Image source: The Motley Fool.

Thursday, April 17, 2025

CALL PARTICIPANTS

  • VP of Finance, IR, and Corporate Development: Spencer Wang
  • Co-CEO: Ted Sarandos
  • Co-CEO: Greg Peters
  • CFO: Spence Neumann

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TAKEAWAYS

  • Revenue: More than $40 billion revenue in Q1 2025, representing approximately 6% of consumer spend and ad revenue in served markets.
  • Paid Households: More than 300 million paid households reaching over 700 million viewers.
  • TV Engagement: Less than 10% of TV hours for connected households.
  • Operating Margin: 29% operating margin full-year 2025 forecast maintained despite Q1 2025 outperformance.
  • Advertising Revenue: Expected to roughly double advertising revenue in 2025 through upfronts, programmatic expansion, and scatter market.
  • Ad Tech Platform: Proprietary suite launched in Canada and U.S., with rollout to 10 additional markets planned.
  • Live Events: Taylor/Sorento fight scheduled for July; second NFL Christmas Day game secured for 2025.
  • Free Cash Flow: $8 billion free cash flow guided for 2025, with excess likely to be deployed for share repurchases absent significant M&A activity.

SUMMARY

Netflix maintains a strong market position with stable retention and engagement metrics, despite economic uncertainties. The company's ad-supported tier provides additional resilience, while its proprietary ad tech platform rollout in Canada and the United States enables enhanced targeting capabilities and flexibility for advertisers.

Content strategy combines in-house animation, licensed properties, and creator partnerships to target the approximately 80% of TV time not captured by Netflix or YouTube.

AI tools are being leveraged to improve production efficiency and enable advanced visual effects for smaller budget projects.

Gaming initiatives focus on IP-based titles, mainstream franchises, kids' content, and socially engaging party games, with measured investment growth tied to demonstrated member value.

"We have always said that we were in this to win," stated Greg Peters regarding the gaming strategy. "We want to invest enough to ensure that we are playing to win. But we also are coming knowing that we have got a lot to learn."

INDUSTRY GLOSSARY

Upfronts: Advanced advertising sales events where networks showcase upcoming content to secure advertiser commitments.

Scatter Market: Ad inventory sold closer to the air date, often at different rates than upfront purchases.

Programmatic: Automated buying and selling of digital advertising inventory.

Full Conference Call Transcript

Spencer Wang: Good afternoon, and welcome to Netflix 2025Q1 earnings interview. I am Spencer Wang, VP of Finance, IR, and Corporate Development. Joining me today are co-CEOs, Ted Sarandos and Greg Peters, and CFO, Spence Neumann. As a reminder, we will be making forward-looking statements, and actual results may vary. We will now take questions from the analyst community, and we will begin first with our results, outlook, and forecast. And our first question comes from Robert Fishman of Moffett Nathanson. Robert's question is, The Wall Street Journal report this week discussed Netflix's internal goal of doubling revenue and tripling operating income by 2030. How should investors think about Netflix leaning into more content spending over the next five years? I will take this. And thanks, Robert.

Ted Sarandos: Look. We have a unique culture. And part of it is this open information operating style, and it has served us very, very well. On rare and very disappointing occasions, our confidential and internal discussions can leak into the press. And while we would not normally comment about leaked internal information, we do want to be extra clear about this. We often have internal meetings, and we talk about long-term aspirations. But it is important to note that this is not the same as forecast. Our operating plans are the same as our external forecasting guidance. We do not have a five-year forecast or five-year guidance. But you can assume that we are long-range thinking, and that we are working hard every day to build the most loved and valued entertainment company for all of our stakeholders. And maybe to pivot the conversation to what we are

Greg Peters: happy to comment on and discuss in detail. You know, we do have big long-term aspirations, and those aspirations are really grounded in the potential for growth that we see in the business. Now we think we have a pretty good business today, you know, over $40 billion in revenue. We have got over 300 million paid households. Those represent an audience of over 700 million individuals. We are leading in streaming view share, but we also think that we are a minority of our addressable market our potential across any of those measures. So you think about engagement, You know, we are less than 10% of TV hours for an audience or connected households perspective, we still have hundreds of millions of folks to sign. And from a revenue perspective, you know, we are about 6% of consumer spend and ad revenue in the countries we serve in the areas that we serve. So we believe we have plenty of room to grow our engagement, our revenue, and our profit. And as Ted said, you know, do that to become the most valued and loved entertainment company for all of our stakeholders.

Spencer Wang: Thanks, Ted and Greg. Our next question or I should say we have received several questions actually, understandably, about the economic environment and consumer sentiment as well. For example, Jason Helfstein from Oppenheimer asks, this is the first time you are potentially entering a recession with a low-cost ad plan. How do you think about consumers downgrading plans relative to the behavior you have seen in prior recessions?

Greg Peters: Yeah. Given that we have got a bunch of questions on sort of the general economic environment, maybe just start with some comments on that. We are paying close attention clearly to the consumer sentiment and where the broader economy is moving. But based on what we are seeing by actually operating the business right now, There is nothing really significant to note. So what are we looking at Primary metrics and indicators would be our retention that is stable and strong, We have not seen any significant changes in plan mix or plan take rates to part of that question. Our most recent price changes have been in line with expectations. Engagement remains strong and healthy. So things generally look stable from that lens. Stepping back, we also take some comfort in the fact that entertainment historically has been pretty resilient in tougher economic times. Netflix specifically also has been generally quite resilient, and we have not seen any major impacts during those tougher times, albeit, of course, over a much shorter history. And then to the point of the specific question, I think that having the low-cost ads plan in our largest markets also gives us more resilience. And we think that we represent an incredible entertainment value starting at $7.99 in the US and Canada with that as planned. An accessible price point, and we really do expect the demand for entertainment to remain strong.

Ted Sarandos: Yeah. And just to add to that, Greg, a bit, you know, we remain focused on the things that we can control. And improving the value of Netflix is the big one. Historically, in tougher economies, home entertainment value is really important to consumer households. And Netflix is a tremendous value in absolute terms and certainly in competitive terms. So are some international risks that folks talk about, what is happening now And I would say, look. There always has been. We pay taxes and levies around the world consistent with all sorts of local regulations, and so there is always some of that that has existed, always has. But what we are seeing today, we are not changing anything in the forecast. So kind of keep in mind, while the US represents our largest spend for content employees, production infrastructure, We produce original content in 50 countries around the world. And we are a net contributor to many of those economies and cultures. So in our letter, we talked about our commitment to the UK, We also recently announced a billion-dollar commitment to production in Mexico. In 2023, we announced we are $2.5 billion and committed to Korean content in Korea. And all these are just examples of the global commitment. So when we produce in these countries, we create and support employment, training, We work with local producers and local talent. We help export local stories and local cultures around the world. We even drive tourism. So we believe we are additive to the local economies and the local cultures. All around the world where we are working, so perhaps a little bit less exposed.

Spencer Wang: Thanks, Ted. So that sort of takes Weighed by the strength of your slate and increased time spent watching Netflix.

Ted Sarandos: Yeah. It really links to how we think about price changes. As we stated before, we really rely on our members to let us know when we have invested enough grown the value in our offering, and then to determine based on that when we adjust pricing to be able to reinvest back into our service. We are going to continue to follow that philosophy and that path rather than some predetermined plan. We certainly have seen periods of challenging economic conditions historically in different countries, and we have generally been able to keep that positive flywheel spinning even in those situations. And I think that that speaks to the gap between value and price that and that we are for many people a very good value even as they are being careful about where they spend. We have also been expanding that range of price points, including a low-priced ad plan in our ads market, which better allows us to offer the right plan at the right price to a wider range of consumers. So that is all to say that we are proceeding largely as we have done in the past. While continuing to work to improve both value and accessibility.

Spencer Wang: Great. Thanks, Greg. Our next question is from John Hudlik of UBS. How has member retention been trending given the Q4 strong paid net additions? Have you retained the bulk of these subscribers, and can you give us a sense of how churn has been trending?

Greg Peters: Yeah. Sure. Spencer, why do not I take that one? Give Craig and Ted a break for a sec. You know, as Greg mentioned, we are seeing strong, stable acquisition and retention trends in the business generally. That resulted in healthy member growth in Q1. You know, last quarter, we did provide some color on the retention characteristics for some of those bigger live events in Q4. Recall, we had the Paul Tyson fight. We had NFL on Christmas day. We also had Squid Game, which was an event in and of itself. So but we did mention at the time that those three big events were still a minority, a small minority of our net adds in Q4. But we also noted that the retention characteristic for the members that came in for those big events was similar to members that joined for other big titles, and that continues to be the case. So know, really no meaningful changes to our retention story, which, you know, no news on that front is good news from our perspective.

Spencer Wang: Thanks, Spence. We have another question about our outlook and forecast, from Michael Morris of Guggenheim. Given the strength in operating margins in the first half of the year, can you discuss the key incremental costs that will drive lower margins in the second half? You expect these costs to be more heavily weighted to the third quarter or the fourth quarter? Spence?

Greg Peters: Yeah. I will take it again. Okay. Thanks, Michael. So we are as you see in our in our in our letter, as you mentioned, we are still forecasting 29% full-year margin operating margin for the year. And, you know, we primarily managed a full-year margin. As you know, our margins bounce around a bit quarter to quarter. That is usually based on the timing of our content slate. That is the primary driver, and that is what is reflected in our forecast. So content expense will we expect will grow and ramp in Q3 and Q4 on a year-over-year basis given the timing of our slate. We have got our biggest titles returning in the back half of the year. I am sure Ted or talk to some of that later in the call. And also typically in Q4, we have a heavier film slate. We have also got sales and marketing expenses that will probably that we expect would ramp in the second half of the year both to support the slate, but also you know, ad sales. The this go-to-market operations and are hitting in our marketing and sales line. So that we are continuing to build out our sales operations and capabilities, and some of that is hitting there and growing in the back half. So all of that is expected and reflected in our guidance. Other than, as I said, a little bit of a heavier slate typically on the film side in Q4. No meaningful differences between Q3 and Q4. You know, the one thing maybe I will also just add, Spencer, is, you know, we obviously beat a bit in operating income in Q1. But at this point, most of that was is a little bit on the revenue side, mostly on the expense side, and it looks to us that most of that was timing of spend. But still spend that we would expect to hit in the full year. So still long ways to go in the year, good bit of macro uncertainty out there. So this is still our best estimate for kind of outlook for the year.

Spencer Wang: Thanks, Ben. I will move this along now to a set of questions around advertising. From Dan Salmon of New Street Research. Does the current macro environment change your approach to the television upfronts? Any broad thoughts on how you are approaching upfront versus the scatter market would be great.

Ted Sarandos: Sure. Similar to commentary on the, you know, consumer sentiment, we are keeping a close eye on the marketplace, but we are not currently seeing any signs of softness from our direct interactions with buyers. Actually, to the opposite, we are seeing some positive indicators from clients as we approach our upfront event. I think worth noting perhaps that the fact that we are currently relatively small in ads, and that sort of, you know, ads as a revenue contributor to Netflix, but probably more importantly, the amount of ad spend that we are seeking to win relative to the big ads pie. That smallness probably provides us some insulation to market shifts right now. And we are, you know, rolling out our proprietary ad tech suite. We have rolled that out in Canada and United States. We have got our remaining ten markets coming. That offers a bunch of new capabilities that advertisers have told us they want. We are just starting to sell into those new capabilities that opens up new opportunities for us, opens up new demand for us as well. So I would say based on everything that we are seeing right now, we continue to expect that we will roughly double our advertising revenue in 2025 through a combination of both upfronts, programmatic expansion, and scatter.

Spencer Wang: Thanks, Greg. And that is a very good segue to our next question, which comes from Vikram of Baird. Could you provide an update on your first-party ad tech platform How is the rollout in Canada perform relative to your expectations, and do you have any so far in the US

Ted Sarandos: Yeah. It is a big milestone for us to roll out our own ad suite. We have been working on it for a while. We are still in the middle of that rollout, but our Canada and US launches have gone well. They consistent with our expectations. We are learning and improving quickly now based on the feedback we are getting from having those live and operating them. Then we will roll out across the remaining ten ads markets in a few stages over the coming months. So that is, so sort of all lined up and ready to go. The biggest initial benefit that we are seeing, again, as expected from being on our own ad servers, it just enables more flexibility for advertisers, more ways that they can buy. There are fewer activation hurdles We have the ability to improve that overall buyer experience iteratively. It just makes it easier to transact with Netflix, and that, of course, drives increased sales. And so we are seeing that. And then we expect over time that our first-party ad tech platform allows to do other things, deliver more critical capabilities more quickly to advertisers, These are things like more programmatic availability, something we definitely hear demand for. Enhanced targeting, something we are excited about. We can leverage more data sources and, of course, something we hear all the time, more measurement and reporting capabilities. So these are all things that we have got in work. Some of those have been delivered already, and some of the territories and those will come over time. And then the other big space of benefit by being on our own ads tech stack is it enables us to have more control to create a higher quality ad experience for our members. This is, you know, things that are really important, like increasing ad relevance, which is just this good for everybody in the in the whole ecosystem. So just getting started. Excited to get it out there. We have got many years of building ahead of us. But we have got a clear road map. We know what we are committed to. And we will just continually do iteratively improve and innovate in advertising just like you have seen us do all sorts of other areas.

Spencer Wang: Thanks, Greg. And speaking of ads relevance, Justin Patterson has a longer-term question on ads. Netflix has solved personalized content recommendations What are the key steps to solving ad content recommendations or relevance? In which inning, do you believe, you are in?

Ted Sarandos: Not sure I would characterize this completely solved. We hope that we could be even better, to day to day in recommending our the main titles. But we do have an ambition to achieve that same level of sophistication and maturity capability that we did on the on the personalized recommendations. In the ad space. So that means, you know, matching the right ad, with the right audience, the right viewer, and the right title. And we think putting those three things together drives superior campaign outcomes for advertisers. We think it is a better experience for members so it is win win win. You know, where are we at in that process? I would say that we are literally just beginning to get that going. So the first stage of that is actually being on our own ads platform. We have launched that, as I said, in Canada, US. We have got the remaining markets coming over the next months to come. And in doing that, during this time, we have been able to significantly already expand our targeting capability. The Netflix unique data. So think life stage, interest, viewing mood, In the US, we have also recently enabled advertisers to do more significant targeting. So this is targeting on their own onboarded audiences. Targeting on Netflix modeled audiences, targeting against audience segments that provided by a select set of third-party vendors. So we have got a lot of expect exciting work going on that space. And then looking ahead, in 2026, we will do more of that, more data targeting capabilities. We will move more of that globally. So a lot of things we do, we started in the United States and expand across more territories. You will see that. And then, of course, more measurement functionality in all markets. And then in 2027, when we get to look to specific focused investments at a higher order, and data capabilities such as ML-based optimizations, Got advanced measurement, advanced targeting. We will be really opening a rich space there. Another big benefit we get on our own ad stack is we will be able to innovate and develop more quickly new ad formats. So we have more spaces that we can, you know, point all of that in improved targeting capability against So just getting started in the space. We have got a lot of work to do for sure, but we think we will be able to move very quickly and frankly more quickly than other streamers because we believe we are going to be able to leverage only preexisting tech that we have, data that we have, but also data science expertise and the rapid product innovation experience that we have got.

Spencer Wang: Just going to be, the the inning analogy gives us a little more

Greg Peters: flexibility than crawl, walk, run. Right? So when you walk through all it is nice to have all those anymore ahead of us. Yeah. Nice options instead of three.

Ted Sarandos: That is right. Stepping out into the plane and starting to swing. That would be where we are at. Yeah.

Spencer Wang: Thanks, Greg. I will move us along to a series of content-related questions from analysts, beginning with Rich Greenfield from Lightshed. There are four major sports properties available right now How should we think about the strategic fit for Netflix in terms of number one, the UFC, number two, WWE premium live events. Number three, F1. And number four, Major League Baseball.

Ted Sarandos: Thanks, Rich. Just I do want to remind you that our live strategy is beyond just sports. So I am not, I am not going to comment on any of those specific opportunities at this time. But I will steer you back to the letter to show you that our live event strategy is unchanged, and we remain really focused on the big breakthrough events Our audiences love them. And so anything and anything we chase in the events space or the sports space, is a deal that has to make economic sense as well. So live is a relatively small part of our content spend. We have about 200 billion view hours, so small relative to view hours too. But that being said, all viewing is not equal. What we have seen with live is this very out-sized positives around conversation and acquisition, and we suspect retention. And we are really excited to keep building on that. We have the Taylor Sorento fight in July. That is a rematch from when they fought the first time on the Tyson Paul fight night. It was the most watched women's sporting event in US history. So there is a lot of excitement around that. The NFL, of course, is a great property, and we are happy to have the Christmas Day games. So we opted into the second NFL game for Christmas Day. So we will be presenting holiday football again on December 25th. 2025. Really exciting. And then today, our live adventures have all been primarily in the US. But we intend to grow the capability, to do it around the world in the years ahead. So very pleased with the progress so far and excited about the future for live sports and non-sports.

Spencer Wang: Thanks, Ted. The next question is from Matt Thornton of FPN Securities. Do you think video podcasts could perform well as a category on Netflix?

Ted Sarandos: So we are constantly looking at all different types of content and content creators. The lines between podcast and talk shows are getting pretty blurry. We want to work with kind of great creators across all kinds of media, that consumers love. And podcasts, to your point, have become a lot more video forward. And today, we actually produce a lot of podcasts ourselves. As part of our kind of publicity and publishing efforts. So some are really show specific like Squid Game and Diplomat, Some are genre focused. Some are talent focused. Have a great one called, You Cannot Make This Up, all about Netflix stocks. And they live everywhere podcasts live today. But as the popularity of video podcast grow, I suspect you will see some of them find their way to Netflix. Thanks, Ted.

Spencer Wang: From Rich Greenfield again, how do you create iconic animated franchises? What does it really take to build out culturally relevant animated IP? Is the answer a different team acquisitions or something else entirely?

Ted Sarandos: Well, thanks, Rich. Keep in mind, this we are relatively new at this, and it is a completely creative process. We have had some hits, and we have also had some misses. So we know we have our work to do. But I would point out that we have had some really niches with Leo, with Seabees, Guillermo del Toro's Pinocchio, certainly Pierce Culture, even won the Oscar for us for best animated feature film. And the other thing to keep keep in mind about why we are excited about this space there is a lot of demand for animated film. In 2024, nine out of the top ten most streamed movies were animated features. So just like in our live action strategy, we want to make some. We want to license some. And we have more access to data license than we did when we began in-house animation. And we get to that now through output deals with Universal Illumination and with Sony. But the animation team, Hannah and Dan, they are working really hard on a very promising slate of exclusive originals that are going to roll out through 2027. Including one called the In Your Dreams coming out in Q4. Which is really fun. Really entertaining, beautifully produced film that I think you are going to love. So got our work cut out for us, but it is a big prize.

Spencer Wang: Thanks, Ted. Our next question comes from Robert Fishman of MoffettNathanson. As you think about the competitive landscape over the next five years, should investors expect Netflix to move into short form or creator-led content to compete head to head with YouTube.

Ted Sarandos: Sure. I will kick this one off. I think just starting at the macro lens, we have always had very strong competitors. Including YouTube, many others. We are all definitely competing hard for people's entertainment time. So we absolutely have to earn every hour that we win. We do not take anything for granted, but do not get anything for free. We wake up every day eager to improve our service for our members and for members to be. We also think in that broadest competitive lens that the biggest opportunity we have got is actually going after the roughly 80% share of TV time that neither Netflix nor YouTube have today. We think of that as a real immediate opportunity. And then when it comes to the specific head-to-head competition with YouTube or other platforms like YouTube, we believe we are a more competitive, better service for a certain class of creators and certain types of storytelling. And most importantly in that is that we lead monetization for those kinds of titles. And that means we can provide a better opportunity than YouTube or other services for those creators and those stories. And, Ted, maybe you want to comment on the creator and content type expansion.

Ted Sarandos: Yeah. Sure. They you know, we are looking for the next generation of great creators, and we are looking everywhere. So they are not just in film schools and certainly not just in Hollywood. Creators today have tools that were unimaginable. A decade ago, you know, to tell stories to reach audience. You know, the question that is out there is that is it premium? Some of it is. And we believe we have the best monetization model on the planet for premium storytelling. I think we could help those creators reach an audience. Our model can also support more ambitious efforts for them, can help derisk them unlike the kind of typical UGC models. Look at people folks like miss Rachel. She has been in the top ten every week since she launched on Netflix. Kill Tony right now is killing it with our stand-up fans. We are working with side with Sidemen, with we just launched Pop the Balloon. So we think it is really exciting. When you put this all together, we believe it is the best place for premium content as defined by fans, and the best home for storytellers whoever they are working on honing their skills today.

Spencer Wang: Thank you. From Ben Swinburne of Morgan Stanley, we are starting to see some of the fear around AI and content creation subside. Major directors like the Russo's, Jim Cameron, etcetera, begin embracing the technology. What is Netflix doing to leverage AI for its creative partners? How meaningful can this be? And are there any examples that you can share?

Ted Sarandos: Well, Ben, there is a ton of excitement about what AI can do for content creators. I read the article to Jim Cameron said about, you know, making movies 50% cheaper. I remain convinced that there is an even bigger opportunity if you can make movies 10% better. So our talent today is using AI tools to do set references or previs, VFX sequence prep, shot planning, all kinds of things today that kind of make the process better. Traditionally, only, you know, big budget projects would have access to things like, you know, you know, advanced visual effects such as de-aging. So, today, you can use these AI-powered tools so to enable smaller budget projects to have access to, you know, big VFX on screen. A recent example I think is really exciting Rodrigo Prieto is was the DP on The Irishman just five years ago. And if you remember that movie, we were using very cutting edge, very expensive de-aging technology that still had massive limitations still created a bunch of complexity on set for the actors. It was a giant leap forward for sure. But nowhere near what we needed, for that film. So this year, just five years later, Rodrigo's directing his first feature film for us, Pedro Perrimore in Mexico, Using AI-powered tools, he was able to deliver this de-aging VFX to the screen you know, for a fraction of what it cost on The Irishman. Fact, the entire budget of the film was about the VFX cost on The Irishman. So same creator using new tools, new better tools to do something that would have been impossible to do just five years ago. That is incredibly exciting. So our focus is simple. Find ways for AI to improve the member and the creator experience.

Spencer Wang: Thanks, Ted. Our next question is from David Joyce of Seaport Research Partners. The question is, with so much content in your library, what can you do for discovery to help drive further engagement with the platform? Is there anything further structural you can do with the recommendation engine, or is going to require more marketing?

Greg Peters: Yeah. A fact that so

Ted Sarandos: surprises many people is that even our most popular most buzzy titles that you are hearing tons of conversation around, those still drive less than 1% of viewing. So that discovery and recommendations capabilities are really critical to unlocking all the value from the investments that Bella's team is making around the world. And we believe and we continually see this in test results quarter after quarter, that there is more room to improve that discovery and recommendation experience, and therefore, provide more value for members and therefore, find the biggest audiences for around the world for our titles. To that end, some examples of this. Last year, we began testing a new simpler, more intuitive TV home page. This is something that we had not made big structural changes to in over a decade. And we believe that that will significantly improve the discovery experience on Netflix. We have been polishing and improving that experience based on the input we got from members who used it, and we plan on rolling that out later this year. So that is very exciting and a pretty significant structural shift that we anticipate will move things forward significantly. But we are doing things to the other end of the spectrum too. So we are also building out, like, new capabilities An example would be interactive search. That is based on generative technologies. We expect that will improve that aspect of discovery for members. So there are many, many specific improvements that we have gotten work so a lot more to come in the space. And really, frankly, no foreseeable limit on those improvements, in the years to come.

Spencer Wang: Great. Thanks, Greg. Michael Morris from Guggenheim has our next question. Actually about extra member accounts. How is adoption of extra member accounts trended since launch? Can you share how this offer has contributed to revenue growth to date and whether you see it as additive to future growth?

Ted Sarandos: We see Extra Member as a part of our plans and pricing model. So it is an option that provides flexibility and choice for members. Allows them to, you know, tailor the Netflix offering to their needs. We know, some members want to share Netflix with family or friends. An extra member gives them an easy way to do that a lower cost way to do that as well. We see good retention and engagement on that plan, which is really important to us and says it is a sort of healthy part of the offering. But while we love it from a member convenience perspective, responding directly to the question, extra member is not a major driver for our business, and we expect it will remain relatively small in the foreseeable future.

Greg Peters: Thanks, Greg. I just say that Greg's point is I agree with all that. It is, I think, part of the question is still growing. Honestly, but it is a so it is healthy to all for all those reasons, but it is just not a big driver of the business.

Spencer Wang: Thanks, Spencer, for clarifying. Justin Patterson from KeyBanc with the next question. Alon, who leads our Netflix games business, spoke recently at the games developer conference. About making gaming more accessible and achieving mass market appeal What types of games have resonated on Netflix so far? And where do you where do you see opportunities to improve the user experience to drive you even more engagement for games?

Ted Sarandos: Yep. We have learned quite a bit, and made some decent progress since we launched games, but we continue to see this as a multiyear iterative journey, much like we have seen and you have seen from us when we launch a new content category or we launch a new country and we develop product market fit, and improve that over time. You asked, what games have worked for us so far. You can see much of the answer to that question embedded in the genres that we are going after and focusing on right now. So that starts with immersive narrative games based on our IP. Squid Game Unleashed is a really good example. We will have an update for that game with the latest season of Squid Game that is coming. More recently, which is our black mirror based Tamagotchi style game that has a dark twist in the end, very consistent with Black Mirror. Another category that we are going after is mainstream established titles. This is Grand Theft Auto, which really worked for us, and you will see us launch more titles like that. In the future. There are also games for kids, you know, being able to give kids a game experience that is free of ads, it is free of any in-app purchases, you know, safe for parents. With a subscription. We just announced Peppa Pig, a Peppa Pig game, which is coming soon. So that is an example of that. And the fourth category, which I would say we do not have a lot of data points demonstrated in yet, but we are excited about and we will be delivering some to understand the space better is socially engaging party games. Think about this as you know, either an evolution of the family board game or an evolution of the game show on TV that becomes interactive in your living room. So lots of excitement there. And then you mentioned in terms of areas to improve, there are tons of areas to improve. Frankly, we can improve everything that we are doing from user experience and discovery and getting to play, but also just in having more compelling games. So that is a real top priority for us, at this point. And maybe just a few comments with regard to how we think about investment and growth in this space. We have always said that we were in this to win. We want to invest enough to ensure that we are playing to win. But we also are coming knowing that we have got a lot to learn, and we still have a lot to learn despite all that we have learned so far. We do not want to grow our investment too much until we iteratively develop high confidence that we know how to translate that investment into member value, like the

Spence Neumann: So our investment, by our scale, is still relatively modest. It is

Ted Sarandos: a small fraction of our overall content budget. And as we continue to see incremental proof points, we will ramp up that investment in a measured way. But we think this approach to sort of, you know, measured growth and plan scarcity actually yields a better business in the long term. And the long-term opportunity is large. About $140 billion in consumers spend x China, x Russia, not including ad revenue. We believe in our top-level strategic thesis and we continue to learn into that executional capability to incrementally unlock that potential.

Spencer Wang: Thanks, Greg. I am actually going to bring us back to a question on the results because we do have a late-breaking question from Steve Cahall of Wells Fargo. Can you unpack the key drivers of the expected UCAN revenue growth reacceleration in Q2? Is it mainly pricing or are there other aspects like advertising or subscriber growth? Maybe, Spence, you want to take a stab at that one?

Greg Peters: Yeah. Sure. So, you know, you saw in our report our YouCan revenue growth was 9% year over year in Q1. That was You know, the deceleration is, you know, mostly due to pricing timing. So there is a little bit of a sequential quarter tough comparison because we also had the benefit of the NFL games, the advertising resulting from the NFL games in Q4, which also bumped it a bit. Think of it as we plan to reaccelerate again in Q2, and it is really getting the full quarter benefit. Year over year of pricing. And then also, you know, we are ads is still a much smaller part of our business than subscription, but ads continue to kind of grow through the year.

Spencer Wang: Thanks, Vince. And I will now close this out with our last question. Which comes from Alan Gould of Loop Capital. His question is, you have been guiding to $8 billion of free cash flow in 2025. And one of your goals is to deliver growing free cash flow. You have historically not spent a lot on acquisitions. Should we assume most of the growing free cash flow is redeployed into share buybacks?

Greg Peters: Yeah. Thanks, Alan. So there is no change to our capital allocation policy been consistent for years now. We prioritize profitable growth by reinvesting in the business. We maintain ample liquidity. Those are key for us, our top two priorities. And then we return excess cash to shareholders through share repurchase beyond, you know, several billion dollars that were of minimum cash that we keep on the balance sheet, and then anything we use for select m and a. So

Spencer Wang: I

Greg Peters: that is kind of a long wind up to the answer is yes in the absence of any meaningful m b m and a, not MBA. Any meaningful m and a, you know, we would expect that our growing free cash flow will be redeployed to share repurchase.

Ted Sarandos: Excellent. Well, before we close, first, thank you all for joining us. I would like to take a moment to recognize and to thank Tim Haley, for after more than 27 years on our board of directors, He has elected to not stand for reelection. All of those 27 years, Tim Haley has been on this journey with us His counsel and leadership has been a really valued part of our success. Like to say a special thank you to Tim for his long service and his many contributions to the Netflix board of directors. And let me say also as someone who has benefited greatly from our time with Tim and has been there with him for most of those years, that through so much change and so much growth, Tim is always off offered sage advice and counsel and is an important part of the history of Netflix. Tim has helped shape Netflix into the company than it is today. So many thanks to Tim. Thank you very much for joining us.