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Netflix is the largest streaming video service in the world, with more than 300 million subscribers (as of the end of 2024) paying to access its massive library of TV and movie content through internet-connected televisions and other devices. The company produces a vast selection of original content in multiple languages, as well as licenses content from other providers. Netflix has also increased its presence in live sports programming, with recent deals to stream tentpole NFL, boxing, wrestling, and women’s soccer matches. The company, which began as a mail-order DVD rental business in the late 1990s, currently offers customers various tiers of monthly streaming subscriptions as well as advertising-supported options.

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Netflix (NFLX): Company Profile, Stock Price, News, Rankings

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And welcome to the Netflix q two twenty twenty five earnings interview. I'm Spencer Wong, VP of finance, IR, and corporate development. Joining me today are co CEOs, Ted Sarandos and Greg Peters, and CFO, Spence Newman. As a reminder, we'll be making forward looking statements and actual results may vary. We'll take questions submitted by the analyst community, and we will begin with our results and our forecast.

The first question comes from Steve Cahall of Wells Fargo. The question is, since the revenue increase in your forecast is primarily FX driven, we're curious about the components of the constant currency increase. Is this due to a better underlying revenue growth, or are there specific expenses that are coming in better, like content amortization?

I will I will take that one. Thanks, Steve. So I, as you saw on the letter, we increased our full year revenue guidance to $44,800,000,000 to $45,200,000,000 That's up from the prior guide of 43,500,000,000.0 to $44,500,000,000 so up about $1,000,000,000 at the midpoint of the range and a tighter range. As you noted, primarily reflects the FX impact from the weakening dollar relative to most other currencies. But the good news is we're also seeing strength in our underlying business.

We've got healthy member growth and that even picked up nicely at the end of Q2 a bit more than we expected. And we think that'll carry through with our strong back half slate. So we're reflecting that in our latest forecast. And we're also seeing nice momentum in ad sales. Still off a pretty small base, but good growth, and it's on pace to roughly double our revenue in the year.

And it's a bit ahead of beginning of year expectations. So when we carry all that through to operating margin, our operating expenses are essentially unchanged, which is part of your question. So they're basically unchanged forecast to forecast. So we're largely flowing through the expected higher revenues to profit margin. So that's why our updated target full year reported margin is up one point from 29% to 30%.

And that 50 basis point increase in FX neutral margin is really just that revenue lift from stronger membership growth and adds relative to prior forecast flowing through to margin.

Thank you, Spence. We'll take our next question from Barton Crockett of Rosenblatt Securities. Why is operating margin guidance for the full year only 30% after the upside in 2Q and a forecast of 31.5% for the third quarter. Is there a timing issue, FX issue? Or is there a new level of spending that will continue beyond the fourth quarter of twenty twenty five?

Well, this is this is really mostly timing. So thanks, Barton. We primarily as a as a reminder, we primarily manage to full year margins, and we expect our content expenses will ramp in q three and q four. We've got many of our biggest new and returning titles and live events in the back half of the year. We've also you know, q four is typically a and generally almost always is a heavier film slate.

Sure. We'll talk about I expect we'll talk about more of this on the call. We'll also be marketing to support that heavier slate, and and we're continuing to aggressively build out our ad sales infrastructure and capabilities through through the year. So all of that is to be expected. We can manage to it.

We manage to those margins. And even with that back half ramp in expenses, we expect operating margins to be up year over year in each quarter, including Q4. And as just noted, we expect to deliver strong full year margins as we just took up our guide to 29.5% FX neutral, 30% reported.

Similar to last quarter, we're carefully watching consumer sentiment in the broader economy. But at this point, really nothing significant to note in the metrics and the indicators that we get directly through the business. Those are retention that remains stable and industry leading. There have been no significant shifts in plan mix or plan take rate, and the price changes we've done since the last quarter have been in line with expectations. Engagement also remains healthy.

So things all look stable from those indicators, and big picture entertainment in general and Netflix specific have been historically pretty resilient in tougher economic times. We also think that we are an incredible entertainment value, know, you not only compared to traditional entertainment, but if you think about other streaming competitors, when we start at $7.99 in The United States and you think about all of the entertainment you get, we have a belief and expectation that demand for not only entertainment, but for us specifically will remain strong.

Thanks, Greg. I think it's a nice follow-up to this question, will be on advertising. So from, Ben Swinburne of Morgan Stanley, can you share any data points around your upfront negotiations?

Yep. As we noted in the letter, our US upfront, it's nearly complete. We've closed large majority of deals with the major agencies. Those results have generally been in line or slightly better than our targets and consistent with our goal to roughly double the ads business this year. And what are advertisers excited about?

Growing scale is something we definitely hear. Also, a highly attentive and engaged audience. So bigger audience, but also an audience that's more engaged relative to our peers. The rollout of our own ad tech stack, which helps, deliver a bunch of features, and then our slate, which is generally amazing and includes a growing number of live events that advertisers are excited about.

Great. Follow-up question on advertising from Vikram of Baird. How have advertisers in The US responded to the Netflix ad suite rollout since the April launch? What features and capabilities are attracting the most interest, and how is the initial feedback in other regions outside of The US?

We've completed the rollout of our own ads tech stack and the Netflix ad suite to all of our ad markets now, so we're fully on our own stack, around the world at this point. That rollout was generally smooth, across all countries. We see good performance metrics, across all countries, and the early results are in line with our expectations. Now we're in this phase of learning and improving quickly based on the fact that being live everywhere means that you get a bunch of feedback, about what we can do better, which is great. As we mentioned before, the most immediate benefit from this rollout is just making it easier for advertisers to buy on Netflix.

We hear that benefit, that ease, from direct feedback, talking to advertisers. They tell us that it's easier. We see it in our overall sales performance. We've seen an an increased programmatic buying. So all of these are consistent, you know, with what we were expecting both qualitatively and from a metrics perspective.

We're also, I guess, worth noting that we're gonna roll out additional demand sources like Yahoo that'll further open up the market for us. Long term, being on our own stack, that improves the speed of our execution to deliver this, you know, pretty significant road map of features that we have in front of us. It's things like improved targeting and measurement. There's also leveraging advertiser and third party data sources, which we definitely hear demand for as well. And it will ultimately allow us to improve the ad experience for our members, which is critically important.

So that means better ads personalization. So the ads that I see are increasingly different from the ads that, let's say, Ted would see, and they're more relevant for each of us, which is good for us as users, and it's good for for the brands. We're also gonna be introducing interactivity in the second half of the year, so that's exciting. So that's all to say this is, you know, a pretty significant milestone for us, one we're super excited to get behind us because now we can shift into this steady release cycle where we're dropping new features all the time, both for advertisers and for members. And that's the development and release model that we have into the parts of the business, so it's it's fun to be able to get to that point.

Thanks, Greg. I'll move this along now to a set of questions around, content as well as engagement. This one comes from Ben Swinburne of Morgan Stanley. 1% engagement growth year over year, suggests engagement is down year over year on an average, per member basis. How do we reconcile that with engagement growing on a per member household basis if that's still accurate?

So total view hours did grow a bit in the first half twenty five, and that's despite a particularly back half weighted slate. But to your point on engagement on a per member basis, we've mostly been focused for the last few years on measuring engagement on what we call an owner household basis. So this takes out the borrower effect, and we obviously think this is the best way to assess our engagement per member because it removes the tricky comparison impacts from paid sharing. So that metric per owner household engagement has been relatively steady over the past two and a half years throughout the rollout of paid sharing and amidst increasing competition for TV time as more viewing moves to streaming and gets this on demand benefit. So we're glad to have held that normalized engagement level, but we clearly also want to increase it.

And to that end, we're optimistic and expect that our engagement growth in the second half of this year will be better than in the first half given our strong second half slate.

Thanks, Greg. Great segue to Doug Inmuth's question from JPMorgan. The content in the back half of the year looks strong with Squid Game three already the third most popular non English series ever and Wednesday and Stranger Things releasing in the coming months. You often say that no single title drives more than 1% of total viewing. So how do you think about the business currently as being, quote, quote, hit boosted or hit driven?

And are you confident that both original and licensed content momentum can continue in 2026?

Yeah. I'll take that. And thank you, Doug. On the first part of your question, we're definitely riding this long term trend of linear to streaming, and that has a natural adoption curve. But we can accelerate our growth with big hits.

But as you said, each one of them, even in success, can drive about 1% of total viewing. So you need a lot more than just a big hit every once in a while. So to your point, it's not about the single hit. So what it is is about a steady drumbeat of shows and films and soon enough games that our members really love and continue to expect from us. So, like, by way of example, we had 44 individual shows nominated for Emmys this year.

So that's what quality at scale looks like. We ended the quarter, with a huge return of Squid Game. Thanks for acknowledging. Go into the second half with the return of Wednesday and Stranger Things, and a really strong slate of supporting titles and favorites like and new shows. Like next week, we've got this week, we had Eric Bonner's Untamed.

Next week, we have Leanne Morgan's new comedy show Leanne. Both look really great, and that's just to name a few. And the back half of the year also has this perhaps the most anticipated slate of new movies that we've ever had. That starts on the twenty fifth with Happy Gilmore two. Followed by we have a a new Knives Out film.

We have new films from Noah Baumbach, from Guillermo del Toro, from Catherine Bigelow, and it does not stop there. It does roll right into 2026, and that's the second part of your question. And we're looking forward to movies like the rip, from Ben Affleck and Matt Damon. Shirley Star on a new movie called Apex, which is a phenomenal action movie. Millie Bobby Brown is back in Enola Holmes three.

Recall that in 2023, Enola Holmes was our biggest two was our biggest movie. So we're looking forward to that new sequel. And Greta Gerwig's Narnia is gonna be phenomenal. And then on top of that, we're talking about Return of Bridgerton, One Piece, Avatar, The Last Airbender, all three huge successes around the world. The Gentleman, Four Seasons, Point Break I'm sorry, Running Points.

Sorry. Beef, which as you recall in 2023, won just about every award imaginable and was a gigantic success for us. It's back for a new season in '26. Three body problem, love is blind, outer banks. And not just from The US, from from France, we have Lupin.

From Spain, we have Berlin. We have a new season of a hundred years of solitude from Colombia. So big hit returning shows and new series from each of our regions around the world. And the new stuff we've got coming up like Man on Fire, reimagining of Little House on the Prairie, the Duffer Brothers from Stranger Things have a brand new show, The Burrows. We've got Human Vapor from Japan, Operation Safred Cigar from India, can this love be translated from Korea?

So, again, popular programming new and returning from all over the world in 2026. Unscripted shows like the reboot of star of Star Search. We've got into the doll universe with Wonka's golden ticket, which we're really excited about. And in our live, we've got a few surprises for you next year, but, of course, we have our NFL Christmas Day doubleheader that we're really thrilled about too. So we're really incredibly excited about the back half of this year and confident that it keeps rolling in '26.

Thank you, Ted. We'll take, the next question from Rich Greenfield of LightShed Partners who asks, are you concerned by the stagnation in your viewing share domestically? I think Rich is probably referring to the Nielsen gauge data. Do you need to spend more on programming or spend differently to materially move your viewing share higher?

Yeah. Thanks, Rich. Look. Our our goal continues to be to continue to grow our share over the long term. And over the past few years, you're right, we've been able to maintain our share even as we work through a growing number of TV based streaming services, some free, some paid, and the impact of paid sharing that Greg mentioned earlier, as well as this, you know, 2025 slate that was more back half weighted than we typically have in previous years.

But over the long term, we tend to keep growing as the other 50% of TV viewing migrates from linear to streaming. And we'll do that by doing what we've always done, continuously improve the service. So keep in mind, since 2020, our content amort has grown more than 50%, you know, from under 11,000,000,000 to more than $16,000,000,000 that we expect to do this year. And over that same same time period, we definitely had we we saw in a big increased spending, but also increased engagement, increased revenue, increased profit, and increased profit margin. So that's our model in action.

It is our objective to sustain healthy revenue growth, reinvest in the business to improve on all aspects of the service, and that includes growing content spend, strengthening and expanding the entertainment offering, and to drive that positive flywheel of growth by adding value to our members, and all the while growing engagement revenue and profit around the world.

Great. Thank you, Ted. I'll move, to Alan Gould from Loop Capital next. Can you, provide more information on the TF1 partnership? Why did you choose to add TF1 in France as opposed to other broadcasters as your first partner?

Why is now the right time to create such a partnership? Should we anticipate similar partnerships in other countries?

Yeah. Perhaps just start with the the rationale for the partnership. You would think with that long list of amazing titles that Ted just rattled off, we would have enough to satisfy every person on the planet. But it turns out we actually consistently hear from our members that they want more. They want more variety, more breadth of content.

So the fundamental purpose for this TF one partnership is all about that goal of expanding our entertainment offering. How do we enhance the value we deliver to members? We wanna provide more content, more variety, more quality. So just as you've seen us do with licensing and production, this is just another mechanism to expand that offering. And in this case, it's specifically about highly relevant local for local content in a country that has strong demand for that local content.

This is an accelerated way to satisfy that need. Why now? Why was this time the right time? Well, we've invested a lot in a bunch of enabling capabilities that are either required or highly leveraged by this deal. You can think live, ads, the new UI, among other things.

And then why TF one versus some other partner? Well, we know each other really well. We wanted our first partner to be in a big territory. We wanted to pick the leading local programmer. We wanted to be highly aligned in terms of the the deal and the shape of the partnership and the values that we thought we could generate mutually, by working together for our customers.

And we both look at this as an opportunity to learn, to figure out how do we scale the local content that TF one is producing to more customers in France. So we're looking forward to seeing what consumers think. You never really know until you get out there reactions, and then, obviously, we'll factor that into our plans going forward.

Thanks, Greg. From Robert Fishman of MoffettNathanson, with reports suggesting Apple is now in the driver's seat for f one rights, Pun intended, I guess. Plus UFC and MLB still looking for new deals, and, the NFL may be looking to come to market a year earlier. Can you share updated thoughts on how you are approaching sports rights for Netflix and where you draw the line on something that can move the needle?

Well, thanks for that, Robert. Remember, sports are a subcomponent of our live strategy, but our live strategy goes beyond sports alone. Our live strategy and our sports strategy are unchanged. We remain focused on ownable, big breakthrough events that are because our audiences really love them. Anything we chase in the event space or in the sports space has got to make economic sense as well.

You know, we've we bring a lot to the table, and the deals that we make have to reflect that. So live is a relatively small part of the total content spend, and we've got about 200,000,000,000 view hours. So it's a pretty small part of view hours as well right now. But that being said, not all view hours are equal. And what we've seen with live is it has an outsized positive impacts around conversation, around acquisition, and we suspect around retention.

And but so right now, we're we're very excited where we sit. We're very excited with the existing strategy. We're excited about the Canela Crawford fight in September and the SAG Awards and our weekly WWE matches. And the NFL, of course, which is a great property, and we're happy to have Christmas Day doubleheader, which includes Dallas versus Washington and Detroit versus Minnesota. So today, our live events have all primarily been in The US, keep in mind.

So over time, we're gonna continue to invest and grow our live capabilities for events around the world in the years ahead. So we're excited, but the strategy is unchanged.

Thanks, Ted. Good follow-up question on on that one from Steve Cahall of Wells Fargo. What investments have you made to increase your capabilities in producing live events? What have you been able to do in house in 2025 that you couldn't do last year, and how long will it take before you have the capability to produce large scale events like NFL games?

Thanks, Steve. I'd say, remember when we started original scripted programming, we had zero production capability. House of cards was in fact thinking about our first three years of, of original programming, all of those shows were produced by others. You have to go three three years later, we produced Stranger Things in house. Today, we still have shows that are produced by others.

Universal, twentieth television, which is Disney, Paramount, Lionsgate, Warner's Warner Television. There's lots of available infrastructure to produce TV, and that is true of live events and sports as well. If we when we do more and more, we may choose to bring some of that in house. We've already produced a few, and we're just as likely to continue to use partners with existing production infrastructure and work to make sure that those productions are bespoke, and do they feel like they could only be on Netflix. So you shouldn't think about the mix of partnerships and self producing as a we we think about it as a scaling tool, not backfilling some, like, lack of ability, in some area of the company.

So and I should note by example, CBS is a phenomenal partner producing NFL games with us, and we're thrilled to work with them again this year on Christmas Day.

Maybe take this opportunity just to make some commentary on the general capability we've been building with Live. You know, when we start something new, we pretty much expect that we're not gonna be brilliant at it at the beginning.

We don't have any really reason to believe that. But we don't let that stop us from kicking off initiatives that we believe have a strong strategic rationale even though we know we need to develop that capability. And, of course, our job is to get out there and get and learn by doing and get world class as quickly as we possibly can. And if you look at our current capabilities around live, we are in just a completely different place today compared to when we first started. As a good example that just happened last Friday, we had our first concurrent pair of live events.

We had Taylor versus Serrano globally delivered alongside WWE SmackDown, which was delivered ex US. Both events at scale and delivered with extremely high quality. So it's great progress we've seen, and we've got a great road map of features ahead of us to continue to enhance those experiences for folks.

Thank you both. Last question on, the content side or the topic of content comes from, Ben Swinburne of Morgan Stanley. What are the learnings from the success of k pop demon hunters? More animated musicals with fictional bands, perhaps, question mark.

Man, that is a question from a man who's probably has that movie playing on repeat in their home if I'm if I'm guessing correctly. K pop demon hunters is a is a phenomenal success out of the gate. One of the things that I'm excite really proud of the team over is original animation, not sequel, not live action remake. Original animation feature is very tough and has been struggling for years. And I think the fact that our biggest hits now, Leo, Sea Beast, and now k pop, Demon Hunters, are original animation.

So we're super thrilled about that. The mix of music and pop culture, getting it right matters. Good. The storytelling matters. The innovation and and animation itself matters.

And the fact that people are in love with this film and in love with the music from this film, that'll keep it going for a long time. So we're really thrilled. And now the next beat is where does it go from here? So, you know, we're you we put in the letter how just how successful the music has been and continues to be, and we think that'll drive fandom for this fictional k pop bands that we have. But more importantly, for the song Golden and for the song Soda Pop.

These are enormous hits, and they all came from a film that's available only on Netflix. So we're really excited that we can pierce the culture with original animated features considering that folks have been poking us on it.

Let's do it again later in the year within your dreams. Right, Ted?

In your dreams, another very funny one and also completely original. So Yep.

Great. I'll move us on now to a few questions on plans, as well as product. So from Michael Morris of Guggenheim, he asks, Netflix continues to broaden content genres notably with live sports and the recently announced TF one partnership. Is there a path to additional tiers of service based on types of content available, or will Netflix always make all content available at the ad free, slash ad supported price points?

I've learned to never say never. So, I would say we're we're remain open to evolving our consumer facing model. I think we've got a a few principles, important principles that we're carrying with us that I don't see changing significantly. One is we wanna provide members choice. Right?

So how do we have a different set of plans, a different price points, a different features that allows folks to opt in to what the is the right Netflix for them. Also, how do we provide good accessibility to new members around the world? We wanna grow, and that means making sure that we've got accessible price points. And then finally, the the plans we offer, they have to, you know, ensure that we're having reasonable returns to the business based on the entertainment value that we deliver, and we're hoping to grow those. And so those returns would grow as well.

And, obviously, the reason to do that is we can continue to reinvest in adding more entertainment and building a better experience. And maybe one other thought too is there is a component of complexity in ChoiceDax that we have to consider in how we think about our offering and is structured. So having said all that, though, I think we believe that the bundle is a great value for members. It allows members around the world access a wide range of entertainment in a very easy way at a very reasonable price. So I would expect that that will remain an important feature of our offering for the foreseeable future.

Great. From Rich Greenfield of LightShed Partners, help us understand why your new UI slash UX is so important as you expand live content. Beyond live, can you provide some color on what metrics have improved since the launch of the new UI such as speed of users finding a title and change in failed sessions?

Yeah. As we said, previously, it's it's really hard for a new UI to immediately compete, be better than the UI that we've had for the past ten years. It's been iteratively evolved and improved. But now that we've actually rolled out this new UI to the first large wave of TV devices, we're actually seeing performance that's better than what we saw in our prelaunch testing. And to some degree, that's, expected because we made some improvements based on the results of that testing phase.

So it's exciting to see that those delivered actual better results. But the rate of that change actually gives us increased confidence that this new experience will drive better performance, by the variety of metrics we look at, some of which include the ones that that Rich is mentioning in relatively short order. And then maybe just a point on why why are why do we build this and launch this new experience in the first place? Why was this so important? Bluntly, the previous experience was designed for the Netflix of ten years ago, and the business has evolved considerably since then.

Netflix (NFLX) Q2 2025 Earnings Call Transcript

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