Netflix (NFLX) 18 Oct 232023 Q3 Earnings call transcript

Good afternoon, and welcome to Netflix Q3 2023 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.

Our interviewer this quarter is Jessica Reif Ehrlich from Bank of America.

As a reminder, we will be making forward-looking statements, and actual results may vary. it you turn first for me question. let over now to your Jessica,

you. Thank

with So you, let's the start Ted.

X writers the business? killed, that what Now strike are implications is for over, the your

Jessica. Thanks,

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think from So we revenue. want long-term to maximizing that about

going for we're couple the to rollout continue quarters. So next the of

quarters. seen incremental I anticipate think would much that folks say how the left of next quarters. last We've are And will trying several we is for to figure we there. incremental the in adds couple acquisition, have juice how that out I much

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it's of converted become forward, households just there. our paid about haven't part several have households out going not We way qualified many that to They're we really of couple over sharing smart TV standard we convert to operating. We're over want the now of next the over of yet. millions win how And is which that going represents next But quarters. of we think years. hundreds

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people them we we're to an offering just that have get Netflix, signed same the them to an for value having So up they after which have go excited sign got is content never and who up. incredible way so after incredible going

Right.

and advertising to you the why to on accomplish? what talk Moving like you would recent the you made management Can about change restructuring.

Yes.

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plan our of plan our That's grew ads we quarter-to-quarter. on This the XXX% countries. quarter, in sign-ups of ads last at XX% choosing have we XX% quarter where grew sequentially now We our our ad membership top new quarter-to-quarter.

the it now. We've plans. our going by done number downloads of We've streams, we've like that. competitive. period adding content We're to making features gotten a ads We're improved offering doing XX% the to And over resolution. with keep video non-ads more

that on it. we'll going trajectory keep good keep So and focusing

with partnership advertisers week a is from it week, in Second again United advertisers. big again, month and We've October. and this launched top our measurement. is features measurement heard in that We've want. heard that -- for Nielsen list delivering us products priority of the this States I've

So in. that list a countries that about to we've that. across same other got partners we're capability excited We've long of deliver other got

So excited about that We're also products. excited new getting about out. we're

So we've buy to later programmatically top Microsoft media rolled our to We're launching ways We're buyers, out out to going our ways roll more access this Binge more inventory. gives year. ad more product through that buy. our XX

but work about we've a we're do a the we've got So lot here to a excited is lot progress. multiyear to this and come. always we've to on, We all that got got on fronts, of multiyear build of future said going those

in talk you've new ARM advertising you paid XX more sub from 'XX beyond? and you're that phased now So members or you've getting outlook for countries. for in and Could the and extra about per subs basic introduced out

me that take one? Do to you want

Spence Sure . ahead,

right, wind All it me. Thanks, for Jessica. up you

we about So general. it I would And about in think our beyond, when say talked 'XX this about think as just revenue recently. generally, growth we profile and

beyond and We in mix of 'XX expect more a balanced 'XX. and membership ARM growth

will adjustments, slate as as business we grow extra the at addition, drive So all expect And to continue expect discussed. members, forward. those some in advertising revenue, just great have to a to saw do you we in pricing that ARM. letter, things specifically, looking talked our 'XX Ted things Greg ad And to like drive our about, as

addressable pretty member And forward, -- our growth. year beyond, and growth all So of broadly, by from kind grow discussed, And we've more continuing unusual our penetrate solution, as have 'XX I we engagement, to we'll increasing increasingly X.X that, Greg came continuing billion big to and 'XX members. improve where market future know households TV our clear and was service, a of path more more account essentially not growing. a and current going business satisfying just sharing of got that deeply now connected

business, ads sophistication and plan with on keep monetizing we'll that reach work And and hard and evolution, all engagement. pricing continued that big getting our our at better growing

this growth over in believe in a membership a year. long higher got way which ARM saw more for than -- was runway and kind both balanced So early more pretty a what year, we've of we time you again

on touched what get then would Greg you pricing through do all scale? you pricing scale on, And and How it like touched to changes? consider Is you advertising. And scale?

Yes.

right? I add more think -- X become it's isn't you like situation. condition, that a buy not you binary So to note must suddenly a important member it's scale not and it's

we noting different largely and the countries. become . that dynamic. I increasingly on what's competitive And also, that with So based competitive reach. worth It's it's it's in increasing competitive different what's think, channels

drive of and to market on the basis, a of that, more that So those. per And about country we've growth as us percentage we essentially that this rate helps to having said got though, get relevancy focus work do a penetration desire. think several carry we targets

mean country at scale We bigger, to we're we're satisfied in. like and can that any I be we want in So the with not be we bigger. that know we're

a ads, doing no and about thinking thinking about variety how before, that do techniques That's is to consumers. I is part optimal we're there's These that feature things are which consumers right? for to employ think the of in too, factor ads. Part it do sign we of just is plan evolution. what's for. of of what it, pricing want pricing actually can up set, Part educating that mentioned we what and I

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multiples that coming of we're those all with. that it's to we'll ultimately together So us scale things at drive be that satisfied several today the

of targeted, different. it margins. on and When innovative get But have One on you a offerings last X on It's you maybe unique. advertising so point mentioned a move lot really it's do very that before we It's plan point relevant to to we for of where or sponsors. the addressable, you it's some a when will consumers.

And would to they see ads. want the so

Yes.

with the through roll future. now So first that, increasing in sets. near of relevance you'll right see targeting think we product about step that on combination is we're And targeting, the Microsoft working how both of out a I think, so

might a that consumers on buy digital perspective, interested that what So as are are message. is what sort matching particular that sophistication of brands our who we of the products basically most can improving which relevance targeting in call as brand's well yield types ad increasing from

one's So areas But that ad margins. areas, other Spence, Right? we're content for about? guess I you content on talk not like could Well, spend in new spend? about tech this that investment something thinking you the did maybe later, you but meaningful any on elaborate

Sure.

back step quick a me bit some context. let with So

judgment growth of profits. trying Netflix, best of of near-term balance to our They're the best long-term to future grow value targets. margin set we for we're Jessica, with first, So how investment kind and

build profit wanted disciplined as good So felt, profitability because global grew investing that to in way the across to approach to to after it we Netflix, for XXXX, a company. revenue muscle was we Global take a one, heavily we instance, launch building

understood investors we were health demonstrate wanted model. they've patient -- of pretty the us, with and two, scalability so we been that And to the business the

took that like was in margin so XX% to margin operating roughly our -- And it income margin. to X% current from business us XXXX OI

scale ad business. quite indicator good pretty a think we can So be a that streaming good

in don't in we growth. got anywhere our and no margin Now objectives see fact ceiling. change financial of we're we stepping expectations, -- think a there's that and also a margin runway including long our near no change We've a margin back, the long-term

no that So prudent balance again, think growth with scale, expectations. we margin long-term profitability it's in investments. of change no But change improvement and in our historical our our margin objectives, current to pace

small in So you think of investments. places which we've we a our categories, operate. lot we're asked about growth of where plenty continue to invest in We content we got country further every can a invest, room viewing of share to existing in

that talked categories out Greg content building like ads offering Plus new about games. and our live capabilities those

to continue healthy plenty do. we'll said, drive all expansion. So But there's margin that to

XX% no roughly operating XX% material swings expect assuming to 'XX, margin FX. We in in

expectation up high the XX% we range of that's this which the targeted in that our from So the of of at year, beginning end is current year. the

we shows flow. grow like invest just we that we that how have. a disciplined that that balancing the with improvement managed letter and at balance content to going forward, going investment, actually big end growth. investing you put past, margin cash historically, we'll should Jessica, chart profit of again, into We into expect opportunity So take growing as did margins our to And approach the we'll a and same that in the forward discipline carry

but But to mentioned like had content incredible How your Brothers, could does like overall suits licenses? in you talk the success just last Bandar the or things licensing content mean seems third the -- about letter. I from have, you you -- third-party content it in with if it in year, plan parties strategy you've always and third-party

we've of that being part is our able strategy, match do really been third-party Yes. content -- always and something at to audience. Yes. great Licensing been has we've

the the Nielsen because cable footprint have impact out can into system, watch weeks. Netflix pop example take but of record for culture the U.S. effect our had all had center were . According charts suit right played that which straight we the world. the we to over is in and think suits that series of like recommendation of -- streaming Nielsen. in to That's other is the XX not on huge way, in I it the streaming suits, and our of for a was great #X and played just a distribution the able services then, a

to of range this So us wide tests. our important storytelling to a breadth of consumers for continues to be of of a add lot

Insecure, make find network And we deal, had anything. strength. can't very they that can we for originating mentioned -- we had And were they they but the successful in HBO really and Bottlers, everything, looking on the about XX help Brothers, think that you just and into I time. That's you do first in their Netflix, popped came out the top we but

bring I So in and And we're service, supplier, our our come to able Super is more streaming under we just one think way direct X also their including Spider-Verse other Man like on suppliers. TV but that the True to movies we're Blood and from Brothers And really the be have was feet Spider proud with on in and just coming powerful. business across every to Marrow which or side, nearly with not competitors. another,

mean an we other through show on becomes look really the out we more still all after Netflix, on ton runs audience about they that of models. that huge in when house these Gilmore friends value. at full it bring played what have less when and Girls today and traditional think the happens continues or that a a in shows even think them. and and value found for office that value has I shows Netflix created like to And lasting I success I think you And

time? but said way Could Spence, over the XX% the for long-term historically in to it similar think help margins X you more you, which on margins said in through you been be margins range. was other in September ramp that us the networks, will you have XX% think I to

number probably disappoint on put to as this. the I going past Jessica, I'll a in long-term out have not there. you We're

near-term I said, potential. see any we long-term our any ceiling don't to ceiling As margin --

about through our of a the going think but of lot we things we kind in in talked working those our We've past feel to favor. steady-state how have we're way to long-term margins,

scalable very a have business model. We

out continue for world. but to big and produce You the you that over also handful more ability world over see to the play we the subs, that so around great people impact, years enjoyed to be and all stories to last local content discovery with more of the through see and for do those reach dubs, as

scale a has very a model. has, legacy content in networks. many been at ways, it's that not network It's scalable seen global with So entertainment

to we've think go. we long got way So a

those As I with investing want just near increasing long-term the balance about, to we in opportunities. talked profits in term

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we addressable Greg that, grow expand new I lot also new sort open as big said, dollars gaming that expand I areas to too, to So would advertising or matter, So opportunity right? alluded big to of for like to into. also, us with up also of markets agree thing those totally into what profit Jessica, again, which but is, One margins, add right? Spence a

grow as a of lot we too, to well. margins, intend And also then profit but want we dollars

optimizing a percentage narrowly not we're margin. for So just

Right.

Of course.

price announced price provide or standards of more today and basic premium current and the time several in frame in increase You a some you view can countries for changes come, here? to

Yes.

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noted that changes the announced in we've hence, the So you that letter.

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of that it Part that the point. why And entry keeping is. that's low price entry we're is widespread low price as point static

this that we just whether value. to compared of of U.K., that's compared think incredible a the pay So U.S., think just traditional XXX breadth It's storytelling that competitors an EUR $XXX offering, in offer. think in TV, the in XXX And pounds and France. about entertainment amazing we you an certainly, the if the that's variety price streaming ticket, to even movie our we're the

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that imagine a will -- that So is there I continue. would momentum

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factor to SAG swing after resolves. going biggest strike The the be when is

that to get P&L to closer kind of so And will a ratio X:X.Xx. cash to us

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we in flow increasing If content revenue, kind our as folks spend as we should but profitability, we spend. time. that's So nicely see cash our our about also growing of how free one we -- to grow model growth are thinking over way improve both content

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as launched And great fast. features a to decade you were move And know, year. those animated really moving we than it animated successfully deliver that film. and could single a single X pretty Sometimes a fast, companies really pretty more feature in been we've take

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-- and we've features of -- animated been animated features. of got them appetite movie there's a watching Nielsen So very are you X since of tracking the look has a XX at ton top if

do original animated and there's world. part So we're lot committed that and And the all creation of a over but of business. combination to just licensing and a production original we through appetite for features, the of the and partnerships that not U.S.

product invest territories my those balance right spending helps say, time could importantly, they pay have can we Netflix little that for value grow much and because consumers, there, right which there. get so most find and the of "Hey, to finding a create more bit what a much that us of I So for and helps fit, I'm market proposition value I so I pay

the XX the last you of if on streaming last of think this #X had has of series for weeks XX Netflix streaming. So year, all -- the about and the

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and to really continuing drive been to on on lot going value on -- got the about that numbers which this call. improve stay we focused So to consumers, we've talking the we've a proposition we've got

we today. your increase buyback quarter moving the Spence, forward? in in of $X.X run you rate of a announced sort third the a buyback very think as billion significant Should

less kind Jessica. We and to talked fact -- that, the about we slowed -- that reaccelerate forward wanted over than we forecast less we we as out through roll so as business of the we or had typical down to past also visibility our as kind I slowed looking paid sharing. to business read into year down, and had the of were the wouldn't

got we've view a behind going much as better said, And is of forward. that now us, and we've

well. And we sheet up some ramped had balance cash up so we built repurchase on as because the our

Our of cash X months target revenue. roughly minimum is

minus to ahead or of our of ahead gotten still We're and little cash we on of hold plus sheet, billion that. So that a that. $X we've balance look

business, we're sheet is the then really cash to: cash and our that's balance grow one, managing the but expand to to business primarily builds forward, -- to drive the on return excess shareholders. cash -- So flow it what as

So of we what revenue time. about of in pacing form out you sheet, think be and the of balance will the there should our target over specific put months a way pretty X roughly cash on that's think the I

describe in midterm It near the roll a like feels what and way walk approach, like advertising, is gaming. you almost gaming? to run a like on strategy Moving

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