🍿 Netflix: Ad Tech Focus

🌈 Abstract

The article provides an overview of Netflix's Q2 FY24 earnings report, covering key metrics, financial performance, and strategic initiatives such as the introduction of an ad-supported tier, expansion into live sports, and the growth of its gaming business. It also discusses Netflix's viewership trends, content strategy, and competitive positioning in the streaming market.

🙋 Q&A

[01] Netflix Q2 FY24 Overview

1. What were the key highlights from Netflix's Q2 FY24 earnings report?

• Netflix added 8 million paid memberships in Q2, beating expectations by around 5 million
• Revenue grew 17% year-over-year to $9.6 billion, with 22% growth in constant currency
• Operating margin was 27%, up 5 percentage points year-over-year
• Earnings per share (EPS) was $4.88, beating expectations by $0.14

2. How did Netflix's membership and average revenue per membership (ARM) perform?

• Paid memberships reached 278 million, up 17% year-over-year
• ARM grew 1% year-over-year, or 5% in constant currency, partially impacted by the ad inventory not being filled yet

3. What were the key financial metrics for Netflix in Q2 FY24?

• Operating cash flow was $1.3 billion (14% margin, down 4 percentage points year-over-year)
• Free cash flow was $1.2 billion (13% margin, down 4 percentage points year-over-year)
• Netflix had $6.7 billion in cash and short-term investments and $14.0 billion in debt

[02] Ads, Live Sports, and Content

1. How is Netflix's ad-supported tier performing?

• The ad-supported tier accounted for 45% of sign-ups in available markets, up 5 percentage points quarter-over-quarter
• However, ad monetization is still lagging as the rapid growth of the ad-tier membership outpaces Netflix's current ability to sell ad inventory

2. What are Netflix's plans for live sports?

• Netflix has secured the rights to broadcast NFL games on Christmas Day in 2024, 2025, and 2026, as well as WWE's Monday Night Raw starting in 2025
• This shift in strategy has the potential to attract a wider audience, boost advertising revenue, and drive subscriber growth

3. What were the key content highlights from Netflix's "What We Watched" report?

• Top film: "Leave the World Behind" with 121 million views
• Top series: "One Piece" with 72 million views
• Continued strong performance of returning favorites like "Wednesday," "Red Notice," and "Squid Game"
• Non-English content represented nearly a third of all viewing, with Korean, Spanish, and Japanese leading the way

[03] Key Quotes and Outlook

1. What did Netflix's management say about the company's ad tech and gaming initiatives?

• On ad tech: Netflix is building an in-house ad platform to launch globally in 2025, which will allow it to have more control over ad operations and potentially increase ad revenue
• On gaming: Netflix has launched over 100 games so far and is refining its program to focus on what is working

2. How did Netflix's management discuss the role of AI in content creation?

• Co-CEO Ted Sarandos stated that while filmmakers and producers are excited about the potential of AI, Netflix's goal remains unchanged - to tell great stories

3. What is Netflix's outlook for the future?

• Netflix expects 14% to 15% revenue growth for FY24, partially affected by FX headwinds
• The company raised its operating margin guidance to 26% for FY24, indicating continued margin expansion
• Netflix expects $6.0 billion in free cash flow for FY24 and a cash content spend of $17 billion