NETFLIX INC Q3 FY2024 earnings call

• Investment priorities for 2025 and beyond include building on successful programming with an ambitious 2025 slate featuring new seasons of big shows and new content from various regions. - Focus on improving core film and series offering, with a steady drumbeat of hit titles from around the world. - Work on improving product experience, such as testing a new intuitive TV homepage. - New initiatives like games (e.g., Squid Game, Monument Valley 3), expanding into live events (e.g., Tyson-Paul fight, WWE), and growing advertising. - Healthy engagement with about two hours of viewing per member per day in 2024, and strong Q4 slate with big titles from multiple regions.

No specific breakdown of product segments with absolute revenue and revenue contribution % provided in the transcript.

• 2025 revenue expected to be $43 billion to $44 billion, representing ~$4 billion to $5 billion incremental revenue over 2024, with ~11%-13% growth. - Majority of 2025 growth expected to be membership-driven from full-year impact of strong net adds in 2024 and expected pay net adds in 2025. - ARM growth including continued plan evolution, pricing, and growing ads revenue, with ads not yet a primary growth driver but to be more meaningful in 2025.

No explicit detailed risk section, but potential risks could include competitive environment impacting margins, execution risks for new initiatives like ads and live events to reach significant scale, and market changes affecting revenue growth projections.

Q: Can you please frame your key investment priorities for 2025 and beyond? And how have they evolved in the past 12 to 18 months?

A: Ted Sarandos and Greg Peters discussed building on 2024 success, improving core film and series, product experience, new initiatives like games, live events, and advertising. Greg Peters also talked about priorities including improving core offering, planting seeds with new initiatives, and growing advertising.

Q: At a high level, when we think about the Netflix revenue growth algorithm, can you please provide some color on the pieces moving forward between organic membership growth, ARM increases and advertising?

A: Spence Neumann said 2025 revenue guide is ~$43-$44 billion, driven by membership and ARM growth, with membership being the majority from net adds and ARM growth including plan evolution, pricing, and ads growth.

Q: Given what appears to be a moderating competitive environment, how are you thinking about the puts and takes around operating margins going forward?

A: Spence Neumann said there's room to increase margins long-term, expecting 6 percentage points improvement in 2024, with approach of investing to improve service while growing costs slower than revenue.

Q: Could you please discuss the dynamics that drove the slight LatAm member net loss in Q3 and provide further color on drivers of the pickup in LatAm early in Q4?

A: Spencer Neumann said Q3 LatAm member net loss was due to recent price changes in big markets, but Q4 is seeing rebound with healthy business climate and exciting Q4 slate in LatAm.

Q: Can you please discuss the levers that will move advertising to a more primary contributor to growth after 2025? How is ad tier engagement tracking versus ad-free? What kind of CPMs are you attaining in the U.S. market? And how should we think about improvements in terms of your ability to monetize your advertising inventory?

A: Greg Peters talked about growing ad tier membership to scale and improving monetization capabilities. Ad tier members have healthy engagement, CPMs are strong, and they're working on first-party ad server and partnerships to improve monetization.

Q: What are your initial learnings from your partnerships with The Trade Desk and DV360? And secondly, Netflix has decided to use Trade Desk to build demand. But longer term, how important do you see partnerships like Trade Desk versus building your own walled garden?

A: Greg Peters said partnerships are going well, learning more demand increases CPMs, and they'll evaluate and evolve based on business and ecosystem evolution, but partnerships are positive now.

Q: How did last year's Hollywood strikes impact your 2024 slate, and ultimately engagement and retention? And did it disproportionately impact UCAN, given a shutdown production here in the states? At what point, if not already, will you be back to a more normalized slate with no lingering effects of the strikes?

A: Ted Sarandos said 2024 slate was lumpier due to strikes, hit UCAN hardest, but moving to normalized slate with 2025 largely back to normal.

Q: The Nielsen gauge indicates that U.S. engagement for Netflix, has been stable recently that's his nice way of saying flat I think. With page sharing now in the run rate, when can U.S. engagement begin to grow again? Do you see expansion into live programming as a major driver?

A: Ted Sarandos said engagement is healthy, live programming will contribute to growing engagement with events like Tyson Paul fight and WWE, but on-demand hours are still dominant.

Q: Is it possible for films to pierce the cultural zeitgeist without a theatrical release?

A: Ted Sarandos said Netflix can pierce the zeitgeist with films premiering on Netflix, bringing big audiences and adding value for consumers.

Q: Are you planning to change the talent compensation structure to pay less upfront, and more on the backend based on success?

A: Ted Sarandos said Netflix's current model benefits creators and the business, and they're not changing the compensation structure, though open to bespoke deals occasionally.

Q: What is holding you back from raising price into one of the strongest content periods in recent memory, starting in late Q4 of this year and into 2025?

A: Greg Peters said pricing approach is based on delivering more value to members, evaluating based on engagement, acquisition, retention, and will continue to assess when appropriate to raise prices.

Q: You've increased prices for your non-ads plans, but have kept the ad tier at the same lower price, while other streaming services have been increasing prices on both. How do you think about the right spread, between the ad tier and the non-ad tiers?

A: Greg Peters said pricing focuses on value delivered to members, having range of price points for different consumers, optimizing long-term revenue, and assessing sign-up mix as an indicator.

Q: The phasing out of the Basic Plan across the U.K., Canada, U.S., and France. Are there any sort of learnings you can share there? And any expectations to phase out Basic in other ad markets going forward?

A: Greg Peters said it's an example of evolving plans and pricing to expand range and manage complexity, change has gone well, and they'll evaluate other markets.

Q: Do you see YouTube's growing share of TV consumption as friend or foe? Is user-generated content via AI a threat to your business?

A: Ted Sarandos said Netflix and YouTube are complementary, with Netflix focusing on premium content, and AI needs to help make better shows. Greg Peters reiterated Netflix's focus on ambitious premium storytelling and benefits for consumers and creators.

Q: Netflix doesn't need to bundle with other streaming services, but could there be an opportunity to leverage your industry-leading global member base, be it offering a bundle with a less scaled streamer, potentially one or more services with complementary content like live sports, and in exchange for a share of subscription economics, or advertising inventory?

A: Ted Sarandos said Netflix focuses on adding value to its own package with ambitious content, games, live events, and believes in its own offering and ability to grow share of engagement.