NETFLIX INC Q4 FY2024 earnings call

Key Points

• Wildfires: No meaningful disruption to L.A.-based productions in 2025; no impact on cash content spending or project delivery.
• Subscriber Additions: Broad strength across content categories and regions; big events like NFL games and Squid Game Season 2 contributed but were a small minority of net adds.
• Advertising: Ads plan growing, exceeded revenue target in Q4 20₂4, doubled revenue year-over-year, expects to double again in 20₂5. Transitioning to own ad stack, launching in Canada and expanding in 20₂5.
• Sports: NFL games had strong viewership, but full season sports rights economics remain challenging; WWE Monday Night Raw performed well; FIFA Women's World Cup rights acquired, aligning with strategy.
• Carry-On: Proved movies can be hits on Netflix with modest marketing spend, generating buzz organically.
• Pricing: Pricing philosophy remains, listens to member signals, price increases in markets smoothly, with long-term monetization opportunity.
• Engagement: Engagement is a strategic priority; core is longer-form storytelling, but aims to win over audiences with programming.
• Video Games: Progress made, games like Squid Game: Unleashed successful, positive impacts on acquisition and retention; future plans include narrative games, party/couch co-op, kids' games.

Guidance

• Revenue: Expect 12% to 14% top-line growth in 20₂5.
• Content Spend: Estimated $18 billion in 20₂5, with long runway for growth due to global expansion opportunities.
• Margin: Balancing revenue growth with strategic investment, expecting high single-digit expense growth, margin improvement through content amortization and focus on growth priorities.

Q: Given the need to ensure safety and well-being of cast and crews, has there been any disruption to your L.A-based productions owing to the wildfires? If so, can you please quantify the impact on this year's cash content spending?

A: No meaningful delays in the delivery of the projects and no meaningful impact to the cash in '25, but very meaningful disruption in people's lives.

Q: Is it fair to assume that most of the upside in the 19 million subscriber additions came from the Jake Paul and the Christmas Day football games? And how was the attrition or retention, I guess, post the Christmas Day games versus normal post-holiday levels?

A: Short answer is no. Broad strength across content categories and regions; no single title drives majority of subscriber additions.

Q: The U.S. dollar has strengthened since your last results and you said that you'll tend to underperform your margin targets when the dollar is stronger. What FX volatility do you think you can successfully hedge out in 20₂5? And what are the best ways to estimate the impact of currency movements net of hedging?

A: Roughly 60% of revenue is in non-U.S. dollar currencies; hedge ~50% on a rolling forward 12-month basis, focusing on underlying operating results.

Q: The advertising user base is growing quickly and your ad tech has been ramping for almost a year. What are your biggest learnings and perhaps hurdles for advertising monetization in 20₂5?

A: Ads plan growing, exceeded revenue target in Q4, doubled revenue year-over-year, expects to double again in 20₂5. Transitioning from crawl to walk in ad tech, launching own ad stack.

Q: On advertising, do you have all the tech and tools you need to significantly scale-up and move from the crawl to walk phase?

A: 20₂5 is transition year; launching own ad stack in Canada, expanding in 20₂5 to enhance advertiser experience.

Q: Ted, do the strong viewing numbers for the NFL games leave you more interested in full season sports rights for Netflix, or do you still see full season sports rights as generally unattractive for Netflix?

A: Strong viewership, but full season sports rights economics remain challenging; would explore if economics work for both.

Q: Has the fight and WWE Raw results influenced your decision process on additional rights like the UFC?

A: WWE Monday Night Raw performed well, but no specific comment on UFC; focus on economics.

Q: Could you elaborate on the decision to acquire rights to the FIFA Women's World Cup in 2027 and 2031? What were the features of the event that made it attractive? And how does this fit into your broader strategy for live sports?

A: Aligns with strategy, women's sports growing, month-long event with drama, fits into live events expansion.

Q: Did Carry-On prove that movies can break through without a theatrical release? In less than two months Carry-On was well reviewed and has racked up 313 million view hours. And the film generated significant buzz across social media and is set to surpass Bird Box viewership. Was there an unusually high level of marketing spend for this film, or did the buzz build organically on Netflix?

A: Proved movies can be hits on Netflix with modest marketing, buzz built organically through platform promotion.

Q: Ted, does the agreement to debut Narnia in the theater in 2026 suggest any shift in your overall theatrical strategy?

A: No shift; theatrical release is a tactic for awards, publicity, not a change in core strategy.

Q: How do you plan to approach the cadence and magnitude of price increases going forward, particularly in your largest markets? What are the signals that inform those decisions across the different regions and plans?

A: Pricing philosophy remains, listens to member signals like engagement, retention; price increases in markets smoothly, with long-term monetization opportunity.

Q: Engagement is stable in -- based on data from third-party panels. Is engagement growth a strategic priority for Netflix?

A: Absolutely, engagement is strategic; core is longer-form storytelling, but aims to win over audiences with programming.

Q: What are the key steps to competing more with short-form video platforms for engagement?

A: Win over audiences with programming they love, find new storytellers, leverage existing successful content.

Q: How do you assess your progress in the video game space? How have the engagement trends been? When do you anticipate video games will have an impact on subscriber growth or retention?

A: Progress made, games like Squid Game: Unleashed successful, positive impacts on acquisition and retention; future plans include narrative, party/couch co-op, kids' games.

Q: You spent roughly $17 billion on cash content spending in 20₂4 and will spend about $18 billion in 20₂5. How should investors think about long-term spending levels? Is there a point where you reach an equilibrium where you don't need to increase spend beyond inflation?

A: Long way from equilibrium; continuing to grow content spend, disciplined allocation for global expansion.

Q: Can you please talk about the drivers of raising your 20₂5 operating margin guidance? What are the biggest points of leveraged driving higher margins this year?

A: Balancing revenue growth with strategic investment, expecting high single-digit expense growth, margin improvement through content amortization and growth priorities.