Netflix: Highlights from earnings call last night (346.19)
- Strike update? Co says it has spent hours and hours with SAG-AFTRA over the last few weeks, and was actually very optimistic that it was making progress. But then at the very end, the guild presented this new demand that on top of everything for a per-subscriber levy unrelated to viewing or success. And this broke the momentum, unfortunately. But co is committed to ending this strike. Co has good content coming in Q4, headlined by the return of The Crown for its final season. It also has a new season of Big Mouth, a new season of Elite, the launch of Berlin etc.
- Paid Sharing Update? Co is incredibly pleased with how it's been going, and the progress can be seen in membership growth in Q2. Now, in Q3, it is embedded in the revenue outlook for Q4. Co will continue the rollout for the next couple of quarters. In terms of how much juice is left there, co would say it anticipates incremental adds for the next several quarters.
- Advertising Update? Scale is the number one priority. Co is making good progress there. In Q3, co grew its ad plan membership 70% sequentially following 100% sequential growth in Q2. Co now has 30% of new sign-ups choosing ad plan in its ads countries. However, co says this has always been a multiyear build, a multiyear progress. Co is excited about the future to come.
- Outlook for ARM (Avg revenue per member) in 2024 and beyond? Co expects a more balanced mix of membership and ARM growth in 2024 and beyond 2024. Co says 2023 was a pretty unusual year where essentially all growth came from member growth. Co believes it has a long runway for growth in both membership and higher ARM over time in a more balanced way than what was seen in 2023.
- Margins and ad tech content spend? Co believes it is not anywhere near a margin ceiling. It has a long runway of margin growth. Co plans to drive healthy margin expansion. Co expects roughly 22% to 23% operating margin in 2024, assuming no material swings in FX. That is up from 20% this year, which is at the high end of the range. Co plans to take a disciplined approach to balancing margin improvement with investing in growth.
- Licensing third party content? This has always been part of its strategy and something NFLX has been great at. Co thinks Suits is a great example of the impact of the Netflix effect because of its distribution footprint and recommendation system. Co was able to take Suits, which had played on cable and other streaming services and pop it right into the center of the culture in a huge way. Not just in the US, but all over the world.
- Gaming update? Co believes it can build games into a strong content category, leveraging its current core film and series by connecting members with games that they will love. Co says its current scale and investment level are both very small relative to overall content spend and engagement. Co plans to incrementally scale to the place where games will have a material impact on the business. Co says it has ambitious plans there. It wants to grow engagement by many multiples in the next handful of years.