Release Date: October 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
-
Netflix Inc (NASDAQ:NFLX) reported a strong financial performance with a 15% revenue growth and a 6-percentage-point improvement in operating margin for 2024.
-
The company has maintained healthy engagement levels, with about two hours of viewing per member per day, indicating strong member retention.
-
Netflix Inc (NASDAQ:NFLX) is expanding its content slate with new seasons of popular shows like ‘Wednesday,’ ‘Squid Games,’ and ‘Stranger Things,’ as well as new projects from renowned creators.
-
The company is investing in new initiatives such as games and live events, which are expected to be incremental growth drivers in the coming years.
-
Netflix Inc (NASDAQ:NFLX) is seeing significant growth in its advertising business, with ads revenue expected to roughly double year-over-year in 2025.
Negative Points
-
The company experienced a slight net loss in membership in the Latin America region during Q3, primarily due to recent price changes.
-
The Hollywood strikes impacted Netflix Inc (NASDAQ:NFLX)’s 2024 content slate, causing delays in the release of some high-profile shows and films.
-
Despite the growth in the advertising business, it is not yet a primary driver of revenue and is still scaling its audience and inventory.
-
Netflix Inc (NASDAQ:NFLX) faces competition from platforms like YouTube, which also competes for viewers’ time on TV screens.
-
The company’s engagement in the US market has been stable but flat, with limited growth in total viewing hours.
Q & A Highlights
Q: Can you please frame your key investment priorities for 2025 and beyond? And how have they evolved in the past 12 to 18 months? A: Gregory Peters, Co-CEO, highlighted that Netflix plans to build on its success by focusing on original programming and expanding its global reach. The company aims to deliver 15% revenue growth and a 6-percentage-point improvement in operating margin. Netflix is excited about its 2025 slate, which includes new seasons of popular shows and new projects from renowned creators.
Q: At a high level, when we think about the Netflix revenue growth algorithm, can you please provide some color on the pieces moving forward between organic membership growth, ARM increases, and advertising? A: Spencer Neumann, CFO, explained that Netflix expects to deliver $43 billion to $44 billion in revenue in 2025, driven by membership growth and ARM increases. The majority of growth will be membership-driven, with ARM growth coming from plan evolution, pricing, and growing ads revenue.
Q: How are you thinking about the puts and takes around operating margins going forward? A: Spencer Neumann stated that Netflix sees room to increase margins over the long term. The company aims to gradually increase margins by investing in service improvements while managing costs. The 2025 guide reflects this approach, with a focus on investing in core offerings and new areas like live events and games.
Q: Could you please discuss the dynamics that drove the slight LatAm member net loss in Q3 and provide further color on drivers of the pickup in LatAm early in Q4? A: Spencer Neumann noted that the slight decrease in LatAm membership was due to recent price changes, but the region is seeing a rebound in Q4. Ted Sarandos added that Netflix is excited about its upcoming slate in Latin America, which includes high-profile projects from Brazil, Colombia, and Mexico.
Q: Can you please discuss the levers that will move advertising to a more primary contributor to growth after 2025? A: Gregory Peters explained that Netflix’s ads plan membership is growing, with over 50% of sign-ups in ads countries. The company is focused on improving its advertising capabilities and expects ads revenue to double year-over-year in 2025, although it will still be a small contributor compared to other revenue streams.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
