Netflix, Inc. (NASDAQ:NFLX) Q2 2023 Earnings Call Transcript

Netflix, Inc. (NASDAQ:NFLX) Q2 2023 Earnings Call Transcript July 19, 2023

Netflix, Inc. beats earnings expectations. Reported EPS is $3.29, expectations were $2.84.

Spencer Wang: Hello, and welcome to the Netflix Q2 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’ll be making forward-looking statements and actual results may vary. Jessica, I’ll now turn over the call to you for your first question.

Q – Jessica Reif Ehrlich: Thank you. Well, let’s start with the top of [indiscernible] not one, but two strikes. Can you give us your views of how this affects your business on a practical basis? How far out does your original content take you and how much of the content spend do you think gets pushed from ’23 — from this year into next year?

Ted Sarandos: Thanks, Jessica. Good afternoon. Thanks for the questions. Let me start by making something absolutely clear. These strikes, this strike is not an outcome that we wanted. We make deals all the time. We are constantly at the table negotiating with writers, with directors, with actors and producers with everyone across the industry and we very much hoped to reach an agreement by now. So I also want to say, if I may, on a personal level, I was raised in a union household. My dad was a member of IBEW Local 640 as a local — he was a union electrician. And I remember his local because that union was very much a part of our lives when I was growing up. And I also remember on more than one occasion, my dad being out on strike.

And I remember that because it takes an enormous pole on your family financially and emotionally. So you should know that nobody here, nobody within ANPTP and I’m sure nobody had SAG or nobody at the WGA took any of this lightly. But we’ve got a lot of work to do. There are a handful of complicated issues. We’re super committed to getting to an agreement as soon as possible. One that’s equitable and one that enables the industry and everybody in it to move forward into the future.

Jessica Reif Ehrlich: And in terms of content, how much original content — do you have to run out, like at a certain point in time, you probably will.

Ted Sarandos: Well, look, we’ve put some of our upcoming content in the letter. We’ve said in the last call, we produced heavily across all kinds of content TV, film, unscripted, scripted, the local domestic, English, non-English, all those things and they’re all true. But as besides the point, the real point is we need to get to this strike to a conclusion so that we can all move forward.

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Q&A Session

Jessica Reif Ehrlich: Absolutely. So let’s move on to password sharing, which is something everyone on the call wants to hear about. Could you just give us a kind of like State of the Union, what progress have you made to date and when will the rollout be complete?

Greg Peters: Yeah, Jessica. So we’ve worked really hard, iteratively over many months and really even over 1.5 years to find an approach that we thought was a good product experience for most consumers that gave them the information that they needed to make clear decisions that included features that they wanted. So think about transferring our profile and your viewing history to a new account, easy ways to manage your devices and account access, being able to purchase that extra membership for a loved one. So we’ve done a good job at building those features, we think, but also in a way that balances those user considerations with making sure that Netflix was able to get reasonably paid when we delivered entertainment to someone.

So then, of course, we can invest that into making the service better for everyone. As of today, we’ve now launched that experience in almost all the countries that we operate in and we’re seeing that it’s working. We’re positive in terms of both revenue and subscribers relative to pre-launch in all of our regions. But I also think it’s important to note that the business impacts of that product experience will roll in over several quarters. So it’s not an overnight kind of thing. Because, in part, the interventions are applied gradually and in part because some borrowers won’t immediately sign up for their own account, but we’ll do so next month or three months or six months or maybe even longer down the line, as we launch a title that they’re particularly interested in.

So we’re live in the vast majority of countries, over 90% of countries by revenue and we’re going to continue to iterate and execute that model.

Jessica Reif Ehrlich: Is there a way to think about segments of borrowers who have yet to convert. I mean it feels like there’s another wave coming or maybe several ways. Maybe college students who are home for the summer and will go back in August or September. I don’t know that mobile devices have been shut off yet. Anecdotally, many people who are not on mobile devices have said they haven’t been cut off yet. Can you help us think through that?

Greg Peters: Yeah. So there’s components of it that are essentially what you described where whether it’s because there’s behaviors or because how we’ve organized the product experience, how those roll out, they’ll happen over time. And so we’ll see those interventions broaden to more of those cohorts over a period of time. So that’s one sort of component of phasing it out. The other component is that we see differential engagement across that borrower population. So there are some borrowers who are using it the service every day. And those folks are very likely to transfer to their own accounts very soon. And then some folks are less engaged. And it’s going to take us a little bit longer to convince them to move over with great stories, great TV shows and films.

So that’s — both of those effects essentially are what distributes the business impact from this product experience. So that’s why I would think about it as we’re seeing effects right now, but we’ll also see those effects over the next many quarters.

Jessica Reif Ehrlich: Can you provide any color on the results, like, what percent have converted to paying what plan? Like, how many more members versus subscribers, your subscriber numbers were great this quarter, but there are also add-ons to households. So can you help us think through and what kind of did people change plans?