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Netflix (NASDAQ: NFLX)
Q4 2023 Earnings Call
Jan 23, 2024, 4:45 p.m. ET

Highlights of the Call

Modified Remarks

Spencer Wang

Hello and welcome to the Netflix Q4 2023 earnings interview. I’m Spencer Wang, VP of finance, IR, and corporate development. Joining me today are our co-CEOs, Ted Sarandos and Greg Peters; and CFO, Spence Neumann. We do have a few changes to our interview format this quarter.

Insight from the Partnerships

As a reminder, we’ll be making forward-looking statements and actual results may vary. With that, let’s dive first into the first set of questions, which is about our new partnership with WWE that we announced this morning. For Ted, the first question comes from Dan Salmon: Can you please expand on the decision to acquire WWE Raw rights? Is the WWE audience one that is underpenetrated for Netflix today? And can you expand on the economics or the cost of the deal, please?

Ted Sarandos — Co-Chief Executive Officer

Thanks, Dan. I — if I could raise a single eyebrow one at a time, I would lean into the camera with the single eyebrow and do my best Dwayne. But I’m going to say instead that we are thrilled to bring this WWE live programming to our members around the world. WWE Raw is sports entertainment, which is right in the sweet spot of our sports business, which is the drama of sport.

I think this is 52 weeks of live programming every week — every year. It feeds our desire to expand our live event programming, and — but most importantly, fans love it. For decades, the WWE has, you know, grown this multi-generational fan base that we believe we could serve and we can grow. We believe that WWE has been, historically, under-distributed outside of North America. And this is a global deal, so we can help them and they can help us build that fandom around the world.

And, you know, not too sure I should add that this should also add some fuel to our new and growing ad business. We’re very excited about this deal.

Financial Insights

Spencer Wang

And, Ted, did you want to comment on the economics or the cost of the deal?

Ted Sarandos — Co-Chief Executive Officer

No, you know, we don’t comment on the economics of any of our deals. I would just say this is a long-term deal that we’re really happy to be in with the WWE.

Spencer Wang

Great. Our next question comes from Rich Greenfield of LightShed. Rich, first, wants me to say a great quarter.

Ted Sarandos — Co-Chief Executive Officer

Thanks, appreciate it.

Strategic Moves

Spencer Wang

And his question is: Should we think about the WWE deals fitting into your existing plans to spend roughly $17 billion a year in programming, or is this expansion into live going to drive overall spending higher? And lastly, could you talk about the opportunities to create shoulder programming around WWE similar to Drive to Survive?

Ted Sarandos — Co-Chief Executive Officer

Well, you know, expanding into live event programming is something we’ve talked about for quite a while, and this has been in the works. So, you should look at this as fits inside of our $17 billion programming spend now. So — and in terms of building on it, you should think about Formula 1 is — like this is almost the inverse of Formula 1, which is a very big and passionate U.S. fan base and a lot of room to grow outside of the U.S.

And we could build that, as we have with Formula 1, and other sports like through our shoulder programming like Drive to Survive, like Full Swing, like Break Point, like Quarterback, like Tour de France. And now, with this great storytelling, the events itself are the storytelling of the WWE. So, this is a proven formula for us that we’re excited to jump into. You know, this is sports entertainment, very close to our core.

The deal’s long term. We’re super excited about it.

Spencer Wang

Great. And the WWE partnership has spurred a lot of questions around our broader approach to sports, including a question from Ben Swinburne. But I’ll read Michael Nathanson his question…

Ted Sarandos — Co-Chief Executive Officer

Yeah.

Global Expansion

Spencer Wang

Since he got it in first. So, Ted, given the news today, is it safe to presume that you will now be interested in similar types of global sports rights like the NBA or UFC? Why is the WWE more attractive than those rights?

Ted Sarandos — Co-Chief Executive Officer

So, unique to those other opportunities, WWE is sports entertainment. So, it’s really as close to our core as you can get of that sports storytelling. So — and in terms of the deal itself, it has options and it has a — the protections that we seek in our general licensing deals and with economics that we’re super happy with globally. So, I would not look at this as a signal of any other change or any change to our sports strategy.

The Future of ARM Growth and Revenue Strategies in Focus

The Future of Streaming Ads: A Look at Netflix’s Strategic Plans

Analyzing Netflix’s Growth and Expansion Strategies

With emerging competition on the horizon threatening to challenge Netflix’s market share, the streaming giant clearly recognizes the need to expand its advertising efforts. Netflix Co-Chief Executive Officer, Greg Peters, emphasized the company’s goal of making their ads plan more appealing through various enhancements such as higher-resolution downloads and additional partner channels. The objective is not only to attract more advertisers but also to provide improved ad relevance for members and brands.

As the streaming landscape continues to evolve, Netflix’s vision extends beyond mere adaptations. The company is focused on achieving long-term revenue potential, eyeing an enormous $180 billion ad spend worldwide. Despite the daunting task ahead, Peters remains enthusiastic about the prospects for capturing a substantial share of this advertising market.

The Role of Strategic Partnerships

Netflix’s strategic partnerships play a vital role in the company’s overall growth strategy. When queried about launching an ads plan in additional countries, Peters emphasized the substantial work required in the current markets before contemplating such expansions. Nevertheless, he acknowledged the possibility, pointing out that the countries Netflix currently operates in represent about 80% of global ad spend.

Furthermore, the partnership with Microsoft in developing technology to support the ads experience indicates Netflix’s commitment to enhancing their ad tech and sales infrastructure. This collaborative effort underscores the efforts towards building a competitive ad sales and operations team to cater to the needs of advertisers.

Capturing New Revenue Streams

The announcement of T-Mobile’s subscriber benefit transition to Netflix’s ad tier raised questions about the potential impact on Netflix’s ad-supported subscriber base. Peters refrained from detailing specific outcomes but highlighted the effectiveness and opportunities presented by partner channels. Leveraging these channels enables Netflix to access a broader subscriber base, bridging the gap between consumer-facing prices and creating room for bundled offers. Peters expressed confidence in the positive impact of these arrangements on the company’s overall growth.

Content Strategy and Impact on Operating Margins

Addressing queries about the content mix, Ted Sarandos, Co-Chief Executive Officer at Netflix, stressed the company’s sustained interest in licensing content from other providers. He noted that the current margin outlook factors in a healthy balance between originals and licensed titles. While acknowledging the value of licensed content in optimizing programming spend, Sarandos emphasized the unmatched appeal and differentiation offered by Netflix’s original series.

Despite Netflix’s strategic embrace of licensed titles, Sarandos affirmed the company’s steadfast commitment to its original programming. He highlighted the cultural impact and viewership dominance of Netflix’s original series, underscoring the significance of investing in these offerings.

Competing in the Evolving Landscape

With the streaming industry undergoing rapid transformations, Netflix remains resolute in its quest to reimagine content production and advertising. The company’s strategic maneuvering, coupled with its forward-looking partnerships, exemplifies its determination to navigate the evolving landscape and remain a dominant force in the streaming and advertising realms.

The Evolution of Home Entertainment: Netflix’s Unsurpassed Creative Prowess

Netflix, the powerhouse of streaming content, continues to astound its massive global audiences with an array of original movies and series that spark conversations, generate countless memes, and captivate viewers worldwide. The popularity of Netflix’s original content is undeniable, with overwhelming evidence that fans care little about budgets and release windows, instead yearning for films that make them laugh, cry, and give them something to talk about. Netflix’s CEO, Ted Sarandos, highlighted the remarkable success of their original films, boasting 18 Oscar nominations across 10 different films, solidifying their unwavering commitment to their creative strategy.

Shifting Landscape of Licensing

While Netflix’s competitors have begrudgingly accepted licensing catalog content to the streaming giant, Ted Sarandos firmly believes that Netflix’s unique ability to resurrect and revitalize shows, such as ‘Suits,’ through their recommendation system and extensive reach, provides unparalleled value to studios. Sarandos confidently expressed Netflix’s readiness to engage in licensing agreements with studios, emphasizing the platform’s unrivaled position in the industry.

Enthralling Animation and Viewer Engagement

Netflix’s animated features, exemplified by the resounding success of ‘Leo’ and ‘Sea Beast,’ have seamlessly embedded themselves into the hearts of families worldwide, driving unparalleled engagement and repeat viewings. Ted Sarandos emphasized the resounding success of ‘Leo,’ underscoring the company’s capability to craft original and beloved animated content. He teased the upcoming release of ‘Spellbound,’ further demonstrating Netflix’s commitment to captivating original animation.

The Dominance of Gaming

Expanding into the gaming industry, Netflix’s Co-Chief Executive Officer, Greg Peters, expressed elation over the monumental success of the ‘Grand Theft Auto’ trilogy, indicating soaring download and engagement numbers. Netflix has tripled its game engagement over the past year, amplifying its position in the gaming space. As Netflix aims to capitalize on the massive gaming market, Peters stressed the importance of balancing investment in this sphere, ensuring efficient translation of engagement into business benefits before scaling up their initiatives.

As the company continues to evolve, Netflix stands as a beacon of creativity and innovation, delighting audiences and redefining the entertainment landscape with its bold endeavors. Netflix’s unwavering commitment to captivating storytelling is a testament to its ability to traverse genres and mediums, captivating audiences and affirming its reign as the preeminent force in modern home entertainment.

Berger, Tom. “Netflix.” Photograph. The Guardian, June 11, 2018, https://www.theguardian.com/media/2018/jun/11/netflix-strategy-games-and-comics.

Netflix Strategic Insights and Competitive Dynamics

Netflix’s Gaming Strategy and Licensing Approach

In a recent investor call, Netflix’s top executives discussed the company’s gaming strategy and future prospects. Co-Chief Executive Officer, Greg Peters, highlighted the success of licensing recognizable game titles and IP from its own films and series. He emphasized that such recognized games are working best for the streaming giant at the moment and that it will continue seeking opportunities to bring similar titles to its members. Notably, Peters mentioned the impressive performance of games such as Football Manager 2024 and Money Heist, also known as La Casa De Papel, on the Netflix platform. The Co-CEO expressed the company’s commitment to pursuing further exclusive licensing deals, similar to its success with the Grand Theft Auto trilogy, and other hit titles such as Virgin River.

Netflix’s Chief Financial Officer, Spence Neumann, corroborated this by indicating the company’s intent to increase spending on content, particularly focusing on gaming. This emphasis suggests a shift in the company’s strategic approach to invest more in this sector to enhance the overall content budget.

Addressing Pricing Changes and Global Markets

Furthermore, the senior management discussed their approach to price changes. After pausing price increases during the implementation of measures against password-sharing, Netflix is now looking to revert to its standard approach towards price adjustments. The recent success of price modifications in the U.S., U.K., and France has encouraged the company to consider similar adjustments in other markets. Greg Peters highlighted that their decision will be informed by signals like engagement, retention, and acquisition to ensure members continue to receive value and Netflix can invest in more premier content for its subscribers.

Competition and Competitive Positioning

As Netflix faces increasing competition, questions were raised about how the streaming service is positioning itself relative to its competitors, particularly in the context of introducing ads. Greg Peters acknowledged that Netflix considered making the ad tier the default option but ultimately decided against it due to its long-standing position against ads. He noted that they aimed to attract members to the ad plan based on its benefits, rather than enforce the change, and highlighted the positive growth numbers and minimal backlash as a result of this approach.

Ted Sarandos, Co-Chief Executive Officer, added that the top programming market remains fiercely competitive. Netflix continues to reinvest at a healthy rate to drive engagement, retention, and subscriber growth, affirming their strategy to sustain healthy revenue growth and profit margins over time. This suggests the company’s commitment to maintaining a competitive edge through continuous improvement and responsible content spending.

In conclusion, Netflix’s strategic insights, competitive dynamics, and the pivot towards gaming indicate its readiness to navigate a rapidly evolving market and maintain its position as a leader in the streaming industry. As the company adapts to emerging trends and intensifying competition, it aims to sustain its stride by seeking new avenues for growth and innovation while strategically managing content investments.

The Future of Netflix: A Deep Dive into Corporate Strategy and Growth

Thrilling Content Strategy

Recent comments by top executives at Netflix have shed light on the company’s approach to maintaining its leadership in the content streaming space. In a recent Q&A session, Ted Sarandos, Co-Chief Executive Officer, emphasized the importance of “thrilling content” to the company’s success. While no specific details were provided, this statement underscores Netflix’s commitment to delivering engaging and high-quality entertainment to its subscribers.

Uncharted Growth Potential

Spencer Wang, in a response to a question regarding potential expansion into new areas of media consumption, pointed out the significant growth opportunities within Netflix’s existing core business of movies, television, and games. He highlighted that the company currently captures only about 5% of consumer spending in these areas, indicating substantial room for expansion. This perspective reflects Netflix’s focus on maximizing its market share within its core offerings before considering diversification into new formats or verticals.

Capital Allocation Strategy

Spence Neumann, Netflix’s Chief Financial Officer, addressed queries related to the company’s approach to mergers and acquisitions (M&A) and its views on capital allocation. Neumann emphasized Netflix’s historical bias towards building rather than acquiring, signaling a preference for organic growth over large-scale acquisitions. Furthermore, he outlined the company’s balanced approach to capital allocation, stating the intent to maintain a modest level of debt while judiciously returning excess cash to shareholders through buyback programs.

Optimizing Financial Flexibility

Neumann also discussed the company’s cash reserves and debt management, highlighting Netflix’s intent to hold approximately two months’ worth of revenue as cash on the balance sheet while returning excess cash to shareholders. This stance aligns with the company’s cautious approach to leverage, seeking to maintain financial flexibility and a strong balance sheet, as evidenced by recent credit rating upgrades from agencies like Moody’s. Such financial prudence positions Netflix to navigate the dynamic landscape of the entertainment industry with adaptability and resilience.

2024 Priorities and Growth Focus

Greg Peters, Co-Chief Executive Officer, revealed the key priorities for Netflix in 2024, emphasizing the untapped potential in attracting new households and capturing additional viewing hours. He underscored the company’s determination to enhance its entertainment offerings by delivering compelling content, including films, series, games, and live events. Peters also highlighted a focus on revenue growth and margin improvement through initiatives such as expanding the ads business and optimizing pricing strategies.

Ted Sarandos, in alignment with Peters’ viewpoints, emphasized the central role of captivating and talked-about programming, reiterating the company’s commitment to delivering high-quality content. With a mention of upcoming shows and projects, Sarandos provided a glimpse into Netflix’s content pipeline, hinting at the continuous stream of engaging offerings designed to captivate audiences.

Netflix’s strategic focus on deepening its content library, widening its subscriber base, and innovating in revenue generation reflects a concerted effort to solidify its position as a premier entertainment platform while driving sustainable financial performance.

Netflix Shines Bright in 2023 Quarter Earnings Call

Renewed Optimism for Netflix

In a recent earnings call, Netflix executives demonstrated their enthusiasm for the future, highlighting a slew of upcoming shows and movies that promise to captivate audiences. Despite challenges, the streaming giant remains optimistic about its potential for growth and innovation.

Exciting Lineup and Enthusiastic Plans

The call revealed an arsenal of exciting new content, including the return of popular series like Bridgerton, Emily in Paris, Diplomat, and Squid Game, as well as highly anticipated movies such as Rebel Moon, Damsel, Atlas, and Beverly Hills Cop 4: Axel Foley. Netflix’s Chief Executive Officer, Ted Sarandos, emphasized the company’s unwavering commitment to delivering continual joy and satisfaction to its members. This zeal for entertainment excellence signals a promising trajectory for Netflix’s creative endeavors.

Celebrating Achievements and Gratitude

The executives expressed their gratitude to the dedicated teams at Netflix, acknowledging the collective effort behind the company’s progress thus far. Chief Financial Officer Spence Neumann also expressed his appreciation, marking the firm’s positive momentum and looking ahead to future successes.

Proactive Audience Engagement

Spencer Wang, in wrapping up, expressed the company’s eagerness to receive feedback on their maiden livestreamed video format and promised ongoing improvements, articulating Netflix’s commitment to enhancing customer experience and transparency.

Outlook for Netflix Shares

The future of Netflix remains a compelling narrative of creativity, audience engagement, and fervor for entertainment. With a diverse array of content set to delight subscribers, Netflix is poised to maintain its position as a leading force in the streaming industry.