Mario Tama
Netflix shares (NASDAQ:NFLX) I had fell by 4% in less than an hour after releasing its first-quarter earnings, before launching into a live earnings call with executives to discuss questions about the results.
For the quarter, Netflix (NFLX) scored double digits gains in terms of subscribers and financial measures, but observers’ attention has focused on the inclusion that the company will stop reporting subscriber numbers altogether, starting in the first quarter of 2025.
As in last quarter, the company moved from previous pre-recorded executive interviews to a live format, with analyst questions queued up and read by investor relations chief Spencer Wang to executives.
And the planned stoppage of reporting subscriber numbers was front and center. “We have evolved and will continue to evolve as we develop our revenue model and add things like advertising and our extra member feature, things that are not directly tied to the number of members,” said co-CEO Greg Peters .
Historical “simple math” — multiplying the number of members by the monthly price — is “less and less accurate in capturing the state of the business,” he added.
Instead, the company will examine its engagement reports, currently semi-annual, in more detail.
As for the slowdown in revenue growth forecasts – 13-15% versus 15-16% growth expectations in early 2024 – “the reacceleration really started in the second half of 2023, and has developed over the course of of the year,” said CFO Spence. Neumann said. “So our growth in the second half of ’24 is really kind of an explosion of those tough races.” Even so, the second half is consistent with the first, he said.
Engagement
As for engagement, co-CEO Ted Sarandos was asked for an update now that the paid sharing rollout is largely behind the company.
“It’s important to note that we compete for every hour of viewing every time, every day, everywhere we operate. And we think that engagement reporting is very important and that this metric is important because… it’s the best indicator of customer satisfaction, ” he said.
“Eight of the first 11 weeks of this year we had the number one movie, and nine of the first 11 weeks of this year we had the number one series” according to Nielsen streaming data, he said. “And for us, that’s what we’re particularly focused on. And we’ve actually seen… our share go up quite a bit, even in this incredibly competitive space where there’s a lot of people competing for attention, for time and money.”
“Evolving” capital allocation.
Netflix (NFLX) also said with earnings that it will “evolve” its capital allocation strategy to better reflect investment grade status. Instead of anchoring ourselves to $10-15 billion in gross debt and a minimum liquidity of two months of revenue, “we will maintain financial policies consistent with a solid investment grade credit rating.”
“This is really a pretty modest evolution of our capital allocation strategy,” Neumann said. “We will still have the same financial policies and principles in terms of prioritizing profitable growth, reinvesting in our core business, maintaining a healthy balance sheet with ample liquidity, and returning excess liquidity of more than several billion dollars on the balance sheet with minimal liquidity. and you know, everything we use for select mergers and acquisitions, to return to shareholders through share repurchases.”
“Historically we have been largely a ‘build vs. buy’ company, with strategic acceleration selected through mergers and acquisitions, and there is nothing planned at the moment… but that is still our philosophy, to build predominantly.”