Netflix, Inc. Q3 FY2025 earnings call

• Business is healthy with good progress on key initiatives. Q3 revenue was in line with expectations, and operating income would have exceeded forecast absent the Brazilian tax matter. • Achieved record share of TV time in the US and UK in Q3. Had the best ad sales quarter ever and is on track to more than double ad revenue in 2025. • Building live offerings and games; Canelo Crawford fight was the most viewed men's championship fight this century, and Netflix games can now be played on TV with the phone as a controller. • Massive opportunity in the core business with only 7% of addressable market in consumer spending and 10% of TV time in biggest markets. • K-Pop Demon Hunters was the most popular film ever, and Mattel and Hasbro were named global co-master toy licensees for it. • Brazilian tax matter: Contribution for Intervention in Economic Domain, a gross tax on outbound payments, booked as cost of revenues, not expected to materially impact future results. • Advertising: Doubled US upfront commitments, programmatic growth, focus on making it easier for advertisers, iterating on ad formats, and increasing advertiser diversity. • Engagement: Total view hours grew in Q3, with highest view share in the US and UK. Upcoming content slate in Q4 and 2026 with numerous returning shows and new films. • Spotify partnership: Video co-exclusive partnership to provide curated podcasts for members. • Live events: Canelo Crawford fight was highly viewed, with upcoming Jake Paul vs Tank Davis and World Baseball Classic in Japan. • M&A: Selective M&A focused on profitable growth, not interested in legacy media networks, and evaluating opportunities using a clear framework. • Gaming: Interactive features, party games playable on TV, key genres, and easy access to games, driving engagement and retention. • AI: Leveraging AI for various business areas, using it as tools for creatives to enhance productivity and member experience, not replacing creativity.

No specific breakdown of product segments by financial performance and revenue contribution % provided in the transcript.

• Will issue full-year 2026 guidance on the next call in January. • Financial objectives remain unchanged: sustain healthy revenue growth, expand margins, and increase free cash flow. • Refrained from offering 2026 advertising guidance but expressed confidence in the growth trajectory.

• Brazilian tax matter: Contribution for Intervention in Economic Domain, a unique tax in Brazil, but not expected to have a material impact on future results.

Q: As you begin to wrap up 2025 and look to 2026, can you talk broadly about the health of the business and how you would frame the opportunity ahead?

A: Gregory Peters and Theodore Sarandos discussed business health, key initiatives, ad revenue growth, live offerings, games, and massive opportunity in core business.

Q: Provide more color on the nature of the tax expense and why it fell above the operating line?

A: Spencer Neumann explained Brazilian tax matter, it's a gross tax on outbound payments, booked in cost of revenues, not expected to materially impact future results.

Q: Any early views on revenue and operating income growth for 2026?

A: Spencer Neumann said will issue full-year 2026 guidance in January, financial objectives unchanged.

Q: Should we interpret doubling upfront commitments in 2025 to mean full-year 2026 advertising could also double?

A: Gregory Peters said feeling good about growth trajectory but refrained from 2026 guidance, talked about programmatic growth, ad stack, and client feedback.

Q: Key priorities for advertising business in 2026?

A: Gregory Peters talked about making it easier for advertisers, increasing advertiser diversity, adding demand sources, improving ad sales and go-to-market, iterating on ad formats.

Q: Are fill rates improving in line with expectations as ad suite and new demand partnerships scale up?

A: Gregory Peters said fill rates have improved and expected to continue improving.

Q: Seeing a pickup in engagement like expected?

A: Gregory Peters and Theodore Sarandos talked about view hours growth, highest view share in US and UK, upcoming content slate.

Q: How should we think about recent Spotify partnership?

A: Gregory Peters said it's a video co-exclusive partnership to provide curated podcasts, integrating into Netflix offering.

Q: Updated perspective on monetizing content in theatrical window?

A: Theodore Sarandos said strategy is to give members exclusive first-run movies on Netflix, occasional theatrical releases for promotion, K-Pop Demon Hunters example.

Q: Observations from Canelo vs Crawford fight and impact on engagement, acquisition, retention?

A: Theodore Sarandos said it was highly viewed, big events differentially valuable, positive impact on acquisition, early on retention.

Q: Importance of global vs local sports rights, and impact on advertising growth?

A: Theodore Sarandos said it's a scale question, focused on big live events, advertising depends on thrilling audiences.

Q: Testing premium tier free trials?

A: Gregory Peters said testing and productizing offers to help members choose right plan, better satisfaction, engagement, retention.

Q: Potential industry reshaping via M&A, opportunity or threat?

A: Theodore Sarandos and Gregory Peters talked about selective M&A, focus on profitable growth, not interested in legacy media networks, competition remains, need to evaluate opportunities.

Q: Less third-party content accessibility due to industry consolidation?

A: Theodore Sarandos said original titles are big driver, license third-party content, not dependent on single supplier, licensing benefits IP.

Q: How gaming could change time members spend with Netflix?

A: Gregory Peters talked about interactivity, party games playable on TV, key genres, easy access, driving engagement, retention.

Q: Leveraging AI and impact of Sora 2, etc.?

A: Gregory Peters and Theodore Sarandos talked about leveraging AI for various business areas, AI as tools for creatives, not replacing creativity.