10 in the first quarter to down high single digits in the first half to finishing the year at down mid-single digits. And the largest driver of that is going to be on the full year basis, the scaling of newness that we're bringing to market. We expect to exit the year with momentum. And that means that we expect the new things that we're bringing to market to begin to outweigh the franchise management that we're navigating through in this year. And as we look forward to 2026, we'll continue to manage these franchises in line with consumer demand. But what's going to make it -- what makes that possible is the fact that we've got more new things coming that we're driving energy around that will be more than offsetting the way that we manage those franchises. |
5,390 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: And then, Aneesha, on your second question, the way you asked it, I want to just distinguish one thing. You mentioned organizational reset. That's behind us. And as I mentioned earlier, we are now completely aligned across the organization around sport, field of play. And our teams are focused, they're excited, there's just a tremendous amount of hustle throughout the organization and you can feel it. And so, that's going to continue. So the headcount dimension of the Save to Invest is behind us. And now those teams are focused on driving for the consumer innovation and execution. We'll look to other areas to provide ways of savings, non-labor areas. Matt, you can describe some of these, but the organization is now 100% focused on driving the growth and innovation we've been talking about through our call. And I can, again, just reassure you that everyone's got energy, hustle, and excitement about the future. |
5,391 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | Matthew Friend: Yes, I mean, we've been focused -- as we've been talking about, about building an operating model that with greater speed and cost productivity as we grow. And so, the actions that we've taken over the past year has enabled us the opportunity to make some bold swings in fiscal year 2025. We've reallocated a billion dollars into consumer facing activities. That includes teammates that we've invested in and product design, building out the merchandising function. To John's point, we have sport focused teams now at global and in the geographies in order to be able to execute this new offense. And we're putting more of our investment dollars in demand creation, while we're managing operating overhead tightly. We did that in fiscal year 2024. You saw even with the restructuring charge some significant effort to manage operating overhead so that we could reallocate resources, as I've referenced. And while these investments will take some time to drive a return, they're absolutely the right thing for us to do to reignite brand momentum and to get us back on the offense with consumers. And so, that's what we've done, and we will continue to manage SG&A tightly, leveraging this program and this initiative to create the capacity for us to invest, to push us forward with the consumer. |
5,392 | NKE | 4 | 2,024 | 2024-06-27 05:00:00 | NIKE, Inc. | 291,981 | John Donahoe: As we wrap up, Paul, just one – maybe just one final comment. This is -- and this is intended for NIKE's team around the world. This has been a challenging last year and so much hard work and energy has gone into it. And I want to just thank everybody on NIKE's team globally for how you've led through this and how you've operated through this. It's so clear to me, and I'm saying this on behalf of Matt and Heidi and Craig and our whole leadership team. NIKE's real competitive advantage at the end of the day is NIKE's people and NIKE's culture. And so, those people and that culture is alive and well and ready to compete and hungry to drive the kind of execution and growth we've been talking about all call. So I just want to wrap up with thanks to everyone on NIKE's global team.
Paul Trussell: Thank you for joining our fourth quarter fiscal 2024 call. We look forward to hosting many of you here at the headquarters for our Investor Day in late November. More details to come. This concludes our call. Good evening.
Operator: Thank you all for joining today's call. You may now disconnect. |
5,393 | NKE | 3 | 2,024 | 2024-03-21 17:00:00 | NIKE, Inc. | 291,981 | Operator: Good afternoon, everyone. Welcome to NIKE, Inc.'s Fiscal 2024 Third Quarter Conference Call. For those who want to reference today's press release, you'll find it at investors.nike.com. Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer. I would now like to turn the call over to Paul Trussell.
Paul Trussell: Thank you, operator. Hello, everyone, and thank you for joining us today to discuss NIKE, Inc.'s fiscal 2024 third quarter results. Joining us on today's call will be NIKE, Inc. President and CEO, John Donahoe; and our CFO, Matt Friend. Before we begin, let me remind you that participants on this call will make forward-looking statements based on current expectations, and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE'S reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. . Please refer to NIKE's earnings press release or NIKE's website, investors.nike.com for comparable GAAP measures and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted. We will start with prepared remarks and then open up for questions. We would like to allow as many of you to ask questions as possible in our allotted time. So we would appreciate you limiting your initial questions to one. Thanks for your cooperation on this. I'll now turn the call over to NIKI, Inc., President and CEO, John Donahoe. |
5,394 | NKE | 3 | 2,024 | 2024-03-21 17:00:00 | NIKE, Inc. | 291,981 | John Donahoe: Thank you, Paul, and hello to everyone on today's call. Before I get into our Q3 performance, I want to take a moment to acknowledge the tragic passing of Kelvin Kiptum last month. Kelvin had just set the Marathon world record in Chicago. He was a world-class athlete and Champion and beloved member of the NIKE family. Kelvin was an inspiration to so many us, and he'll long be remembered and honored for the impact he had both on the running community and beyond. Looking at our business, Q3 performed in line with our expectations. That said, we know NIKE is not performing in our potential. While our Consumer Direct Acceleration Strategy has driven growth and direct connections with consumers, it's been clear that we need to make some important adjustments. Simply put, we need to make adjustments in four areas. We need to sharpen our focus on sport, we must drive a continuous flow of new product innovation, our brand marketing must become bolder and more distinctive. And while NIKE Direct will continue to play a critical role, we must lead in with our wholesale partners to elevate our brand and grow the total marketplace. And this is exactly what we're doing. Starting last June, we aligned our organization to put the consumer and a sharp focus on sport back at the center of everything we do. We integrated our leadership structure, appointing Heidi O'Neill and Craig Williams as Co-Presidents. We've reinvested in consumer-led sport focused teams that are the foundation of our offense, and we're driving our winning formula of creating a relentless flow of innovative product, combined with distinct brand storytelling, delivered through differentiated marketplace experiences. And while we still have much work to do, we are making significant progress. We're well on our way to building a multiyear cycle of innovation that's bringing freshness and newness to consumers. We pulled forward several innovations more than a year, and our intent is to delight consumers and disrupt the industry. Our brand |
5,395 | NKE | 3 | 2,024 | 2024-03-21 17:00:00 | NIKE, Inc. | 291,981 | pulled forward several innovations more than a year, and our intent is to delight consumers and disrupt the industry. Our brand storytelling will leverage our athletes and sport moments to become sharper and bolder, beginning with the Olympics this summer. And we're increasing our investment in wholesale to help us elevate and grow the entire marketplace. We recognize that our wholesale partners help us scale our innovation and newness in physical stores and connect our brands in the path of the consumer. Most importantly, we're back on our front foot with growing confidence in our innovation pipeline. We know it will take some time to scale these innovations, but we see some early green shoots. And we're also carefully managing our most important franchises for the long-term health. And as a result, our product portfolio will go through a period of transition over the coming quarters. But altogether, we are relentlessly focused on driving NIKE's next chapter of healthy and sustainable growth. And we look forward to sharing our plans in depth at an Investor Day later this year. Now as we said before, our success always starts with innovative product. And so that's where I'm going to focus on today's call. Today, our innovation engine is moving with speed. Our innovation, design and product creation teams are working hand in hand with urgency and creativity. They're leveraging new technologies to be faster, more collaborative and more expansive in their thinking. We have many platforms at NIKE that drive growth. But today, let's go deep on our greatest innovation platform and a true source of competitive advantage. Air. Today, as a platform, Air is a double-digit billion dollar business on its own, larger than some Fortune 500 companies. There's nothing like Air. It's a proprietary technology that lets us iterate and revolutionize. It drives breakthrough performance benefits for athletes and defines the future of sportswear. Air offers stability, resilience and energy return, unlike any other cushioning platform. |
5,396 | NKE | 3 | 2,024 | 2024-03-21 17:00:00 | NIKE, Inc. | 291,981 | and defines the future of sportswear. Air offers stability, resilience and energy return, unlike any other cushioning platform. Simply put, Air helps athletes win. Decade after decade, we've developed new breakthroughs in Air. And as we approach the Olympics in Paris this summer, we continue to innovate with Air with a focus on helping the world's greatest athletes compete and win on sports largest stage. And so this summer, you're going to see Air drive major advancements in measurable performance benefits on the track, on the court and on the pitch. In addition to Alphafly 3, which continues to set the standard for distance racing, you'll see Air new footwear that brings elite performance to everyday runners. You'll see Air in football and basketball footwear in new and more visible ways. And you'll see Air in the fastest track spikes we've ever created. You're going to get a chance to see all of these products, in fact, our full Olympics innovation lineup two weeks from now at our Innovation Ignition events that we'll be hosting in Paris. Now beyond creating leading-edge performance innovation, we also continue to bring new sensations of Air across our business, including our lifestyle portfolio. For instance, Dynamic Air, our newest innovation platform is a true breakthrough delivering a uniquely comfortable sensation with each step. It's a total rethinking of what airbags can be. Historically, airbags have been fixed and static, picture inflatable raft, they compress when you step and then immediately return to their original shape ready for the next step. Dynamic Air changes the game. It unchambers the Air to create a new underfoot sensation that's truly responsive. As the consumer takes a step, our new four-tubed air unit allows air to flow freely between the tubes, responding to the pressure of each unique stride to deliver maximum comfort. We will scale Dynamic Air across many of our leading Air franchises, but it starts with the Air Max Dn, a shoe that offers just the latest example of how we're using |
5,397 | NKE | 3 | 2,024 | 2024-03-21 17:00:00 | NIKE, Inc. | 291,981 | of our leading Air franchises, but it starts with the Air Max Dn, a shoe that offers just the latest example of how we're using Air to craft a new lifestyle franchise. I've been wearing the Dn all week. And in fact, I'm wearing it right now. It really is a unique and great sensation. And what's more, Dn's bold style and design identity is deeply rooted in youth culture and the next generation. We're excited for consumers to experience it. And next week will be Nike's tenth Air Max Day. It will be a day when you see us drive an integrated offense of innovation, storytelling and consumer activations that we're very excited about. Air Max Dn will be debuting in more than 4,000 stores globally on Air Max Day, creating impact like we haven't seen in years. When we teased Dn last month, we saw a rise in other Air Max franchises. This is common. Our experience has been that when we launch a strong new product, it creates energy for the whole family. It all speaks to the confidence we feel when we look at our overall innovation engine and pipeline from Air to the rest of the portfolio. Now earlier, I mentioned the impact Nike can have as we sharpen our focus on sport, and the world got a great reminder of that today with the announcement of the awarding of the German football contract. I was fortunate enough to be in Germany for our pitch earlier this week, and I can tell you it was simply NIKE at its very best. It started with our deep and unparalleled commitment to sport. We are the world's leading sports brand, the largest sports brand, the leader in football, the world's most popular sport. Our focus started with product innovation, both on the pitch with unmatched kits and footwear that popped and had style and performance and extended into distinct and fashionable lifestyle design. Our ability to tell stories shown through to make the German team a global brand and make their athletes global heroes and our ability to expand the game, expanding the women's football game and inviting youth culture into football, all |
5,398 | NKE | 3 | 2,024 | 2024-03-21 17:00:00 | NIKE, Inc. | 291,981 | heroes and our ability to expand the game, expanding the women's football game and inviting youth culture into football, all mattered. It was a remarkable team effort and a great proof point that when NIKE brings out our best, no one can beat us. And so we feel deeply honored and privileged to partner with the German Football Federation starting in 2027. Before wrapping up, let me touch on something else that's core to our DNA as a company, NIKE'S purpose. Purpose will always be our foundation and remains deeply embedded in our strategy. We're defined by our commitment to the future of sport and service to athletes around the globe and purpose continues to guide us and redefine our own potential for positive impact in the world. We're pleased with the progress we've made against our 2025 purpose targets across representation, sustainability and community. To learn more, please see our recently released FY '23 NIKE, Inc. Impact Report. In the end, we're acting with urgency as we make the adjustments needed to compete and win. And I'd like to conclude by saying that I deeply appreciate how much our team has kept our focus on delivering results amid macro volatility and an organizational restructure. This has been a difficult time for our organization, and I feel truly grateful for our teammates who dedicated and demonstrated such dedication and commitment to our work together. It's thanks to them that I feel so confident in NIKE's future. And with that, I'll turn the call over to Matt. |
5,399 | NKE | 3 | 2,024 | 2024-03-21 17:00:00 | NIKE, Inc. | 291,981 | Matthew Friend: Thanks, John, and hello to everyone on the call. NIKE's third quarter showcased the operating discipline of our teams as we delivered revenues up slightly on top of the prior year's double-digit growth, outperforming our expectations in North America and more than offsetting dynamic conditions in some other geographies. We executed well to recapture transitory cost headwinds and expand gross margins even in a promotional environment. Our inventory position remains healthy with total marketplace units down double digits versus the prior year and weeks of supply at their lowest levels since the pandemic. Most importantly, our teams are focused on what matters most to capture the strong growth opportunity we see in the marketplace. This means creating more value for consumers by scaling new product innovation, with greater brand impact across the full marketplace with even more inspiration through sport and our athletes. Last quarter, we highlighted that particularly in an uneven macro environment, newness and innovation are what drives brand distinction. Consumers are moving quickly to access new products. Trends are igniting in different places and rapidly spreading around the world. NIKE needs to be faster. And so we are accelerating a multiyear innovation cycle. And while our new product cycle is just getting underway, this quarter showed that we are on the right track. Since the start of this fiscal year, new and updated footwear models have grown into a majority of our top 20 growing footwear franchises in Q3. Added up, footwear products introduced over the past several quarters are on track to generate a multibillion dollar run rate on an annual basis, and we see even more opportunity ahead. On the whole, we see momentum where we are focused most. Performance footwear grew high single digits this quarter, with double-digit growth from $100-plus franchises, including Kobe and Ja in basketball, Metcon And Motiva in fitness and Structure and Vomero in running. Women's fitness footwear grew |
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