Netflix (Minutes): Very confident in the content pipeline for the second half of the year and 2026

The following is$Netflix(NFLX.US) the FY25 Q2 earnings call minutes. For earnings interpretation, please refer to 《Netflix: Can the Recognized Good Student Still Create Surprises?》

I. Review of Core Financial Information

1. Price Increase Drives Growth: Second-quarter revenue grew by 16%, exceeding guidance and meeting expectations, primarily reflecting the impact of price increases in core regions at the beginning of the year.

2. Squid Game Recreates Buzz: User numbers are no longer disclosed from last quarter, but Dolphin Research estimates a net increase of over 8 million, slightly higher than last year. As the content highlight of the second quarter and even the whole year, the third season of "Squid Game" performed well. Although as the finale, it received mixed reviews, the viewing time indicates that the third season's popularity surpassed the second. Since it aired at the end of the quarter, Q2 results do not fully reflect the positive impact of the show.

3. Q3 Guidance Exceeds Expectations: Due to the popularity of "Squid Game S3" and other strong content like the second season of "Wednesday," management's revenue guidance for the third quarter is a year-over-year growth of 17.3%, exceeding market expectations.

4. Raising Full-Year Growth Target: Management also took the opportunity to raise the full-year guidance for 2025, increasing revenue by about 2% to the range of $44.8 to $45.2 billion. The operating profit margin was raised from 29% to 29.5% (at the beginning of the year exchange rate), and it was mentioned that due to the current favorable exchange rate, the profit margin could actually reach 30%.

According to the Q3 and full-year guidance, it implies a Q4 revenue growth of 17%, which is also impressive and exceeds expectations. However, what might cause dissatisfaction among investors is: 1) The guidance was expected to be raised in advance, and raising it does not necessarily bring rewards, but not raising it would certainly bring penalties; 2) Management attributed the upward adjustment mainly to the depreciation of the US dollar (Netflix's international revenue accounts for 55%), followed by user growth and advertising, which means that the above-expectation growth is driven by external factors rather than the growth potential of the business itself, thus reducing the "surprise" level of the above-expectation growth.

5. Confidence in Doubling Advertising Remains Unchanged: In the last quarter's commentary, Dolphin Research mentioned that the current macro environment is turbulent, and Netflix's advertising development pace might be adjusted. However, in this shareholder letter, management expressed confidence in doubling this year's advertising revenue (expected to be $1.5-2 billion, accounting for about 4% of total revenue), so let's look forward to it.

6. Investment Continues to Slow: Content investment in the second quarter was $4 billion, roughly flat quarter-over-quarter, and down 8% year-over-year. Not only is the investment continuing to slow, the progress in the first half of the year is also relatively slow according to the full-year investment plan. In the last quarter's commentary, Dolphin Research speculated that due to environmental factors (turbulence delaying the launch of a new round of competition), Netflix's $18 billion budget for this year might not be fully utilized.

In this situation, a well-stocked leader is always more advantageous. It not only benefits Netflix's own cash flow improvement, leaving more room for buybacks (the scale of buybacks in the second quarter decreased quarter-over-quarter) and external investments, but also increases opportunities for content licensing among peers, leading to reduced content production costs or increased licensing revenue across the industry.

II. Detailed Content of the Earnings Call

2.2 Q&A Session

Q: The question is, since your forecasted revenue growth is mainly driven by foreign exchange effects, we are curious about the components of fixed exchange rate growth. Is it due to better base revenue growth? Or is it because certain specific fees (such as content amortization) have increased revenue?

A: We have raised our full-year revenue guidance to $44.8 billion to $45.2 billion, up about $1 billion from the previous $43.5 billion to $44.5 billion, with a tighter range. This is mainly due to the favorable exchange rate impact brought by the weakening of the US dollar, while our business fundamentals also performed strongly. Membership growth is healthy, even better than expected at the end of the second quarter, and is expected to continue to improve in the second half of the year. In addition, although the base of advertising revenue is small, it is growing strongly and is expected to double for the year, slightly exceeding the initial expectations.

With operating expenses remaining largely unchanged, revenue growth will directly drive an increase in profit margins. Therefore, we have raised our full-year reported operating profit margin target from 29% to 30%, and the exchange rate-neutral profit margin has also increased by 50 basis points, reflecting the revenue increase brought by membership growth.

Q: Why, after the second quarter's profit growth, is the full-year operating profit margin guidance only 30%, while the third quarter's forecasted profit margin is 31.5%? Is it due to seasonal fluctuations caused by the timeline arrangement, or foreign exchange effects? Or will the new spending level continue beyond the fourth quarter of 2025?

A: This is mainly due to the timeline arrangement. We primarily manage by full-year profit margins, and content spending is expected to increase in the third and fourth quarters because many major new works, sequels, and live programs are concentrated in the second half of the year. The fourth quarter is usually the most intensive period for movie releases, and we will also increase marketing support and continue to invest in building advertising sales infrastructure.

These spending increases are expected. But even so, we still expect year-over-year improvements in operating profit margins for each quarter, including the fourth quarter. As mentioned earlier, we have raised our full-year profit margin expectations to an exchange rate-neutral 29.5% and a reported 30%.

Q: In the past 90 days, what changes have you observed in your views on consumers and the macro economy?

A: Similar to the last quarter, we continue to monitor consumer sentiment under the macro economy, but currently, all indicators directly obtained from the business are stable: User retention remains stable and industry-leading, package selection and adoption rates have not changed significantly, recent price adjustments are in line with expectations, and user engagement remains good.

Overall, all indicators are stable. From a macro perspective, the entertainment industry has always been resilient during economic difficulties, and Netflix is especially so. We believe that compared to traditional entertainment and other streaming platforms, Netflix offers excellent value for money, starting at just $7.99 in the US, providing rich content. Therefore, we are confident that demand for entertainment, especially for us, will remain strong.

Q: Regarding the advertising business, can you share some data on prepayment negotiations?

A: As mentioned in the letter, our upfront ad sales in the US are nearing completion, and we have reached agreements with most major agencies, with overall results meeting or slightly exceeding expectations, supporting our goal of doubling the advertising business this year.

Advertisers are focused on: the continued growth of our platform's user base, higher viewer attention and engagement compared to peers; the launch of our proprietary ad tech platform bringing more features; and our high-quality content lineup, especially the increasing number of live programs, which advertisers are very excited about.

Q: Since the launch of the Netflix Ad Suite in April, how have US advertisers responded? Which features are most focused on? What is the initial feedback from other regions outside the US?

A: We have completed the deployment of the Netflix Ad Suite, our proprietary ad tech platform, in all global ad markets, and the overall rollout is smooth, with performance indicators in each country meeting expectations. We are currently in the optimization phase, and the global launch has brought a lot of feedback, helping us improve quickly.

The first significant achievement is making it easier for advertisers to place ads on Netflix, an advantage reflected in advertiser feedback and sales performance, including the growth of programmatic buying. We will also introduce more demand channels, such as Yahoo!, to further expand the market.

In the long run, the self-built platform can accelerate the launch of new features, including more precise targeting and ad effectiveness measurement, as well as integrating advertiser and third-party data to achieve a more personalized ad experience. For example, different users will see ads more tailored to their interests, which is beneficial for both user experience and advertisers.

Additionally, we will launch ad interaction features in the second half of the year. This phased achievement allows us to enter a new stage of continuous iteration, constantly introducing new features for advertisers and members, just like our product rhythm in other business areas.

Q: Regarding content and engagement. A 1% year-over-year increase in engagement means a decline in per capita engagement year-over-year. If this number is still accurate, how do we reconcile it with the growth in per capita and household engagement?

A: Although content scheduling is mainly concentrated in the second half of the year, our total viewing time in the first half of 2025 still saw a slight increase.

Regarding user engagement, in recent years, we have mainly measured it based on "owner households," which can exclude the interference of shared accounts and more accurately reflect the viewing behavior of each real user.

According to this indicator, user engagement has remained basically stable over the past two and a half years, despite our promotion of paid sharing and the increasingly fierce competition among streaming platforms. We are satisfied with maintaining this stable level, but we also clearly hope to improve further.

Considering the strong content lineup in the second half of the year, we expect user engagement growth in the second half to be better than in the first half.

Q: You often say that no single work can account for more than 1% of total viewing. What do you think is the current business growth driver? Or what has driven it in the past? Do you have confidence that the growth momentum of original and licensed content can continue into 2026?

A: We are benefiting from the long-term migration trend from cable TV to streaming, although this transition has a natural rhythm, blockbuster content can accelerate growth. However, a single blockbuster accounts for at most about 1% of total viewing, so the key is not an occasional hit show, but the continuous launch of high-quality, popular content—including series, movies, and soon games.

This year, we have 44 series nominated for Emmy Awards, reflecting our "quality at scale." At the end of this season, we welcomed the return of "Squid Game," and in the second half of the year, we have strong content like "Wednesday," "Stranger Things," and many popular sequels and new shows, such as "Happy Gilmore 2," a new installment of "Knives Out," new films by directors like Noah Baumbach, Guillermo del Toro, and Catherine Bigelow.

Looking ahead to 2026, there are also major films like "The RIP" by Ben Affleck and Matt Damon, the action film "Apex," Millie Bobby Brown's return in "Enola Holmes 3," and Greta Gerwig's "Narnia."

In terms of series, new seasons of "Bridgerton," "One Piece," and "Avatar: The Last Airbender" are expected, along with the return of "Running Point," "Beef." "The Three-Body Problem," "Love is Blind," "Outer Banks" will continue to be released, and regional content like France's "Lupin," Spain's "Berlin," and Colombia's "100 Years of Saved" will also continue to be updated. Additionally, new works like the remake of "Man on Fire," a new version of "Reimagining," "The Boroughs" (a new series by the "Stranger Things" production team), Japan's "Human Vapor," India's "Operation Suffered Cigar ," and Korea's "Can This Love Be Translated?" will be introduced.

We will also launch unscripted content such as the reboot of "Star Search," "Into the Doll Universe," and "Wonka's Golden Ticket." 2026 will also bring the NFL Christmas doubleheader live broadcast.

Overall, we are very excited and confident about the content lineup for the second half of this year and 2026.

Q: Are you concerned about the stagnation of domestic viewing share? It might be Nielsen data. Do you need to increase investment in program production or adopt a different investment approach to significantly increase viewing share?

A: Our long-term goal remains to continuously expand market share. In recent years, despite facing more and more streaming media (including free and paid) and the impact of paid sharing, we have maintained stable share, even though the content lineup in 2025 is more focused on the second half of the year than in previous years.

In the long run, as the migration from cable TV to streaming continues (50% of TV viewing has not yet shifted), we are confident in continuing to grow. We will continue to optimize services to achieve this goal.

Since 2020, our content amortization spending has grown from less than $11 billion to over $16 billion expected in 2025, an increase of more than 50%. During this period, we have not only increased investment but also achieved simultaneous growth in revenue, profit, and profit margin, reflecting our business model.

Our strategy is to achieve healthy revenue growth and continuously reinvest in the business, including increasing content investment, enriching entertainment products, and enhancing user value, thereby driving a virtuous cycle of engagement, revenue, and global profitability.

Q: Can you provide more information about the TF1 partnership? Why did you choose France's TF1 instead of other broadcasters as your first partner? Why is now the best time to establish this partnership? Should we expect similar partnerships in other countries?

A: Although we already have a lot of high-quality content, members continue to feedback that they want to see more diverse and rich content. Therefore, the partnership with TF1 is essentially to expand our entertainment content, enhance user value, and provide more, higher-quality, and more diverse programs.

This cooperation is similar to our previous licensing and production strategies, as a way to further expand content supply, especially to meet the needs of markets with strong demand for local content. Through cooperation with TF1, we can provide high-quality programs closer to the local area more quickly.

Why choose now? Because we have invested a lot of resources in building related capabilities, such as live broadcasting, advertising, and new user interfaces, all of which provide foundational support for this cooperation.

Why choose TF1? We are familiar with each other, it is the leading local TV content provider in France, with strong production capabilities, and we are highly aligned in cooperation vision and values. We hope to use this opportunity to explore how to expand TF1's local content to more French audiences.

The final effect will depend on audience response, and we will continuously adjust future plans based on actual feedback.

Q: There are reports that Apple now controls the rights to F1 events. Additionally, UFC and MLB are still looking for new deals, and the NFL may also want to go public a year early. Can you share your current views on Netflix's sports event rights and where you see the boundaries of what factors can have an impact?

A: Sports is just one part of our live strategy, and our live strategy goes far beyond sports. Whether it's live or sports, our core focus is on breakthrough, self-controllable large-scale events—because audiences love this type of content, and it must also be economically viable.

Currently, live broadcasts account for a small proportion of our total content spending and a low proportion of the total viewing time of about 200 billion hours. But it is worth noting that not all viewing time has the same impact. We have observed that live content has a significant positive impact on topic popularity, user acquisition, and even user retention.

We are very satisfied with our current live strategy and are looking forward to the upcoming live content, including the Canelo vs. Crawford fight in September, the SAG Awards, weekly WWE matches, and the NFL with Christmas Day doubleheader (Dallas vs. Washington, Detroit vs. Minnesota).

Currently, these live contents are mainly concentrated in the US, and in the coming years, we will continue to expand global live capabilities, promoting major live events in more regions. Overall, we are very excited about the existing strategy, and the strategy remains unchanged.

Q: What investments have you made to enhance live event production capabilities? What can you accomplish internally in 2025 that you couldn't last year? How long will it take to have the capability to produce large-scale events like NFL games?

A: When we first started making original series, we had no production capabilities at all, and early series like "House of Cards" were produced externally. Three years later, we began internal production of "Stranger Things." Today, although we still cooperate with many mature production companies such as Universal, 20th Television under Disney, Paramount, and Lionsgate, as the business expands, we will also choose more self-produced projects, especially live and sports content.

We see self-production and cooperation as tools for expansion, not to make up for lack of capability. For example, CBS is an excellent partner for us in producing NFL games, and we will continue to cooperate this Christmas.

Regarding live capabilities, it is inevitable to be immature at the beginning, but we believe in the strategic value and will actively promote and quickly enhance capabilities. Recently, we have made significant progress, such as simultaneously broadcasting the Taylor vs. Serrano fight and WWE Smack Down (outside the US) last Friday, both large-scale and high-quality.

In the future, we have a comprehensive plan for feature upgrades, committed to continuously improving the user live experience.

Q: From the success of the Korean musical "KPop Demon Hunters," what have we learned? Is it possible to launch more animated musicals starring fictional bands?

A: KPop Demon Hunters achieved great success upon launch, and our team is very proud of the original animation. Original animated films have always been challenging, but now our biggest hits—Leo, Sea Beast, and KPop Demon Hunters—are all original animated works, which makes us particularly excited.

This film cleverly combines music and pop culture, tells a good story, innovates in animation, and the music is well-loved, which will drive the film's long-term popularity. We mentioned in the report that the film's music is very successful, driving fans' enthusiasm for the fictional K-Pop group.

Additionally, the songs "Golden" and "Soda Pop" in the film are both hits, and this content is exclusively available on Netflix. We are delighted to delve into the cultural field through original animation.

Next, we plan to continue launching more original animated works, such as the equally humorous and interesting "Under Dream."

Q: Regarding packages and products. Netflix is constantly expanding content types, especially live sports broadcasts and the recently announced partnership with TF1. Will Netflix offer more levels of service based on existing content types? Or will Netflix always offer all content at ad-free and ad-supported prices?

A: We won't say "never," and we remain open to continuously adjusting the service model for users. But there are a few core principles that won't change significantly:

Provide members with diverse choices, launch packages with different prices and features, allowing users to freely choose the version of Netflix that suits them best; maintain good accessibility for new users worldwide, ensure reasonable prices, and support user growth; package design must ensure reasonable business returns, and return growth means we can continue to invest more in entertainment content and improve the experience.

Additionally, we will also pay attention to the complexity and balance of packages to ensure a reasonable structure.

Overall, bundled packages provide members with highly valuable services, allowing global users to easily enjoy rich entertainment content at a reasonable price. This feature is expected to continue in the foreseeable future.

Q: Why is the new UI/UX crucial for expanding live content? Besides live content, can you introduce which metrics have improved since the new UI was launched, such as the speed of users finding content and changes in failed sessions?

A: Our old interface, which has been iteratively improved over the past 10 years, is hard to surpass, but now the new interface has been launched on a large number of TV devices, and its actual performance is better than in the testing phase, proving the improvements are effective.

This gives us more confidence that the new interface will bring better performance across multiple metrics.

The reason we launched the new interface is simple: the old interface was designed for Netflix 10 years ago, and now the business has developed significantly, with more diverse content, including global films, games, and live events.

The new discovery experience needs to match this new content, helping users better understand when it's more fun to start Netflix, rather than opening it at any time. To this end, we used real-time recommendation technology, which can dynamically adjust content based on users' specific needs at the moment, so the interface seen on Tuesday night and Sunday afternoon will be different.

Overall, the new interface provides a stronger platform for business needs for many years to come, and we are confident in this.

Q: YouTube is the only streaming platform that surpasses Netflix in terms of TV viewing time share in the US. Do you think there is an opportunity to bring well-known YouTube creators and their content exclusively to Netflix? How big is this opportunity?

A: We hope to work with the best creators worldwide, whether they come from Hollywood, Korea, India, or are newcomers who only publish on social platforms. For these creators, Netflix can provide a high-quality distribution channel, good monetization opportunities, an excellent content discovery experience, and an audience eager to be entertained.

We agree with and support the model of working with diverse creators, although not all YouTube content is suitable for Netflix, but creators like Ms. Rachel, who perform well, do well on Netflix, with 53 million views in the first half of 2025.

From a broader competitive perspective, the entertainment market is huge and competitive, coming from multiple directions such as linear TV, other streaming media, games, and social media. The popularity of streaming and on-demand services has brought competitive pressure, and we must respond actively.

Free services are very popular among consumers, and the engagement of some free services is growing, but we have a different and stronger profit model. We are committed to winning more key, most profitable viewing moments.

It is worth noting that currently about 80% of TV viewing share belongs neither to Netflix nor YouTube, which represents a huge growth opportunity, and we are focused and actively competing in this part of the market.

Q: Can you talk about your generative AI (Gen AI) plans? In your opinion, which aspects will Gen AI have the greatest impact on in the future, revenue efficiency or cost efficiency?

A: We firmly believe that generative AI (Gen AI) brings great opportunities for creators, not only to reduce costs but also to improve the quality of works. Creators have received significant help from AI tools in production, such as pre-visualization, shot planning, and visual effects. Advanced effects that were previously only available for big-budget projects, such as "de-aging" technology, can now be achieved more efficiently through AI.

For example, in a certain Argentine drama, the production team used AI-driven virtual production and visual effects to complete a shot of building collapsing of Buenos Aires, 10 times faster and at a lower cost than traditional methods. This is also the first time Netflix has used Gen AI to complete a final shot in an original work, and both creators and audiences are very satisfied.

Additionally, we see huge opportunities in member experience, planning to use generative technology to improve personalized recommendations, and have piloted a natural language-based conversational interface to make it easier for members to find content they like.

In advertising, generative technology also helps lower the creative threshold, making brand advertising more attractive.

Overall, with our large data and scale advantages, generative AI will bring sustained value in multiple areas such as content creation, member experience, and advertising.

(Special Note: "Eye Line" is the name of our visual effects innovation team, dedicated to working with creators to promote these technology applications.)

Q: Given your expanding ambitions in the gaming field, including cooperation with "GGrand Theft Auto" and the recently announced obstacle agreement, can you talk about the recent profit opportunities in the gaming field?

A: We view the short-term monetization opportunities in gaming as a new area in the content category, similar to movies and series. By providing more value, we can enhance user acquisition, retention, and willingness to pay, thereby driving core business growth. Although gaming is currently small in the overall business, there has been positive feedback.

Next, we will increase investment in game content, still maintaining caution to ensure that investment can truly translate into member value. Licensed games (such as "GTA") and self-developed games (such as "Squid Game Unleashed") have performed well, and more interactive experiences will be launched in the future, leveraging our unique advantages.

We are very much looking forward to the development of the gaming field in the coming year and will continue to explore monetization models, but this requires first achieving a larger user base. Overall, the gaming market has huge potential, and we are firmly optimistic about this strategic opportunity.

Q: Given your company's healthy balance sheet and the upcoming wave of mergers and acquisitions in the global media industry, are there certain types of assets that can enhance your company's moat? For example, how do you view holding these assets when successful IP or film studio assets are listed?

A: We agree that the integration of film and media assets will continue, but this will not bring substantial changes to the competitive landscape. We have always preferred to build independently rather than acquire, believing there is ample room for growth without fundamentally changing this strategy.

When evaluating opportunities, we look at whether it is large enough, whether it can enhance entertainment content and capabilities, whether it accelerates strategic advancement, while weighing opportunity costs and distraction risks. We have no interest in owning traditional media networks, which also narrows the range of choices.

Overall, we will remain cautious in choosing, focusing on organic growth, investing actively and responsibly, while returning excess cash to shareholders through share buybacks. We will continue along this path in the future.

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