4 Key Takeaways From Netflix’s Earnings Call

After Netflix (NFLX) posted first-quarter revenue and earnings that beat analysts’ estimates, company leaders gathered to discuss the streaming giant’s subscriber growth, weak second-quarter outlook, expansion into live sports, and how the company leverages artificial intelligence (AI).

Subscriber Growth Jump Powered by Original Content

Netflix said its paid memberships rose to 269.6 million in the first quarter, a 16% jump from the year-ago period. Co-CEO Ted Sarandos credited the subscriber growth to the streaming service ” thrilling our members” with its original series and movies. He highlighted titles including “Griselda,” “Avatar: The Last Airbender,” and “Love Is Blind,” which the company reported received 66.4 million views, 63.8 million views, and 20 million views, respectively.

He added that “the fundamental is all those amazing series, film, games, [and] live events, but a key component of our success and something that we’re seeking to get constantly better at is that ability to find audiences for all those great titles.”

Chief Financial Officer (CFO) Spencer Neumann noted that the majority of Netflix’s content spend is on original programming, but the company will “always complement it” with licensed content.

Weak Outlook for Second Quarter

However, in its guidance for the second quarter, Netflix projected its income would decline from the first quarter. Net Income is expected to come in at $2.06 billion, down from the $2.33 billion reported in the first quarter, while earnings per share (EPS) is expected to fall to $4.68 from $5.28.

The company credited the weak outlook in part to “price changes in Argentina and the devaluation of the local currency relative to the US dollar.”

In a letter to shareholders, Netflix said that second-quarter revenue is forecasted lower than the first quarter “due to typical seasonality,” though revenue and earnings increased from the first quarter to to second quarter in 2023.

Expanding Into Live Sports With Profit in Mind

Netflix is in “the very early days of developing our live programming,” Co-CEO Greg Peters said, and highlighted that the streaming giant is working on a live fight between Jake Paul and Mike Tyson and WWE “Raw” coming to Netflix in 2025.

When asked how Netflix is looking to scale its live sports offerings, Sarandos said the company is “not anti-sports, but pro-profitable growth,” underlining that financials are a critical factor as the streaming company pushes into live content.

Sarandos added that “engagement, revenue, and profit” are at the core of Netflix’s programming and that the company pursues opportunities in live sports where it can drive all three. The company “did [that] in our deal with WWE,” he noted.

Netflix Could Further Leverage ML and AI in Its Recommendation System

When asked how Netflix can leverage AI tech, Peters reported that the company has been using machine learning (ML) for almost two decades.

“These technologies are the foundation for our recommendation systems that help us find [the] largest audiences for our titles and deliver the most satisfaction for our members,” Peters said.

He indicated that the company is “excited to continue to evolve and improve those systems as new technologies emerge and are developed” and that Netflix could be “well positioned to be in the vanguard of adoption and application of those new approaches.”

Netflix shares fell nearly 5% in after-hours trading to $581.60 as of 6:45 p.m. ET Thursday. Even at that price, the stock has gained close to 20% since the start of 2024.