$NFLX Netflix Q2 2026 Earnings Conference Call

Good afternoon and welcome to the Netflix Q2 2026 earnings interview. I'm Spencer Wang, VP of finance and capital markets. 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'll now take questions submitted by the analyst community. We'll begin with a question on our guidance and our business outlook and this question comes from Steve Cahill of Wells Fargo. What is the main driver of FX neutral revenue growth slowing from 12% year-over-year in 2Q to 11% year-over-year as the guidance for the third quarter suggests? Spence, do you want to take that?

Yeah, sure. Sure. Thanks, Steve. So, look, we don't manage the business on a quarter-to-quarter basis. Our goal is to sustain healthy revenue and profit growth. We talk about that in our letter every quarter. We're guiding, as you say, to 12% revenue growth in Q3 reported, 11% FX neutral. The Q3 revenue drivers are very similar to Q2. It's primarily growth in our subscription revenue from increases in memberships and pricing and higher ads revenue. We continue to see healthy acquisition and retention trends on the membership side and our recent price adjustments are going well on the pricing side. Now, recall there is a little bit of quarter-to-quarter choppiness in growth because last year was more back-half weighted. So, that may be a little bit of what you see in the deceleration, but honestly, it's not what we manage to. We manage to the full year. And halfway through the year, we're making strong progress against our goals and we're tracking to our financial plan for 2026. We expect to deliver another strong year with, as you see in the guide, 13 to 14% top-line growth for the full year. That's roughly $12 billion of incremental revenue year-over-year. And by the way, when we finish 2026, it's worth saying also that in many ways we're still just getting started as a company. We're entertaining an audience approaching a billion people with still lots of room to grow and into our addressable market on every measure. We're under 45% penetrated into addressable households around the world. It's roughly 800 million addressable households. We're capturing, we think, just 7% of addressable revenue market is about $670 billion of addressable revenue in the countries and categories in which we operate today. And we estimate that we're only about 5% of TV view share globally. So, we're delivering on our 2026 plan and we believe we've got lots and lots of runway for solid growth ahead.

Thanks Spence for that thorough answer. I'll now move us along to a topic on engagement where we do have several questions. This first one is from Rob Sanderson of Loop Capital Markets. His question is: management has stated that engagement quality is improving even as reported viewing hours per member have softened. Can you help investors understand what internal metrics provide confidence and how these translate into lower churn, pricing power, higher ads monetization, etc. At what point would slow growth in total viewing hours become a concern?

I have this visual of you geeking out, Craig.

Those are 20 years of debates and walkie-ness.

Well, let me geek out on the next question, which comes from Steve Cahill of Wells Fargo. His question is: amortization expense for content growth is accelerating in 2026. How is the slate performing and what metrics are we watching to see how this growth in content drives increased member value? How do we think about the expense acceleration converting into revenue acceleration?

I'll let me take that, Steve. Look, I think when it comes to programming spend, there are three really important takeaways. First, the thing to remember is that the vast majority of our programming spend goes into the core TV series and film, where we have a really strong track record. More than a decade of translating those investments into value for our members and returns for the business. I'm going to come back to that core in just a second, but the second one is that we're really disciplined investors. So, there isn't some hyper acceleration of content investment. We grow the content spend slower than revenue while we're continuing to invest in a huge addressable market. So, we're forecasting content expense up about 10% this year. It's a little higher than the 8% we averaged over the last 5 years and below the 14% that we averaged over the past decade. The third thing we want you to remember here is that when we expand into new entertainment offerings, new initiatives, we do it gradually. We do it where we believe we can add more value for our members and we do it where we believe we have the right to win. And then we look for the positive signals before we invest at material scale. This is our MO. It's been our MO for some time.

You ask how the slate is performing. There's a lot to be happy with in Q2. I will find you was our biggest launch of original series this year. Swapped is on track to become the second biggest original animated film right behind K-Pop Demon Hunters, which is exciting. Speaking of K-Pop, we have K-Dramas like Teach You a Lesson, which is on track to become the second most watched South Korean show ever globally and it's on track to be our biggest series in South Korea of all time. There's a show called The Polygamist. You probably is not on your radar maybe, Steve. But it's out of EMEA. It's another great example of the understanding of the local markets and the local regions. The Polygamist was a popular novel from Zimbabwe more than 10 years ago from an author named Sue Nyathi. And the teams adapted that into a soapy series for South Africa where it's now a huge hit and is traveling all over the region and all over the world. In Latin America, we've got a big season that just came back for Rosario Tijeras. This was a show that started its life as a licensed show from TV Azteca in Mexico. After three successful seasons, we picked it up and produced it original season 4, season 5, and just screened season 6. So, you're seeing the slate perform around the world, which is a real differentiated part of our business. Now, with that said, with the core, we're also really pleased with the investment so far in our live programming. It plays a really important role as Greg mentioned earlier, driving acquisition, accelerating ad revenue, fueling conversation, helping us to launch new shows. It's helped us build and it's also helping us to understand what are the benefits of live over the entire catalog. So, we're ramping up our live event slate. You saw the Kevin Hart roast in Q2, Major League Baseball Home Run Derby earlier this week. What was really fun at the Derby, we produced an original and exclusive Hot Ones special that we shot on a baseball field to promote Will Ferrell's new series The Hawk, which just launched today actually. And I think it's a cool example of the intersection between our core, that core series The Hawk, of our expansion of the new exclusive creator content with Hot Ones with Sean Evans as a best-in-class creator. We're thrilled to be in business together. Plus live sports, all coming together on a baseball field and on Netflix around the world. The result there is a highly attractive, scalable return on content investment and it ladders up to healthy business metrics that Greg just detailed and our strong growth in revenue, dollar profit, and profit margin.

Thanks, Ted. Our next question on engagement comes from David Joyce of Seaport Research Partners. The question is: attention is being raised that your second season viewing of series is dropping and therefore affecting engagement growth. How would you address this? Are you going to revert to releasing one episode at a time or making longer seasons with more episodes or managing the production process so there is less time between seasons? Ted, do you want to take that?

Yeah, Ted. Thanks for asking, David. I really appreciate the question because in aggregate we are not seeing any material change in our second season viewing compared to season ones. Our second seasons are performing well within our bands of expectation. We, you know, very often we see drop off from season 1 to season 2. It's very common in the industry and it's even more so with us because we launch our show so big. So, our global reach, our discovery mechanism, releasing all at once, this enables us to find a very large audience early. So, our shows tend to start really big while most other places their shows start pretty small and occasionally grow from there. For example, I just mentioned The Polygamist from South Africa. That show has already had 24 million views in 5 weeks and it's still recharging. When we look across the entire portfolio, across all the regions, all the content categories, our season 2 falloff is actually slightly improved this year relative to last year. Now, of course you can pick any five data points to tell any story you want, but I'm going to repeat this. Our season 2 falloff is actually slightly improved this year relative to last year. So, no changes in release strategies. Thanks, Ted.

The next question comes from Vikram Kesavabhotla of Baird. Last quarter you shared that the World Baseball Classic was a significant driver of sign-ups in Japan. What have you observed with respect to the retention and engagement of these members since then? How has this influenced your perspective on the value of regional live programming?

Great. I'll now move us on to a series of questions around content strategy. We have actually two that are pretty similar, so I will do my best to combine them. They're from Robert Fishman of Moffett Nathanson and Rich Greenfield of LightShed Partners. First from Robert Fishman, what is your openness to leverage Netflix's leading global scale to bundle with other streaming services like Peacock or even consider a streaming channel store to compete with Amazon, YouTube, or Roku? On a related point, Rich Greenfield asks, 'While it's only been a few weeks, the integration of TF1 in France, is that integration driving higher engagement for Netflix, including non-TF1 content? Do you think there is a meaningful opportunity for Netflix to become a distributor or platform for third-party streaming services around the world?'

Thanks, Greg. Robert Fishman has another question in this category. What's the opportunity for Netflix to launch a fast platform given the rapid engagement growth in that space? Could Netflix library programming be used as an on-ramp for new subscribers, or would you be open to adding third-party licensed content to compete with other fast channels for incremental ad dollars?

Great. Thanks, Greg. Next is from John Hoodlick of UBS. With the addition of video games and more recently vertical video clips and podcasts, what other content formats are interesting from a long-term road map perspective, and how should we gauge the success of these initiatives?

Well, let's not get into areas that we may be exploring here, and let's not pre-announce anything. But I am pleased with the early progress we're making with vertical clips for choosing on mobile, and certainly video podcasting. We mentioned in the letter we announced a partnership with publishers like Condé Nast and Hearst and People. So, we're going to bring on some lifestyle content on the service next month. And with the podcast, we're super encouraged with the viewing patterns that we're seeing. They've convinced us that this viewing is definitely incremental for us. We're seeing that in daytime viewing. So, we're engaging our members outside of primetime where we historically have done most of the engagement on Netflix. And keeping in mind since professional long-form content is pretty small part of mobile, it's exciting to see that our video podcasts are out-indexing on mobile for us. So, it's a really great progress on both fronts. It's really important for us to meet our members where they are with the kind of entertainment that they're trying to enjoy. So, we've been building out this great lineup of podcasts that include a mix of owned and licensed with creators like Martha Stewart, Kate and Oliver Hudson have a great new one. We're thrilled to have Jay Shetty's On Purpose exclusively on Netflix. And our members are starting their day with The Breakfast Club, they're loving the official Bridgerton podcast, Bill Simmons, Pete Davidson, Brian Williams, just to name a few. These are examples of us continuing to evolve and deliver members more entertainment value and in more ways to engage with stuff they love.

But to take a step back and contextualize this, over the last 15 years the definition of TV has broadened and our definition has changed along with it. So it's easy to forget, but if you rewind the clock to say 2013, we had a single prestige English language scripted drama show. No unscripted, no local language, no originals, no comedies, no competition shows. And now we're the number one creator of original programming around the world. Just this week the Emmy nominations were announced and we have an Emmy nomination in nearly every category. We didn't even know back in that first year if House of Cards would qualify for the Emmys. There was a bunch of debate as to whether or not it was TV. So these just announced nominations I think are a testament to the quality, the quantity, and the variety of our original programming. These expansions though are evolutionary, not revolutionary. These are expansions on the same continuum that we started on years ago. Adding new things as they come available to us as we see signals that our consumers would get value including in their Netflix subscription. That continuum has served our members and our business really well. So we're really excited about the progress on.

Thanks, Ted. I'll shift us now to a new topic which is monetization and I'll begin with advertising. The question is from Steve Cahill also of Wells Fargo. As you look at the ad tier average revenue per membership today, what are the biggest opportunities for increasing that monetization?

Thanks, Greg. From Diefly of Morgan Stanley, there's a question on pricing. Has there been a change in the receptivity to price hikes this cycle? And how do you think about the timing and magnitude of taking price? In other words, first quarter versus fourth quarter seasonality, which is historically a stronger period.

Thanks, Greg. The next question is from Rich Greenfield of LightShed Partners. How should we think about reports of Netflix bringing back free trials in select markets? What provoked these tests, and are they a function of increased competition, market saturation, or both?

Thanks Greg. Our next question is from Vikram Kesavabhotla of Baird. His question is: Netflix has made progress on its cloud first video game strategy this year including the addition of several new titles. How are these games performing on the platform so far and how should we expect the video game offering to evolve going forward?

Thanks. I'll move us on now to a question from Jessica Reif Ehrlich of Bank of America. Given Netflix's global footprint of approximately 330 million subscription households, how do you think about leveraging that scale as a strategic asset? How does the currently consolidating media landscape impact these decisions?

I'll take that. So you're right, Jessica. We do benefit in a number of ways from the tremendous scale that we worked so hard to build over the last 20 years. We've invested in a number of areas of the business. I look at our tech investment where we spend billions of dollars every year, and as a result, we have best-in-class discovery, personalization, plus a bunch of great R&D and innovation, including in production, in distribution, in data that we can draw on to constantly improve every aspect of the business, and the breadth and depth of our content catalog. These in combination all deliver this kind of flywheel of advantages. We have the biggest, most engaged audience in the world. Creators and advertisers love that. We lead the industry in monetization. We have better programming ROI because we amortize across this global footprint, and that very often that programming is very travelable. This is good for our members, it's good for our business, it creates a really healthy model for organic growth. Greg mentioned TF1 earlier. I think it's being able to bring that scale to work with partners like TF1 in France to bring content to our members in multiple ways and multiple business models. I think that really helps when we can bring that distribution scale to local players. And finally, Jessica, I'd say regarding consolidation, the industry has been consolidating for over 10 years, so this isn't new. We focus all of our energy on pleasing our members and sustaining healthy growth for the business.

Thanks, Ted. Our next question comes from Shawn Dilley of Morgan Stanley. What have been the early learnings from the Enterpositive deal, and how should we think about potential cost savings and content creation? Could the impact of your $20 billion cash content budget, could this impact your $20 billion cash content budget on a go-forward basis, or is it more likely to be reinvested into more content and better compensating talent? Ted.

Great. Well, look, it's early days on Enterpositive, but we're broadly seeing that GenAI is starting to have an impact across hundreds of our productions. So, important to note that we have other GenAI tools in addition to Enterpositive. We're thrilled with the speed they're bringing to market for us. But we also have I-line, and we have our animation lab. And what's cool is that they're all working together to drive innovation. We said in the letter, but GenAI is scaling quickly across the entire creative process, from concept to pre-vis, through post and delivery. We're making higher quality output more quickly and efficiently than we could have using traditional methods. So, GenAI workflows now have been used in roughly 300 of our titles, with the largest concentration to date is on post-production. But we're leveraging GenAI for really complicated shots and sequences. We called this out in the letter, but things like enhancing crowds or historical battle scenes, those kind of things. And keep in mind that in many of the cases, productions would have left out those key shots because they just wouldn't have been able to afford them. They wouldn't have been able to do them in the time frames that they're working on. So, those sequences are saved by the availability and access to these GenAI tools.

On the content side, we believe it takes great artists to make something great, and AI is not changing that. AI will give creators better tools to bring their visions to life. Movies are being made by people who make movies. AI provides them with better tools to make them even better. So, today our talent leverages tools for things like set references and previs and VFX and sequence prep and shot planning. It all makes the production itself so much more smooth and efficient and fast. And that's just the beginning. We're seeing it across the entire production life cycle. And AI, those use cases are scaling faster and faster. So, our documentary series we just released called American Experiment. That series features 17 minutes of AI-enhanced footage. It enabled us to expand the scope of the series in ways that just wouldn't have been feasible before. Those 17 minutes were produced twice as fast and at half the cost of previous options. So, by equipping creators with these tools, we believe they're going to enhance their abilities and we are going to have better and more impact for every dollar we spend on our programming. So, content creation timelines can be shortened and quality can be enhanced. So, the cost savings will likely be reinvested in more content on the service, which fuels high-quality engagement. And that whole revenue profit flywheel, that's going to come from that we've been talking about from day one.

Thanks, Ted. We have time for one last question and we'll take that from Dan Kurnos of StoneX. And it's a question around capital allocation given recent reports around Lionsgate that Netflix has denied and broader speculation around interest in NBC Universal. How should investors think about the line between opportunistic IP and library acquisitions and larger scale M&A that could change Netflix's capital allocation or strategic profile?

Maybe I'll chime in on a little bit specific to capital allocation, Ted. So thanks Dan. So there's, I just want to be really clear there is no change to our capital allocation philosophy. We invest in the business both organically and opportunistically through M&A and again as Ted said, we are primarily builders not buyers. We also maintain strong liquidity and a strong healthy balance sheet and lastly we return excess cash to shareholders through share repurchase and on that last point you can see that very clearly in Q2. We repurchased $4.7 billion of shares this quarter. That's our largest quarter of share repurchase in our history and we still have about $27 billion of capacity on our remaining authorizations. So we feel really good about our growth path as Ted said, we've got a really high bar and we have no change in our capital allocation philosophy.

Great. Thank you, Spence. And thank you all for your questions and for joining us for our quarterly earnings call. And we will see you next quarter. Thank you.