Q1 2025 Netflix Inc Earnings Call
Interview, I'm Spencer Wang VP of finance IR and corporate development. Joining me today are co Ceos, Ted surrenders, 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 from the analyst community and we will begin first with.
Our results outlook and forecast and our first question comes from Robert Fishman of Moffett. Nathan said Roberts question is the Wall Street Journal report. This week discussed Netflix is internal goal of doubling revenue and tripling operating income by 2030, how should investors think about Netflix leaning into more core.
Content spending over the next five years.
I'll take this and thanks Robert.
We have a unique culture and.
Speaker Change: And part of it is this open information operating style and it has served us very very well.
Speaker Change: On rare and very disappointing occasions are confidential and internal discussions can leak into the press.
Speaker Change: And while we wouldn't normally comment about linked internal information, we do want to be extra clear about this.
Speaker Change: We often have internal meetings and we talk about long term aspirations, but it's important to note that this is not the same as forecast. Our operating plans are the same as our external forecast and guidance. We don't have a five year forecast or five year guidance.
Speaker Change: But you can assume that we're long range thinking and that we're working hard every day to build the most loved and valued entertainment company for all of our stakeholders.
Speaker Change: And maybe to pivot the conversation, yes, we're happy to comment on it this is Lee Jill.
Speaker Change: Do have a big long term aspirations and those aspirations are really grounded in the potential for growth that we see in the business now we think we've got a pretty good business today over $40 billion of revenue. We've got over 300 million paid households, those represent an audience of over 700 million individuals were leading in streaming view share, but we also.
Speaker Change: Think that we're a minority of our addressable market or potential across any of those measures do you think about engagement you know, we're less than 10% of T V hours for an audience or a connected households perspective, because we've got hundreds of millions of folks to sign up and from a revenue perspective, you know, we're about 6% of consumer spend in AD revenue in the countries we.
Speaker Change: Served in the areas that we serve so we believe we've got plenty of room to grow our engagement our revenue our profit and.
Speaker Change: As Ted said, you know do that to become the most valued and loved entertainment company for all of our stakeholders.
Speaker Change: Thanks, Ted and Greg <unk>, our next question or I should say, we have received several questions actually understandably about the economic environment and consumer sentiment as well for example, Jason <unk> from Oppenheimer asks this is the first time you are potentially entering a recession with a low cost and plan.
Speaker Change: How do you think about consumers downgrading plans relative to the behavior you've seen in prior recessions.
Speaker Change: Given that we've got a bunch of questions on sort of the general economic environment, maybe just start with some some comments on that.
Speaker Change: Sure.
Speaker Change: Close attention clearly to the consumer sentiment and where the broader economy is moving but based on what we are seeing by actually operating the business right now theres nothing really significant to note. So what are we looking at a primary metrics and indicators would be our retention that stable and strong.
Speaker Change: We haven't seen any significant changes in plan mix our plan take rate to part of that question.
Speaker Change: Recent price changes have been in line with expectations engagement remains strong and healthy so.
Speaker Change: Things generally looked stable from that lens stepping back we also take some comfort in the fact that entertainment historically has been pretty resilient in tougher economic times. Netflix specifically also has been generally quite resilient and we haven't seen any major impacts during those those tougher times, albeit of course over.
A much shorter history, and then to the point of the specific question I think that having the low cost adds plan in our largest markets also gives us more resilience and we think that that we represent an incredible entertainment value starting at $7 99 in the U S and Canada with that as planned it is.
Speaker Change: Accessible price point, and we really do expect the demand for entertainment to remained strong yeah, and just to add to that Greg a bit.
We remain focused on the things that we can control and improving the value of Netflix as they won.
Speaker Change: Historically in tougher economies home entertainment value is really important to consumer households, and Netflix is a tremendous value in absolute terms and certainly in competitive terms. So there.
Speaker Change: There are some international rest of folks talk about what's happening what's happening now and I'd say look there. There always has been where we are we pay taxes and levies are around the world consistent with all sorts of local regulations and so theres always some of that and that is exists. It always has but what we're seeing today, we're not changing anything in.
Speaker Change: Forecast, so kind of keep in mind that while the U S represents our largest spend for content employees production infrastructure. We produced original content in 50 countries around the world and we're a net contributor to many of those economies and cultures. So in our letter we talked about our commitment to the U K we.
Speaker Change: We also recently announced a $1 billion commitment to production in Mexico. In 2023, we announced were two 5 billion in committed to Korean content in Korea.
Speaker Change: And all of these are just examples of the global commitment. So when we produce in these countries, we create and support employment training, we worked with local producers and local talent, we help export local stories and local cultures around the world and we even drive tourism. So we believe were additive to the local economies and the local cultures.
Speaker Change: <unk> are all around the world, where we're working so perhaps a little bit less exposed.
Ted: Thanks Ted.
Ted: It takes care of the question.
Ted: Got from Dan Salmon, specifically on tariffs.
Ted: As well.
Ted: So I'll move us along to a question now from a risk Greenfield of light shed partners.
Speaker Change: Does your price increase cadence change due to the global economic uncertainty or is that outweighed by the strength of your slate and increased time spent watching Netflix.
Speaker Change: Yeah, It really links to how we think about price changes as we stated before we really rely on our members to let us know when we've invested enough.
Speaker Change: Around the value in our offering and then determine based on that when we adjust pricing to be able to reinvest back into our service. So we're going to continue to follow that philosophy and that path rather than some a predetermined plan.
Speaker Change: We certainly seen periods of challenging economic conditions historically in different countries and we've generally been able to keep that positive flywheel spinning even in those situations and I think that speaks to the gap between value and price and.
Speaker Change: And that we are for many people are very good value, even as they're being careful about where they spend.
Speaker Change: We've also been expanding that range of price points, including a low priced as planned and are as market, which better allows us to offer the right plan at the right price to a wider range of consumers. So that's all to say that we're proceeding largely as we've done in the past, while continuing to work to improve both value and accessibility.
John Hodulik: Great. Thanks, Greg. Our next question is from John Hodulik of UBS.
How has member retention been trending given the Q4.
Drunk paid net editions have you retained the bulk of these subscribers and can you give us a sense of how churn.
John Hodulik: Has it been trending.
Speaker Change: Yeah sure Spencer why don't I take that one Greg instead of Briggs <unk>.
Speaker Change: As Greg mentioned, we're seeing strong stable acquisition and retention trends in the business generally Ah that resulted in an healthy member growth in Q1.
Speaker Change: I mean, you know last quarter. We are we did provide some color on the retention characteristics for some of those bigger live events in Q4 recall, we had the Paul Tyson fight, we had NFL on Christmas Day, and we also had squid game, which was an event in and of itself so but.
Speaker Change: But we did mention at the time that those those three big events were still a minority a small minority of our net adds in Q4.
Speaker Change: But we also noted that the retention characteristics for the members that came in for those big events with similar to members.
Speaker Change: That joined for other big titles and that continues to be the case, so really no meaningful changes to our retention story, which you know no news on that front is good news from our perspective.
Spence: Thanks Spence Oh.
Speaker Change: We have another question about our outlook.
Speaker Change: Outlook and forecast from Michael Morris of Guggenheim given the strength in operating margins in the first half of the year can you discuss the key incremental cost that will drive lower margins in the second half do you expect these costs to be more heavily weighted to the third quarter or the fourth quarter expense.
Yeah, I'll take it again, okay. Thanks, Michael so.
Speaker Change: We are as you see in our and in our letter and as you mentioned, where we're still forecasting 29%, 29% full year margin operating margin for the year.
Speaker Change: You know, we primarily managed to full year margin as you know our margins bounce around a bit quarter to quarter. That's usually based on the timing of our content slate. It's the primary driver and that's what's reflected in our forecast. So content expense will we expect will grow and ramp in Q3 and Q4 on a year over year basis, given the timing of our slate we've got our biggest titles rich.
tender: Turning in the back half of the year I'm sure tender will talk to some of that later in the call and also typically in Q4, we had a heavier film slate. We've also got sales and marketing expenses and it'll probably we expected ramp in the second half of the year, both to our to support slate, but also AD sales.
tender: This go to market operations and are hitting in our marketing and sales line. So we're continuing to build out our our sales operations and capabilities and some of that is hitting there and growing in the back half.
tender: So all of that is expected and reflected in our guidance other than as I said, a little bit of a heavier slate typically on the film side in Q4, no meaningful differences between Q3 and Q4.
tender: The one thing maybe I'll also just add Spencer, we obviously beat a bit in operating income in Q1, but at this point most of that was a little bit on the revenue side, mostly on the expense side and it looks to us that most of that was timing of spend but.
tender: But still spend that we would expect to hit in the full year. So there's still a long ways to go in the year, a good bit of macro uncertainty out there. So.
tender: Is still our best estimate for kind of outlook for the year.
Speaker Change: Thanks, Spence I'll move us along now to a set of questions around advertising.
Speaker Change: From Dan Salmon of New Street Research does the current macro environment change your approach to the TV upfronts any broad broad thoughts on how you're approaching upfront versus scatter market it would be great.
Speaker Change: Sure similar to commentary on the consumer sentiment you know, we're keeping a close eye on the marketplace.
But we aren't currently seeing any signs of softness from our direct interactions with buyers actually to the opposite we're seeing some positive indicators from clients as we approach our upfront event.
Speaker Change: Sink worth, noting perhaps that the fact that we're currently relatively small and as that sort of adds as a revenue contributor to Netflix, but probably more importantly, the amount of AD spend that we're seeking to win relative to the big ads pie that smallness, probably provides us some insulation to market shifts right now.
Speaker Change: And we are rolling out our proprietary AD Tech suite, we've rolled that out in Canada, and the United States. We've got a remaining 10 markets coming that offers a bunch of new capabilities that advertisers have told us. They want so we're just starting to sell into those new capabilities that opens up new opportunities for us it opens up new demand for us as well.
Speaker Change: So I would say based on everything that we're seeing right now we continue to expect that we will roughly double our advertising revenue in 2025 through a combination of both upfronts programmatic expansion in scatter.
Thanks, Greg and that's a really good segue to our next question, which comes from Vikram of Baird could you provide.
Speaker Change: Provide an update on your first party AD Tech platform, how is the rollout in Canada performed relative to your expectations and do you have any observation so far.
Speaker Change: In the U S.
Speaker Change: Yeah, it's a big milestone for us to roll out our own AD suite, we've been working on it for a while we're still in the middle of that rollout, but our Canada and U S launches have gone well and consistent with our expectations, we're learning and improving quickly now based on the feedback we're getting from having those live and <unk>.
Speaker Change: Operating them, then we will roll out across the remaining 10 as markets and a few stages over the coming months. So that's.
Speaker Change: Sort of all lined up and ready to go.
Speaker Change: The biggest initial benefit that we are seeing again as expected from being on around AD servers. You just enables more flexibility offer advertisers more ways that they can buy theres fewer activation hurdles, we have the ability to improve that overall buyer experience iteratively.
Speaker Change: It just makes it easier to transact with Netflix and that of course drives increased sales and so we're seeing that and then we expect over time.
Speaker Change: That our first party AD tech platform allow us to do other things deliver more critical capabilities more quickly to advertisers because of things like more programmatic availability something we definitely hear demand for enhanced targeting something we're excited about how we can leverage more data sources and of course, something we hear all the time warm measurement and reporting capabilities.
Speaker Change: <unk>. So those are all things that we've got and work some of those have been delivered already and some of the territories and those will come over time and then the other big space of benefit by being on our own attack AD Tech stack is it enables us to have more control to create a higher quality AD experience for our members. This is you know.
Speaker Change: That are really important like increasing AD relevance, which is good for everybody in the in the whole ecosystem. So.
Speaker Change: Just getting started I'm excited to get it out there we got many years of building ahead of us, but we've got a clear roadmap. We know what we're what we're committed to and will just continually did iteratively improve and innovate in advertising just like you've seen us do in all sorts of other areas.
Speaker Change: Thanks, Greg and speaking of ads are relevant.
Speaker Change: Justin Patterson as a longer term question on ads.
Justin Patterson: Netflix has solved personalized content recommendations are what are the key steps to solving AD content recommendations irrelevance in which inning do you believe you're in.
Not sure I would characterize as completely solved we hope that we can be even better our day to day in recommending our the main titles, but we do have an ambition to achieve that same level of sophistication and maturity a capability that we did on the on the personalized recommendations in the AD space.
Justin Patterson: Matching the right AD with the right audience, the right viewer and the right title and we think putting those three things together drives superior campaign outcomes for advertisers and we think it's a better experience for our members. So it's win win win.
Justin Patterson: Where are we at in that process I would say that we are literally just beginning to get that going so the first stage of that is actually being on our own ads platform. We've watched that as Ive said in Canada. The U S. We've got the remaining markets coming over the next months to come.
Justin Patterson: And in doing that during this time, we've been able to significantly already expand our targeting capabilities. So that now includes targeting features that are based on Netflix unique data, so think life stage interest viewing mood.
Justin Patterson: In the U S. We've also recently enabled advertisers to do more significant targeting says is targeting on their own on boarded audiences targeting on Netflix model audiences targeting against audience segments that provided by a select set of third party vendors. So we've got a lot of exciting work going on in that space and then looking ahead.
Justin Patterson: 2026, we'll do more of that more data targeting capabilities will move more of that globally. So a lot of things. We do we start in the United States and expand across more territories Youll see that and then of course more measurement functionality in all markets and then in 2027, when we get to look too specific focused investments at a high.
Justin Patterson: Your order and data capabilities, such as ml based optimizations, we've got advanced measurement advanced targeting will be really opening a rich space. There another big benefit we get on our own AD stack is we'll be able to innovate and develop more quickly new AD format. So we have more space that we can you know point all of that.
Justin Patterson: Improved targeting capability against so just getting started in this space. We've got a lot of work to do for sure, but we think we'll be able to move very quickly and frankly more quickly than other streamers, because we believe we're gonna be able to leverage not only pre existing tests that we have data that we have but also data science expertise and the rapid product innovation experience that.
Justin Patterson: Got.
Speaker Change: Thanks, Frank maybe the inning analogy gives us a little more flexibility than crawl walk run right. So.
Speaker Change: Can you walk through all of that is nice to have all of those and more ahead of US yeah options. Instead of three that's right. It's definitely played starting to swing that very well.
Speaker Change: Yeah.
Speaker Change: Thanks, Craig I'll move us along to a series of content related questions from analysts beginning with rich Greenfield from light shed there.
Speaker Change: There are four major sports properties available right now how should we think about the strategic fit for Netflix in terms of number one the U F. C number two WWE premium live events number three F. One and number four major League baseball.
Speaker Change: Thanks, Rich I, just I do want to remind you that our live strategy is beyond just sports so I'm not I'm not going to comment on any of those specific opportunities at this time, but I will say you back to the letter to show you that our.
Speaker Change: Ive event strategy is unchanged and we remain really focused on the big breakthrough events, our audiences love them.
Speaker Change: And so anything anything we chase in the event space or the sports space is the deal they'd have to make economic sense as well.
Speaker Change: So live is a relatively small part of our content spend we have about a 200 billion view hours, so small relative to view hours to but that being said all all viewing is not equal, but we have seen with live is just very outsized positives around conversation in acquisition and we suspect retention.
Speaker Change: And we're really excited to keep building on that we have.
Speaker Change: Taylor Serrato fight in July.
Speaker Change: It's a rematch from when they bought the first time on the Tyson Paul fight night. It was the most watched women's sporting event in U S history. So theres a lot of excitement around that the NFL of course is a great property and we're happy to have the Christmas day game. So we opted into the second and if they'll game for Christmas day. So we'll be presenting all day football again on December 25th.
Speaker Change: With 2025 really exciting.
Speaker Change: And then today are live adventures of all been primarily in the U S. But we intend to grow the capability to do it around the world in the years ahead. So very pleased with the progress so far and excited about the future for live sports and non sports.
Speaker Change: Thanks. The next question is from Matt Thornton of F. B in Securities.
Speaker Change:
Speaker Change: Do you think video podcasts could perform wells the category on Netflix.
Speaker Change: So we're constantly looking at all different types of content and content creators are the lines between podcast and talk shows are getting pretty blurry.
Speaker Change: We want to work, we've got a great creators across all kinds of media that consumers love and podcast to your point that become a lot more video forward.
Speaker Change: And today, we actually produce a lot of podcast ourselves as part of our kind of publicity and publishing efforts. So some are really show specific likes with game of diplomat somewhere genre focus somewhere talent focused we have a great. One called you can't make this up all about Netflix docs and they live everywhere podcast live today, but as the popular.
Speaker Change: A video podcast grow I suspect, you'll see some of them find their way to Netflix.
Ted: Thanks Ted.
Rich Greenfield: From rich Greenfield again, how do you create iconic animated franchises what does it really take to build.
Rich Greenfield: Our culturally relevant enemies of IP is the answer a different team acquisitions or something else entirely.
Speaker Change: Well, thanks Rich keep in mind is this were relatively new at this and it's a completely creative process.
Rich Greenfield: We've had some hits and we've also had some misses so we know we have a <unk>.
Rich Greenfield: Work to do but I would point out that we've had some some really nice says with Leo with C. Beast Guillermo del Toro is Pinocchio, certainly appears to culture, even when the Oscar for US for best animated feature film and the other thing to keep in mind about why we're excited about this space, there's a lot of demand for animated film.
Rich Greenfield: <unk> in 2024 nine out of the top 10, most stream movies were animated feature so just like in our live action strategy, we want to make some we've got a license some.
Rich Greenfield: And we have more access to data license than we did when we began in house animation and we get to that now through output deals with universal elimination and with Sony.
Rich Greenfield: But the animation team Hannah and Dan, they're working really hard on a very promising slate of exclusive originals and they're gonna roll out through 2020 seven include.
Rich Greenfield: Including one called in your dreams coming out in Q4, just really fun really entertaining beautifully produced from that I think you're gonna luck. So we got our work cut out for us, but it's a big prize.
Speaker Change: Thanks Ted.
Speaker Change: Our next question comes from Robert Fishman of Moffett Nathanson as you think about the competitive landscape over the next five years should investors expect Netflix to move into short form or creator led content to compete head to head with Youtube.
Speaker Change: Sure I'll kick this one off I think just starting at the macro lens, we've always had very strong competitors, including Youtube. Many others were all definitely competing hard for People's Entertainment time. So we absolutely have to earn every hour that we win we don't take anything for granted we don't do anything for free we wake up everyday eager to improve our.
Speaker Change: Service for our members and for our members to be.
Speaker Change: We also think and that broadest competitive lens that the biggest opportunity. We've got is actually going after that roughly 80% share of TV time that neither Netflix nor Youtube have today, when you think of that as a real immediate opportunity.
Speaker Change: And then when it comes to the specific head to head competition with Youtube or other platforms like Youtube. We believe we are a more competitive better service for a certain class of creators and certain types of storytelling and most importantly in that is that we lead monetization for those kinds of titles in that.
Speaker Change: It means we can provide a better opportunity than Youtube or other services for those creators and those stories and Ted maybe you want to comment on the <unk>.
Speaker Change: Creator and content type expansion yeah sure. They were looking for the next generation of great creators and we're looking everywhere. So the not just in film schools and certainly not just in Hollywood.
Speaker Change: Creators today have tools that were unimaginable, a decade ago to tell stories to reach audience. The question that is out there that is it premium well some of it is.
Speaker Change: And we believe we have the best monetization model on the planet for premium storytelling.
Speaker Change: I think we can help those creators reached an audience. Our motto can also support more ambitious efforts for them can help derisk them. Unlike the kind of typical UGC models look at.
Speaker Change: People folks like Miss Rachel.
Speaker Change: She's been in the top 10 every week since the laws of Netflix killed Tony right now is killing it but our stand up fans.
Speaker Change: We're working with site beside men with we just launched pop the balloon. So we think that's really exciting when you put this all together we believe it's the best place for premium content as defined by fans.
Speaker Change: And the best home for storytellers wherever they are working on honing their skills today.
Speaker Change: Thank you.
Ben Swinburne: From Ben Swinburne of Morgan Stanley, we are starting to see some of the fear around AI and content creation subside and major directors like the roussos, Jim Cameron et cetera begin embracing the technology.
Speaker Change: What is Netflix doing to leverage AI for its creative partners how meaningful.
Speaker Change: Can this be and are there any examples that you can share.
Speaker Change: Well, then there's a ton of excitement about what AI can do for content creators.
Read the article two of Jim Cameron said about making movies, 50% cheaper.
Speaker Change: I remain convinced that there is an even bigger opportunity if you could make movies, 10% better.
Speaker Change: So our talent today is using AI tools to do set references or previous VFX sequence prep.
Speaker Change: <unk> planning all kinds of things today that kind of make the process better.
Speaker Change: Traditionally only big budget projects would have access to things like technic.
Speaker Change: Advanced visual effects, such as the aging so.
Speaker Change: Today, you can use these AI powered tools so to enable smaller budget projects to have access to you know big the effects on screen.
Speaker Change: A recent example, I think it's really exciting.
Speaker Change: Rodrigo Prieto is where the D. P on the Irishman just five years ago, and if you remember that movie we were using very cutting edge very expensive D aging technology.
Speaker Change: That still had massive limitations.
Speaker Change: Created a bunch of complexity onset for the actors it was a giant leap forward for sure, but nowhere near what we needed for that film. So this year just five years later.
Speaker Change: Rodrigo is directing US first feature film for Us Pedro Paramount in Mexico.
Speaker Change: Using AI powered tools he was able to deliver this D aging via effects to the screen.
Speaker Change: For a fraction of what it cost on the Irishman in fact, the entire budget of the film was about the VFX caused on the Irishman.
Speaker Change: So same creator using new tools, new better tools to do something that would have been impossible to do just five years ago. That's incredibly exciting. So our focus is simple find ways for AI to improve the member and the creator experience.
Speaker Change: Yes.
Speaker Change: Thanks, Ted our next question is from David Joyce of Seaport Research partners are the question is with so much content in your library, what can you do for discovery to help drive further engagement with the platform is there anything further structurally you can do with the recommendation engine or is it going to require more marketing.
Speaker Change: Yeah, a fact that surprises many people is that even our most popular most buzzy titles that you're hearing tons of conversation around those still drive less than 1% of viewing so that discovery and recommendation capabilities are really critical to unlocking.
Speaker Change: In all the value from the investments that <unk> team is making around the world and we believe and we continually see this in test results quarter. After quarter that there is more room to improve that discovery and recommendation experienced and therefore provide more value for members and therefore, finding the biggest audiences for around the world for our titles.
Speaker Change: To that end. Some examples of this last year, we began testing our new simpler more intuitive T. V. Homepages is something that we hadn't made big structural changes to in over a decade, and we believe that that will significantly improve the discovery experience on Netflix we've been polishing and improving that experience based on the input we got from Mems.
Speaker Change: <unk> used it and we plan on rolling that out later this year. So that's that's very exciting in a pretty significant structural shift that we anticipate will move things forward significantly.
Speaker Change: But we're doing things that the other end of the spectrum Tuesday. We're also building out new capabilities are an example would be interactive search that's based on generative technologies, we expect that will improve that aspect of discovery for members. So there's many many specific improvements that we've got and works. So a lot more to come in this space and really frankly, no foreseeable limit.
Speaker Change: Those improvements in the years to come.
Speaker Change: Great. Thanks, Greg.
Speaker Change: Michael Morris from Guggenheim has our next question.
Michael Morris: Actually about extra member accounts of how is the adoption of extra member accounts.
Michael Morris: Trended since launch can you share how this offer has contributed to revenue growth today.
Michael Morris: D and whether you see it as additive to future growth.
Michael Morris: We see extra member as part of our plans and pricing models. So it's an option that provides flexibility and choice for members and allows them to tailor the Netflix offering to their needs. We know some members want to share Netflix with family or friends and extra remember it gives them an easy way to do that as a lower.
Michael Morris: Cost way to do that as well.
Michael Morris: We see good retention and engagement on that plan, which is really important to us and says it's a sort of a healthy part of the offering box, while we love it from a member convenience perspective.
Michael Morris: Funding directly the question extra member isn't a major driver for our business and we expect it will remain relatively small in the foreseeable future.
Michael Morris: Thanks, Grant and just say that to Greg's point is I agree with all that it is I've been part of your question. It is still growing modestly but it is so it is healthy for all those reasons, but it's just not a big driver of the business.
Michael Morris: Thanks for clarifying.
Michael Morris: Justin Patterson from Keybanc with the next question.
Speaker Change: Alon, who leads our Netflix games business I spoke recently at the games developer conference about making gaming more accessible and achieving mass market appeal what types of games have resonated on Netflix so far and where do you where do you see opportunities to improve the user experience will drive even more engagement for game.
Michael Morris: <unk>.
Michael Morris: Yep, we have learned quite a bit and made some decent progress since we launched games, but we continue to see this as a multiyear iterative journey much like.
Michael Morris: We've seen and you've seen from us when we launch a new content category or we launch a new country and we develop product market fit and improve that over time you asked what games have worked for us. So far you can see much of the answer to that question embedded in the genres that we're going after and focusing on right now so that starts with immersive narrative game.
Michael Morris: Based on our IP squid game on leased as a really good example, we'll have an update for that game with the latest season of script game that's coming.
Michael Morris: More recently swung lifts, which is our black mirror based tamagotchi style game that has a dark twist in the and very consistent with our with Black mirror.
Michael Morris: Other category that we're going after mainstream established titles. This is grand theft auto, which really works for us and you'll see us launch more titles like that.
Michael Morris: <unk> is also games for kids being able to give kids a.
Michael Morris: Game experience, that's free of ads, it's free of any in App purchases safe for parents with a subscription we just announced Peppa pig Peppa pig game, which is coming soon so that's an example of that.
Speaker Change: And the fourth category, which I would say we don't have.
Speaker Change: A lot of data points demonstrated in yet, but we're excited about and we will be delivering some to understand the space better as socially engaging party games think about this as either an evolution of the family Board game or an evolution of the game show on T V. There becomes interactive in your living room, so lots of excitement there and then you mentioned.
Speaker Change: And in terms of areas to improve there's tons of various improve frankly, we can improve everything that we're doing from user experience in discovery and getting to play but also just in having more compelling games. So that's a real top priority for us at this point.
Speaker Change: And maybe.
Speaker Change: Just a few comments with regard to how we think about investment and growth in this space. We've always said that we were in this to win you want to invest enough to ensure that we are playing to win but we also are coming knowing that we've got a lot to learn and we still have a lot to learn despite all that we've learned so far and we don't want to and grow our investment too much until we.
Speaker Change: Iteratively develop high confidence that we know how to translate that investment into member value like the increased retention and we see when members player games.
Speaker Change: So our investment by our scale is still relatively modest it's a small fraction of our overall content budget and as we continue to see incremental proof points will ramp up that investment in a measured way, but we think this approach to sort of a measured growth and planned scarcity actually yields a better business in the long term.
Speaker Change: And the long term opportunity is large it's about 140 billion in consumer spend ex China ex Russia, not including AD revenue.
Speaker Change: We believe in our top level strategic thesis and we continue to learn into that execution capability to incrementally unlock that potential.
Speaker Change: Thanks, Greg I'm actually going to bring us back to a question on the results because we do have a late breaking a question from Steve K all of Wells Fargo.
Steve K: Can you unpack the key drivers of the expected you can revenue growth Reacceleration in Q2.
Steve K: Is it mainly pricing or are there other aspects like advertising or subscriber growth.
Steve K: Spence you you want to take a stab at that one.
Spence: Yeah sure. So you know you saw in our report or you can revenue growth was 9% year over year in Q1 that was a deceleration from about 15% year over year in Q4.
Spence: Yeah. The deceleration as you know, mostly due to pricing timing, so theres a little bit of a sequential quarter tough comparison, because we also had the benefit of the NFL games, the advertising, resulting from the NFL games in Q4, which also bumped it a bit but think of it as a we plan to Reaccelerate again in Q2, and it's really getting the full quarter benefit.
Spence: Year over year.
Spence: Pricing and then also we our ads is still a much smaller part of our business and subscription but adds continues to kind of grow through the year.
Spence: Thanks Spence.
Speaker Change: And I will now close this out with our last question, which comes from Alan Gould of loop capital.
Speaker Change: His question is you've been guiding to $8 billion of free cash flow in 2025, and one of your goals is to deliver growing free cash flow you have historically not spent a lot on acquisitions should we assume most of the grain free cash flow is redeployed into share buybacks.
Speaker Change: Thanks, Alan So there's no change to our capital allocation policy, it's been consistent for years now, we prioritize profitable growth by reinvesting in the business.
Speaker Change: We maintain ample liquidity those are key for us our top two priorities and then we return excess cash to shareholders through share repurchase beyond.
Speaker Change: Several billion dollars of minimum cash that we keep on the balance sheet and then anything we use for for select M&A. So so that's kind of a long wind up to the answer is yes, and the absence of any meaningful M. B a.
Speaker Change: M&A not M b, a any meaningful M&A, yeah, we would expect that our growing free cash flow will be redeployed to share repurchase.
Speaker Change: Excellent.
Speaker Change: Before we close our first thank you all for joining us.
Speaker Change: I would like to take a moment to recognize and to thank Tim Haley.
Speaker Change: After more than 27 years on our board of directors. He has elected to not stand for reelection.
Speaker Change: For all of those 27 years, Tim early has been on this journey with us and his counsel and leadership has been a really valued part of our success.
Speaker Change: I'd like to say a special thank you to Tim for his long service and his many contributions to the Netflix Board of directors and let me say also as someone who has benefited greatly from our time with him and has been there with him for most of those years.
Through so much change and so much growth Tim has always offered sage advice and counsel and is an important part of the history of Netflix.
Speaker Change: Tim has helped shaped netflix into the company that it is today. So many thanks to Tim and thank you very much for joining us.
Speaker Change: Yeah.