Netflix earnings call: Hastings hands out; steady, promising advertising progress (NASDAQ:NFLX)

Netflix stock (NASDAQ:NFLX) has increased by one Post-market growth 6.3% afterward surprisingly strong subscriber growth and revenue in line with Street expectations, as it kicks off its quarterly executive interview, with questions surrounding new potential revenue sources.

“It feels like yesterday was our IPO day. We were covered in red envelopes; we IPO for about $1. Hopefully some of you have held the stock for the full 21 years. ,” said co-founder Reed Hastings, who has since left his colleague. CEO position to become executive chairman, empowering co-CEOs Ted Sarandos and Greg Peters. This earnings call (his 83rd) will be his last.

Hastings’ succession move (which BofA interviewer Jessica Reif Ehrlich called “possibly the smoothest transition we’ve seen in the media in a long time”) raises the question. asked if a change in strategy was ahead and the message was: We’ve been working on this strategy for a while.

“We’ve always been focused on the future and where the consumer is going” – towards streaming, Sarandos said, reiterating that execs see Netflix’s market age as “the infancy”.

“Even though we’ve grown big… we still account for about 8% of TV time, so that’s a huge amount of growth ahead, even in the market we’re in,” said Sarandos. was in a strong position.”

Moving on to the advertising service tier, which launched at a lower price on November 3, Peters said: “We learned a lot.” “All the technology is working; the product experience is very good.” Peters says engagement for users of plans with ads is similar to engagement on plans without ads, and that “rate and growth” is solid. He added that there is more work to be done on validation/measurement and relevancy.

Hulu (dis) (CMCSA) is a model and “they had a 10-year start,” noted Hastings. CFO Spence Neumann points out that about half of Hulu’s members are advertising-level. “We won’t be bigger than Hulu the first year, but hopefully in the next few years we can at least be as big.”

Reif Ehrlich notes that linear TV’s $50 billion to $60 billion ad business is “easy money,” while the digital group is much larger. Does Netflix still think it will be “extremely difficult” to compete with the likes of Google?GOOG) (GOOGLE) and Meta Platform (META)?

Peters said linear television was the first target. “Now, I think we can put in there, over time, the ingredients that make digital advertising so compelling,” noting that its users are 100% logged in and have fully accessible. VP of Investor Relations Spencer Wong notes that the branded video ad market the company will pursue is around $180 billion globally (excluding China and Russia).

As for the jump into free ad-supported TV (FAST), the company is open to different models but “we have a lot going on this year,” Sarandos said.

Reif Ehrlich notes that free cash flow has faced change – $1.6 billion in 2022, around $3 billion in 2023, and potentially “more than $4 billion” by 2024 – and there has been no change to Netflix’s capital allocation yet, to “first and foremost” reinvest in the core business and “selective acquisitions” thereafter. In addition to holding cash in excess of the cash minimum (about two months of revenue), it will return that money to shareholders through buybacks.

In one SEC filings, the company detailed the executive change and said that as the new co-CEO, Peters will receive an annual salary of $3 million with an annual stock option allocation $17.325 million and an estimated target bounty of $14.325 million. Peters also joins the board of directors.

As executive chairman, Hastings will receive an annual salary of $500,000 with no target bonus and a stock option allocation of $2.5 million.