Netflix (NFLX) Q2 2025 Earnings Call Transcript

The re indicates that What's fascinating this is Image source: The Motley Fool

However, ETCALL PARTICIPANTSCo-CEO — Ted SarandosCo-CEO — Greg PetersChief Financial Officer — Spencer NeumannVice President, Finance, Investor Relations, and Corporate Development — Spencer Wang Need a quote from one of our analysts

Operating Margin: Full-year reported operating margin target increased to 30%, up from 29% previously; FX-neutral margin is now guided to 29

Furthermore, Advertising Revenue: On track to roughly double for the year; Ad sales momentum is "a bit ahead of beginning-of-year expectations," with a global ad stack now fully rolled out, in light of current trends

Ad Deployment: Greg Peters said, "We have the rollout of our own ad stack and the Netflix, Inc

Moreover, Ad suite to all of our ad now, considering recent developments

Moreover, " enabling faster feature releases and imved ad targeting and measurement

Consumer Metrics: Retention remains "stable and industry-leading," with no significant changes in plan mix, take rate, or engagement; recent price changes performed in line with expectations (noteworthy indeed) (this bears monitoring)

Engagement: Total view hours grew modestly in the first half of 2025, as reported by Greg Peters; per-owner-household engagement has been "relatively steady over the past two and a half years" despite competitive pressure

On the other hand, Duct Innovations: New user interface has been deployed to the first large wave of TV devices and is showing "performance that is better than what we saw in our prelaunch testing," imving content discovery and session metrics (this bears monitoring), in today's financial world

Conversely, TF1 Partnership: Announced a partnership with France's TF1 to expand local content offerings, leveraging existing investments in, advertising, and the new user interface to enhance local market relevance

AI Adoption: Successful integration of generative AI in duction enabled completion of VFX sequences "10 times faster" and at lower cost, as seen in an Argentine original series; this marked the first GenAI final footage to appear on screen in a Netflix original series or film

On the other hand, Holder Returns and Capital Deployment: Continued preference for organic growth and returning excess capital via repurchase, with management reaffirming a selective, disciplined apach to potential M&A opportunities (quite telling)

However, SUMMARYNetflix, Inc. 15%) management emphasized an upgraded full-year 2025 revenue outlook of $44. 2 billion and imved reported operating margin guidance from 29% to 30%, driven by favorable FX trends and accelerating member and ads growth

Nevertheless, Market analysis shows company the global rollout of its prietary ad stack, enabling rapid feature innovation and positioning ad revenue to roughly double this year

In contrast, Stable retention and engagement trends, combined with significant investment in original content and nology, were highlighted as key to future growth

Management announced the TF1 partnership to further enhance local content breadth in France and maintained a disciplined investment apach across new such as games and generative AI initiatives

Meanwhile, Ted Sarandos described new content releases and renewals, including international roles for successful franchises, as central to driving engagement, stating, "it is not the single hit

So what it is is a steady drumbeat of shows and films and soon enough games that our members really love"Greg Peters disclosed, "We have seen an increased grammatic buying. " from advertisers ing the full ad suite rollout, with upcoming integration of additional demand sources Yahoo to further expand the, in today's financial world

On the other hand, Management vided the first confirmation that generative AI-powered final footage debuted in a Netflix original this year, demonstrating operational efficiencies in duction scalability and speed (fascinating analysis)

Ted Sarandos confirmed events and sports remain a "relatively small part of the total content spend" but acknowledged their outsized positive impact on acquisition metrics and a ly impact on retention

However, However, Spencer Neumann reiterated, "we have historically been more builders than buyers," reaffirming organic growth and cash return as the principal capital allocation priorities despite anticipated media sector consolidation

INDUSTRY GLOSSARYAd Stack: The platform and infrastructure enabling grammatic dery, targeting, and measurement of advertising inventory across Netflix's services

TF1: A leading French television broadcaster with whom Netflix announced a localized content partnership

Nevertheless, Generative AI (GenAI): Artificial intelligence nologies used to automate or enhance creative tasks such as visual effects, content personalization, or recommendation systems, in today's market environment

Grammatic Buying: Automated, data-driven purchasing of digital advertising inventory

At the same time, Owner Household: A measurement unit excluding d/borrowed accounts, used by Netflix to assess engagement per paying household

In contrast, Amortization (Content Amort): The systematic expense recognition of content duction costs over time as titles are distributed and consumed (fascinating analysis)

ILine: Netflix's internal duction innovation group, focused on visual effects and nical advances in entertainment content creation

Full Conference Call TranscriptSpencer Wang: Good afternoon, and welcome to the Netflix, Inc

I am Spencer Wang, VP of Finance, IR, and Corporate Development

Joining me today are Co-CEOs, Ted Sarandos and Greg Peters, and CFO, Spencer Neumann

As a reminder, we will be making forward-looking statements, and actual results may vary

We will 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

What the re reveals is question is, since the revenue increase in your forecast is primarily FX driven, we are curious the components of the constant currency increase (something worth watching)

Is this due to a better underlying revenue growth, or are there specific expenses that are coming in better, content amortization, considering recent developments

Furthermore, At the same time, I will take that one

On the other hand, As you noted, primarily reflects the FX impact from the weakening dollar relative to most other currencies, in today's financial world

But the good news is we are also seeing strength in our underlying

We have got healthy member growth, and that even picked up nicely at the '2 a bit more than we expected, considering recent developments

We think that will carry through with our strong back half slate (noteworthy indeed)

So we are reflecting that in our forecast, given current economic conditions

However, On the other hand, We're also seeing nice momentum in ad sales, still off a pretty small base, but good growth and it is on pace to roughly double our revenue in the year

And it is a bit ahead of beginning of year expectations

Additionally, So when we carry all that through to operating margin, our operating expenses are essentially unchanged, which is part of your question, in this volatile climate

So they are basically unchanged forecast to forecast

So we are largely flowing through the expected higher revenues to fit margins

So that is why our d target full-year reported margin is up a 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 ads relative to prior forecast flowing through the margin

Nevertheless, Spencer Wang: Thank you, Spence

Furthermore, Furthermore, We will take our next question from Barton Crockett of Rosenblatt Securities (fascinating analysis)

Moreover, Spencer Neumann: Well, this is really mostly timing, given the current landscape

However, So thanks, Barton

We primarily, as a reminder, manage to full-year margins

Furthermore, And we expect our content expenses will ramp in Q3 and Q4

We have got many of our biggest new and returning titles and events in the back half of the year, in today's market environment

On the other hand, We have also, you know, Q4 is typically a and generally almost always is a heavier film slate

Nevertheless, We will talk our expect we will talk more of this on the call, in light of current trends

Also be marketing to support that heavier slate, and we are continuing to aggressively build out our ad sales infrastructure and capabilities through the year (this bears monitoring) (noteworthy indeed)

So all of that is to be expected

Nevertheless, 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 do expect to der strong full-year margins as we just took up our guide to, you know, 29 (noteworthy indeed), in light of current trends. 5% FX neutral, 30% reported, given the current landscape

The next question comes from Tom Champion of Piper Sandler (this bears monitoring)

How has your view of the consumer and the macro economy changed over the last ninety days

Spencer Neumann: Similar to last quarter, we are carefully watching consumer sentiment in the broader Greg Peters: economy (quite telling)

But at this point, really nothing significant to note in the metrics and the indicators that we get directly through the

Those are retention that remains stable and industry-leading

Furthermore, There have been no significant shifts in plan mix or plan take rate

And the price changes we have done since the last quarter have been in line with expectations

However, On the other hand, Engagement also remains healthy

Moreover, So things all look stable from those indicators and big picture entertainment in general and Netflix, Inc (noteworthy indeed)

Specific have been historically pretty resilient in tougher economic times, amid market uncertainty

Spencer Wang: Thanks, Greg

I think a nice -up to this question will be on advertising

So from Ben Swinburne of Morgan Stanley, can you any data points around your upfront negotiations (this bears monitoring)

As we noted in the letter, our US upfront is nearly complete (noteworthy indeed)

On the other hand, We have closed a 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 this year (an important development)

And what are advertisers excited

Growing scale is something we definitely hear, in light of current trends

Also, a highly engaged audience

So bigger audience, but also an audience that is more engaged relative to our peers, in today's financial world

This demonstrates that rollout of our own ad stack, which helps der a bunch of features, and then our slate, which is generally amazing and includes a growing number of events that advertisers are excited, in this volatile climate

Additionally, Spencer Wang: Great. -up question on advertising from Vikram of Baird

How have advertisers in The US responded to the Netflix, Inc, in today's market environment

Nevertheless, Ads suite rollout since the April launch

Additionally, What features and capabilities are attracting the most interest, and how is the initial back in other regions outside of The US

Greg Peters: We have the rollout of our own ad stack and the Netflix, Inc, in light of current trends

However, Ad suite to all of our ad now

So we are fully on our own stack around the world at this point

That rollout was generally smooth across all countries, in this volatile climate

We see good performance metrics across all countries, and the early results are in line with our expectations

Now we are in this phase of learning and imving quickly based on the fact that being everywhere means that you get a bunch of back 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, Inc

We hear that benefit, that ease, from direct back talking to advertisers (remarkable data)

Nevertheless, They tell us that it is easier

See it in our overall sales performance, in today's market environment

Moreover, Meanwhile, We have seen an increased grammatic buying, considering recent developments

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 are going to roll out additional demand sources Yahoo that will further open up the market for us

Long term, being on our own stack, that imves the speed of our execution to der this, you know, pretty significant roadmap of features that we have in front of us, in today's financial world

It's things imved targeting and measurement

There's also leveraging advertiser and third-party data which we definitely hear demand for as well, in today's market environment

And it will ultimately allow us to imve the ad experience for our members

At the same time, Which is critically important

So that means better ads personalization

However, So the ads that I see are increasingly different from the ads that, let us say, Ted would see

Conversely, And they are more relevant for each of us, which is good for us as users, and it is good for the brands

Also going to be introducing interactivity in the second half of the year, so that is exciting

Furthermore, So that is all to say this is, you know, a pretty significant milestone for us, one we are super excited to get behind us because now we can shift into this steady release cycle where we are dropping new features all the time, both for advertisers and for members (fascinating analysis)

And that is the development and release that we have in other parts of the

So it is fun to be able to get to that point

Spencer Wang: Thanks, Greg, considering recent developments

Furthermore, I will move this along now to a set of questions around content as engagement (noteworthy indeed), in today's financial world

Furthermore, Meanwhile, How do we reconcile that with engagement growing on a per member household basis if that is still accurate

But to your point on engagement on a per member basis, we have mostly been focused for the last few years on measuring engagement on what we call an owner household basis (remarkable data)

Additionally, 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 c.