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    Netflix Inc (NFLX)

    Business Description

    Netflix, Inc. is a global entertainment company that provides streaming services to customers in over 190 countries. The company offers a wide variety of TV series, films, and games across multiple genres and languages, allowing members to watch content anytime, anywhere. Netflix focuses on delivering compelling content through both licensed agreements and original productions to attract and retain its growing membership base.

    1. Streaming Services - Offers a subscription-based platform for on-demand streaming of TV series, films, and games. Members can access content across various devices and enjoy features like pausing and resuming playback at their convenience.

    2. DVD-by-Mail (Discontinued) - Previously provided physical DVDs to customers through a mail-based rental service. This segment was discontinued in September 2023 after years of declining contribution to the business.

    Q3 2024 Summary

    Initial Price$674.89July 1, 2024
    Final Price$706.13October 1, 2024
    Price Change$31.24
    % Change+4.63%

    What went wrong

    • Heavy Investment in New Initiatives with Delayed Revenue Impact: Netflix is investing significantly in new ventures such as games, live events, and advertising, but these initiatives take time to become material contributors to revenue. For example, ads revenue is "roughly doubling revenue each year, but it's off a small base" and will only become significant "over the next several years" , .
    • Slowing Engagement Growth: Total hours watched on Netflix were up only roughly 1% in the first half of the year compared to the same period last year, indicating a potential slowdown in user engagement growth .
    • Competitive Pressures and Market Saturation: In Netflix's biggest countries, their share of viewership is still less than 10% of TV time, and the company faces competition from traditional TV bundles and platforms like YouTube , . Additionally, competitors are using bundles to find growth, which could challenge Netflix's market position .

    Key Metrics

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    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Domestic Streaming--------
    International Streaming--------
    Domestic DVD--------
    Streaming Revenues8,1308,1588,519.38,832.733,6409,370.449,559.319,824.7
    DVD Revenues31.52922.40.18300-
    Total Revenue8,161.58,1878,541.78,832.833,7239,370.449,559.319,824.7
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States and Canada3,608.6453,599.4483,735.133,930.7814,8744,224.324,295.564,322.5
    Europe, Middle East, and Africa2,517.6412,562.1702,693.152,783.0410,5562,958.193,007.773,133.5
    Latin America1,070.1921,077.4351,142.811,155.564,4461,165.011,204.151,240.9
    Asia-Pacific933.523919.273948.22962.983,7641,022.921,051.831,127.9
    DVD Revenues (U.S. only)--------
    Domestic Streaming--------
    International Streaming--------
    - United States and Canada--------
    - Europe, Middle East, and Africa--------
    - Latin America--------
    - Asia-Pacific--------
    Domestic DVD--------
    Total Revenue8,161.5038,187.3018,541.678,832.5333,7239,370.449,559.319,824.7
    KPIs - Metric (Unit)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Paid Net Membership Additions (Millions)1.755.98.7613.12-9.338.055.07
    Paid Memberships (Millions)232.50238.39247.153260.28-269.60277.65282.72
    Average Monthly Revenue per Membership (USD)11.7011.5511.7011.64-11.7911.6511.69

    Executive Team

    NamePositionStart DateShort Bio
    Reed HastingsExecutive Chairman of the Board1997Reed Hastings is the co-founder of Netflix and served as co-CEO and President from 1999 until January 2023. He transitioned to Executive Chairman in January 2023 and has been a director and chairperson since 1997 .
    David HymanChief Legal Officer and Secretary2002David Hyman is responsible for all legal and public policy matters at Netflix. Before joining Netflix, he practiced law at Morrison & Foerster and Arent Fox. He holds a JD and Bachelor's degrees from the University of Virginia .
    Spencer NeumannChief Financial OfficerJanuary 2019Spencer Neumann has been the CFO of Netflix since January 2019. He has extensive experience in finance and strategy, having worked at The Walt Disney Company and private equity firms. He holds a B.A. and an M.B.A. from Harvard University .
    Greg Petersco-Chief Executive Officer and PresidentJanuary 2023Greg Peters has been with Netflix since 2008 and became co-CEO and President in January 2023. He has held roles such as COO and Chief Product Officer and was appointed to the Board of Directors in January 2023 .
    Ted Sarandosco-Chief Executive Officer and PresidentJuly 2020Ted Sarandos joined Netflix in 2000 as Chief Content Officer and became co-CEO in July 2020. He played a key role in Netflix's original content production, starting with series like "House of Cards" .

    Questions to Ask Management

    1. Given that your share of viewership in your biggest countries is still less than 10% of TV time, what specific strategies are you implementing to significantly increase this share, and how do you plan to manage the risk of overextending with initiatives like ads, games, and live events?
    2. You mentioned no changes to your capital allocation policy despite recent tactical moves like upsizing your revolver to $3 billion and raising $1.8 billion of investment-grade debt. Can you elaborate on how these actions align with your priorities of profitable growth and balance sheet flexibility, and under what circumstances might you consider altering your capital allocation, such as initiating a dividend or increasing share repurchases?
    3. The first half of this year saw a lumpier content lineup due to the work stoppage impacting both series and films, particularly in UCAN. How confident are you that your content slate will fully recover by 2025, and what measures are you taking to mitigate any potential lingering effects on content delivery and subscriber engagement?
    4. With the expansion of your advertising-supported tier, you've noted significant progress in membership growth but acknowledge substantial work ahead to improve monetization and advertiser capabilities. What are the major challenges you face in scaling your ad business, and how do you plan to address them to ensure it becomes a significant revenue contributor in the coming years?
    5. As competitors leverage bundled offerings to drive growth, how do you assess the risk of consumers gravitating towards these bundles over standalone services like yours, and what strategies are you employing to maintain competitiveness and prevent potential subscriber churn in light of this industry trend?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateMarch 2021 September 2023
    End Date/DurationNo expiration date No expiration date
    Total additional amount$5 billion $10 billion
    Remaining authorization$0 (allocated)$3.1 billion
    DetailsGeneral repurchase programGeneral repurchase program

    Note: The total remaining authorization amount for all programs combined is $3.1 billion as of September 30, 2024. This amount is allocated to the newest program first, as per the instructions.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Revenue Growth: Expected to deliver 15% revenue growth in 2025 .
      2. Operating Margin Improvement: Anticipates a 6 percentage point improvement in operating margin .
      3. Revenue: Expects $43 billion to $44 billion in revenue for 2025, representing about 11% to 13% growth from 2024 .
      4. Membership Growth: Majority of growth expected from membership growth .
      5. Average Revenue per Membership (ARM): Growth expected from plan evolution, pricing, and ads revenue .
      6. Ads Revenue: Expected to roughly double year-over-year in 2025 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Operating Income Margin: Targeting a 26% full-year operating income margin .
      2. Total Expenses: Expects total expenses north of $28 billion for the year .
      3. Revenue Growth: Reported 17% revenue growth for the quarter .
      4. Margin Improvement: Anticipates 5 percentage points of margin improvement for the year .
      5. Ads Business: Scaling ads business with significant impact expected over a multiyear trajectory .
      6. Ads Member Base: On track to achieve critical-scale goals for all ads countries by 2025 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024 and FY 2025
    • Guidance:
      1. Revenue Growth: Guiding for healthy double-digit revenue growth for 2024 .
      2. Operating Income Margin: Targeting an operating income margin of 25% for 2024 .
      3. Free Cash Flow: Plans to continue growing free cash flow .
      4. Annual Revenue Guidance: Adding new annual guidance on revenue range .
      5. Subscriber Reporting: Shifting focus to other metrics like revenue, operating income, etc. .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue Growth: Expects healthy double-digit FX-neutral revenue growth for 2024 .
      2. Member Growth: Continued member growth anticipated .
      3. Ads Business: Some contribution expected from scaling ads business .
      4. Pricing Strategy: No change to pricing philosophy .
      5. Operating Margin: Focused on improving revenue and operating margin .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Traditional providers of entertainment video, including broadcasters and cable network operators .
    • Internet-based e-commerce or entertainment video providers .
    • Streaming entertainment providers, including those that provide pirated content .
    • Video gaming providers .
    • User-generated content platforms .