Ethan Miller
netflix stock (NASDAQ:NFLX) had gone up to a 6.3% post-market profit after surprisingly strong subscriber and revenue gains in line with Street’s expectations, as he kicks off his quarterly executive interview, with questions revolving around potential new income streams.
“It seems like our IPO was yesterday. We were covered in red envelopes; we did an IPO at around $1. Hopefully some of you have held the stock for the full 21 years,” said co-founder Reed Hastings, who left his co- CEO role will become CEO, handing over leadership to co-CEOs Ted Sarandos and Greg Peters. This earnings call (the 83rd) will be the last.
Hastings’ succession move (which BofA interviewer Jessica Reif Ehrlich called “perhaps the smoothest transition we’ve seen in the media for quite some time”) raised the question of whether a shift in strategy was yet to come, and the message was: We’ve been working on this strategy for a while.
“We’ve always been focused on the future and where consumers are going” toward streaming, Sarandos said, reemphasizing that executives view the Netflix market era as its “childhood.”
“As big as we’ve gotten…we’re still around 8% of TV time, so that’s a huge amount of growth ahead of us, even in a market where we’re very well established,” he said. Sarandos.
As for the ad service tier, which launched at a lower price on November 3, “we’ve already learned a lot,” Peters said. “All the technology works; the product experience is good.” User engagement for the ad plan is similar to that for the ad-free plans, Peters says, and the “acceptance rate and growth” are strong. There is more to do on validation/measurement and relevance, she added.
Hulu (DIS) (CMCSA) is a model and “they’ve had a head start of 10 years,” Hastings noted. About half of Hulu’s members are at the ads level, Chief Financial Officer Spence Neumann said. “We won’t be bigger than Hulu in the first year, but hopefully in the next few years we can be at least as big.”
Reif Ehrlich noted that linear TV’s $50B-$60B ad business is the “easy money” while the digital pool is much larger. Does Netflix still think it will be “incredibly difficult” to compete with Google (GOOG) (GOOGL) and Meta Platforms (META)?
Linear television is the goal at first, Peters said. “Now, I think we can add to that, over time, the components of what has made digital advertising so compelling,” noting that its users are 100% registered and fully addressable. Vice President of Investor Relations Spencer Wong notes that the branded video ad market the company will target is approximately $180 billion globally (not including China and Russia).
As for jumping into free ad-supported TV (FAST), the company is open to different models, but “we have a lot at stake this year,” Sarandos said.
Free cash flow has faced an inflection, Reif Ehrlich noted: $1.6bn in 2022, about $3bn in 2023 and probably “more than $4bn” in 2024, and so far no change in the capital allocation of Netflix “first and foremost” reinvesting in the core business and “selective acquisitions” after that. Beyond holding cash above minimum cash levels (about two months of income), it will return it to shareholders through buybacks.
In an SEC filing, the company detailed the executive change, saying that in his new role as co-CEO, Peters would receive an annual salary of $3 million with an annual stock option allocation of $17.325 million and an estimated target bonus of $14,325. millions. . Peters also joins the board.
As chief executive, Hastings will receive an annual salary of $500,000 with no target bonus and a stock option allocation of $2.5 million.
