Netflix, Inc. (NFLX) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Netflix Q2 2026 Earnings Interview. I'm Spencer Wang, VP of Finance and Capital Markets. Joining me today are Co-CEOs, Ted Sarandos; and Greg Peters; and CFO, Spence Neumann. As a reminder, we will be making forward-looking statements, and actual results may vary.

We'll now take questions submitted by the analyst community. We'll begin with a question on our guidance and our business outlook. And this question comes from Steve Cahall of Wells Fargo. "What is the main driver of FX-neutral revenue growth slowing from 12% year-over-year in 2Q to 11% year-over-year as the guidance for the third quarter suggests?" Spence, do you want to take that?

Yes, sure. Sure. Thanks, Steve. So look, we don't manage the business on a quarter-to-quarter basis. Our goal is to sustain healthy revenue and profit growth. We talked about that in our letter every quarter. We're guiding, as you said, the 12% revenue growth in Q3 reported 11% FX neutral. The Q3 revenue drivers are very similar to Q2. It's primarily growth in our subscription revenue from increases in memberships and pricing and higher ads revenue. We continue to see healthy acquisition and retention trends on the membership side and our recent price adjustments are going well on the pricing side. Now recall, there is a little bit of quarter-to-quarter choppiness in growth because last year was more back half weighted. So that may be a little bit of what you see in the deceleration. But honestly, it's not what we manage to, we manage to the full year. And halfway through the year, we're making strong progress against our goals, and we're tracking to our financial plan for 2026. We expect to deliver another strong year with -- as we saw -- as you see in the guide, 13% to 14% top line growth for the full year. That's roughly 12% FX neutral. We're about $6 billion of incremental revenue year-over-year. And by the way, when we finish 2026, it's worth saying also that in many ways, we're still just getting started as a company. We're entertaining an audience, approaching 1 billion people with still lots of room to grow into our addressable market on every measure. We're under 45% penetrated into addressable households around the world. It's roughly 800 million addressable households. We're capturing, we think, just 7% of addressable revenue market, it's about $670 billion of addressable revenue in the countries and categories in which we operate today. And we estimate that we're only about 5% of TV view share globally. So we're delivering on our 2026 plan, and we believe we've got lots and lots of runway for solid growth ahead of us.

Thanks, Spence, for that thorough answer. I'll now move us along to a topic on the topic of engagement where we do have several questions. This first one is from Rob Sanderson of Loop Capital Markets. His question is, "management has stated that engagement quality is improving even as reported viewing hours per member have softened. Can you help investors understand what internal metrics provide confidence and how these translate into low return, pricing power, higher adds monetization, et cetera. At what point would slow growth in total viewing hours become a concern?"

I'll take this one and pack it a bit since I know that there is plenty of interest in this topic. Start by saying there is not a linear relationship between view hours and revenue and profit because all hours are not created equal. All hours don't provide the same kind of value to the business. And a really great example of this is live programming. So live events do a lot of lifting for us for acquisition. They're good for monetization, they drive ad revenue, fandom. They're also a promotional platform, but they do not yield typically as many raw view hours. So live, we expect it will be 5% of our content budget this year, but we think that will only be 1% of view hours. Having said that, 6 out of top 10 new member sign-up days over the past 5 years have come from live events. And if you compare that to another content category, take animation series, kids family TV, it's also about 5% of our content spend, so same amount of spend, but it's going to drive, we expect 8% of hours. So same spend and 8x the raw view hours. So you can see the differences there even though because as indicated by the amount that we're investing in both those categories being the same, we think they're doing the same value for the business. So we're constantly looking to improve across every dimension of engagement. We look at these as 3 dimensions: quality, variety, quantity because they taken collectively drive acquisition, they drive retention. They drive the value that our consumers and our advertising partners describe to our service. We described in the last few earnings calls, the progress we've made on quality of the years. We're not going to go into the details of that quality metrics because frankly, it's taken years for us to develop it and vet it and assess it and improve it. And we think that those details are a competitive advantage. We'll also continue to expand the variety of our entertainment offering. You see us launch new types of content like live like video podcasts, cloud TV games, those are all doing things -- different things in our portfolio to support different needs from our members. And then on quantity, view hours grew 2% in the first half of 2026. That's an incremental 1.5 billion hours relative to the same period last year. It's a slight acceleration compared to 1.5% growth in 2025. And just to be very clear, like all those other dimensions, we remain focused on continuing to grow that number and better understanding how we are doing at delivering member value member love is critical to our business. We get it. We geek out on improving that understanding, operationalizing that understanding. And with regard to engagement, when I started about 20 years ago, we had one number to describe engagement, hours. Just flat hours, no waiting, no adjustments and very similar to how we've evolved other metrics in the business. Since then, we've gone through about a dozen major iterations of our understanding that. We get more and more sophisticated because we know, ultimately, it's combined quality, variety and quantity of engagement that translates into satisfaction and value for members. And that drives the strong business outcomes we see right now, industry-leading retention. We see increased willingness to pay strong advertiser demand. And those ultimately drive the top-level metrics of our business, revenue and operating profit, which are really the ultimate signs of our health.

[indiscernible] The visual of you geeking out, Greg. It's hard to see -- it's hard to see Spencer going out, but I can see us geeking out.

Those are -- those are 20 years of debate and walkiness.

Well, let me geek on the next question, which comes from Steve Cahall of Wells Fargo. His question is, "amortization expense for content growth is accelerating in 2026. How is the slate performing? And what metrics are we watching to see how this growth in content drives increased member value? How do we think about the expense acceleration converting into revenue acceleration?"

Let me take that, Steve. Look, I think when it comes to programming spend, there are 3 really important takeaways First, to remember is that the vast majority of our programming spend goes into the core TV series and film where we have a really strong track record, more than a decade of translating those investments into value for our members and returns for the business. I'm going to come back to that core in just a second. But the second one is that we're really disciplined investors. So there isn't some hyper acceleration of content investment. We grow the content spend slower than revenue while we're continuing to invest in a huge addressable market. So we're forecasting content expense up about 10% this year. It's a little higher than the 8% we averaged over the last 5 years and below the 14% that we averaged over the past decade. The third thing what I should remember here is that when we expand into new entertainment offerings, new initiatives, we do it gradually. We do it where we believe we can add more value for our members, and we do it where we believe we have the right to win. And then we look for the positive signals before we invest at material scale. This is our MO, it's been our MO for some time. You asked how the slates performing. There's a lot to be happy with in Q2. i Will Find You, it was our biggest launch of original series this year. Swap is on track to become the second biggest original animated film right behind KPop Demon Hunters, which is exciting. Speaking of KPop, we have Kdramas like Tech You a Lesson, which is on track to become the second most watched South Korea show ever globally, and it's on track to be our biggest series in South Korea of all time. There was a show called the [indiscernible]. You probably is not on your radar maybe, Steve, but it's out of EMEA. It's another great example of our understanding of the local markets and the local regions. The poligamens was a popular novel from Zimbabwe more than 10 years ago from an author named Su Nyati. And the teams adapted that into a Sope series for South Africa, where it's now a huge hit and is traveling all over the region and all over the world. In Latin America, we've got a big season that just came back [indiscernible]. This was a show that started its life as a license show from TVS Tecan Mexico. After 3 successful seasons, we picked it up and it produced an original season 4, season 5. It just screened the season 6. So you're seeing the slate perform around the world, which is in a real differentiated part of our business. Now with that said, with the core, we're also really pleased with the investment so far in our live programming. It plays a really important role as Greg mentioned earlier, driving acquisition, accelerating ad revenue, fueling conversation, helping us to launch new shows. It's helped us build our -- and it's also helping us to understand what are the benefits of live over the entire catalog. So we're ramping up our live event slate. You saw that Kevin Hart roast in Q2, the [indiscernible] Baseball Home Run Derby earlier this week. What was really fun at the Derby, we had -- we produced an original exclusive Hot 1 special that we shot on a baseball field to promote Will Ferrell's new series, The Hawk, which just launched today, actually. And I think it's a cool example of the intersection between our core -- that core series, the Hawk our expansion of the new exclusive creator content with hot ones with John Evans is a best-in-class creator. We're thrilled to be in business together plus live sports, all coming together on a baseball field and on Netflix around the world. The result there is a highly attractive, scalable return on content investment, and it ladders up to healthy business metrics that Greg just detailed and our strong growth in revenue, dollar profit and profit margin.

Thanks, Ted. Our next question on engagement comes from David Joyce of Seaport Research Partners. The question is, "Attention is being raised that your second season viewing of series is dropping and therefore affecting engagement growth. How would you address this? Are you going to revert to releasing one episode at a time or making longer seasons with more episodes or managing the production process, so there is less time between seasons." Ted, do you want to take that?

Yes, thanks for asking, David. I really appreciate the question because in aggregate, we are not seeing any material change in our second season viewing compared to season 1. Our second seasons are performing well within our bands of expectation. Very often, we see drop off from Season 1 to Season 2. It's very common in the industry. And it's even more so with us because we launch our show so big. So our global reach, our discovery mechanism, releasing all at once, this enables us to find a very large audience early. So our shows tend to start really big. While most other places, their shows start pretty small and occasionally grow from there. For example, I just mentioned the pligamist from South Africa. That shows already had 24 million views in 5 weeks, and it's still charting. When we look across the entire portfolio, across all the regions, all the content categories, our season 2 falloff is actually slightly improved this year relative to last year. Now of course, you can pick any 5 data points to tell any story you want. But I'm going to repeat this, our season 2 follow-up is actually slightly improved this year relative to last year. So no changes in release strategies.

Thanks, Ted. The next question comes from Vikram Kesavabhotla of Baird. "Last quarter, you shared that the World Baseball Classic was a significant driver of sign-ups in Japan. What have you observed with respect to the retention and engagement of these members since then? How has this influence your perspective on the value of regional live programming?"

Yes. Thanks for asking our -- we talked about this a lot last quarter. It was well Baseball Classic on Netflix in Japan was a huge hit. It became our most watch program ever in Japan. It was the biggest baseball streaming event ever. world based lot Classic is kind of like these other big live events, they behave a lot like our returning seasons of our big shows. They drive disproportionate sign-ups. And because of that acceleration, they can exhibit slightly higher churn, but the results are exactly consistent with that trend and in line with our expectations in all of our modeling. So we're thrilled and we're continuing to see to lean into live events because they have a big outsized positive on the business. They drive conversation, drive net acquisition. So we're going to continue to build out that global live event calendar and include -- expanded to include some regional live events as well.

Great. I'll now move us on to a series of questions around content strategy. We have actually two that are pretty similar, so I will do my best to combine them. They're from Robert Fishman of MoffettNathanson and Rich Greenfield of LightShed Partners. First from Robert Fishman, "what is your openness to leverage Netflix's leading global scale to bundle with other streaming services like Peacock or even consider a streaming channel store to compete with Amazon, YouTube or Roku?" On a related point, Rich Greenfield asks, "while it's only been a few weeks, the integration of TF1 in France. Is that integration driving higher engagement for Netflix, including non-TF1 content, do you think there is a meaningful opportunity for Netflix to become a distributor or platform for third-party streaming services around the world?"

Yes, I can take this one. Since the very beginning when we launched our streaming service, we've always sought to expand the entertainment offering we've got in that service. We wanted to provide more value for our members. Our members consistently tell us that they want more from us. We see that in sort of usage behavior. We see it any kind of testing or modeling we do around the space. And I would say that fulfilling on that customer desire for more has really been the driver for growth for our business for the last 2 decades. This partnership with TF1 is yet just another approach to expanding that offering. We're just adding to the range of capabilities that we have to do that and the mechanisms we have to do that. We built a leading streaming entertainment service by combining an unparalleled selection of high-quality programming, best-in-class product experience. We've got a global footprint, big reach and the ability then to deliver huge audiences, deep engagement, industry-leading monetization. So whether through licensing or through new partnerships like TF1, we believe that we can help other producers, other services maximize the value, the relevance of the content that they invest in by finding those bigger audiences. And we have many, many examples of this effect, including now in this new model with TF1. We also believe that such partnerships are good for our members. They enhance the variety of our offering. They're also effective for our business. And it's early in the TF1 partnership, we're literally 4 weeks in. So there's a bunch that we'll learn through this process, but we are pleased with the performance we are seeing in that integration. We've been able to enhance our already compelling service for our French members with even more local French programming, programming we know that they want to watch. We've seamlessly integrated the TF1 product experience in a way where it supports their brand, but it also keeps things distinct. And we actually think this approach is advantageous for both them and for us and the early results from how members are reacting, how they're interacting are very promising. So we don't have anything new to announce today. We're going to continue to learn. There's a lot that we'll dig into over time. We also think that there's a lot we can improve on the product experience already that we've seen. But if we see additional deals that similarly serve our members that work for our partner, that work for us, we'll certainly consider them.

Thanks, Greg. Robert Fishman has another question in this category. "What's the opportunity for Netflix to launch a fast platform, given the rapid engagement growth in that space? Could Netflix library programming be used as an on-ramp for new subscribers? Or would you be open to adding third-party license content to compete with other fast channels for incremental ad dollars?"

Yes. So if you go back more than a decade when we transition from 1 tier 1 offering to sort of a set of offerings, we've been consistently seeking to expand the range of those offerings. So think about that as price and plan choices and widen the spread of those, give customers more options, more range of choice, both at the lower end and also on the premium side, maintaining and increasing accessibility, especially as we expand our content offering around the world, add new customer segments, that's a critical focus and goal for us. Also optimizing long-term revenue is the other big goal, a free offering could make sense in some markets, but we have to be thoughtful about cannibalization of paid tiers. We've got to ensure that we've got the right offering, the right differentiation of that offering. It's probably also worth noting that having an effective scaled ads business in any Canada country for such an offering is clearly an important enabling factor to make those economics work. So that's all to say that free is something that we're going to continue to consider, but we have no near-term plans to launch something.

Great. From -- next is from John Hodulik of UBS. "With the addition of video games and more recently vertical video clips and podcasts, what other content formats are interesting from a long-term road map perspective? And how should we gauge the success of these initiatives?"