Netflix Q1 FY26 Earnings Call | $NFLX | 🔴 WATCH LIVE

Good afternoon and welcome to the Netflix Q1 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'll be making forward-looking statements and actual results may vary. We'll now take questions submitted by the analyst community and we'll begin on the topic of our results and outlook. The first question comes from Robert Fishman of Moffett Nathanson. His question is: can you speak to your full-year margin guidance and how it compares to prior guidance with the Warner Brothers deal costs? And beyond content spending, where else are you accelerating investment in 2026?

Yeah, and I'll just add, Greg, looking ahead, you know, we're focused on three big priorities. Number one, to deliver even more entertainment value for our members and we do that by continuing to strengthen our core offering, series and films, originals and license. But we also are pushing into new categories that are really exciting like our further expansion to podcast. We announced a few exciting new ones just today. We're adding more regional live sports events like the incredible event we just did in Japan with World Baseball Classic. And we're growing our games offering including with a brand new kids gaming app. Number two, we're leveraging technology to improve the service. From how it's delivered to how to find great things to watch and now even how content is created and produced. And we're number three, we're improving monetization. We're doing this through a combination of broad distribution, mostly organic, but also supplement with some great partners. We have increasingly sophisticated pricing and pricing plans. And we have a great and growing ad business as Greg just said. These features help position us to deliver, you know, multi-year growth. We think beyond the 12 to 14% that we expect to deliver this year. You know, at Netflix, we kind of we embrace change, we thrive on competition, we stay focused on constant and consistent improvements, all the things that make us faster and better than the competition in whatever form the competition takes. So, we really feel great about the business, about the organic growth opportunity ahead. And we are just as energized as ever to achieve our mission to entertain the world. Spence, maybe you could talk a second about the WB deal costs and the guide.

Oh, yeah, sure. Thanks, Ted. So, with respect to the Warner Brothers deal and those costs and how it impacts the guide. So, you may recall back in January, our initial forecast or guidance for the year was carrying 275 million of kind of cost for M&A-related activity. But that wasn't just Warner Brothers, actually. So, one thing that we were carrying in there was the Inter Positive acquisition. It wasn't announced yet, but it was in our guidance and that carries through also through our OpEx. So, that's kind of hitting our operating margin. And for Warner Brothers specifically, even though we obviously walked away from the deal, and some of our initially planned costs for the deal, they won't fully materialize, but also some that we were planning to carry into '27 were pulled forward into 2026. So, when you kind of put all that together, we're still in the ballpark, frankly, that we were projecting for M&A-related expenses in the year. There's no material impact on our operating margin outlook and as a result, that there's not a reflection of some increase or acceleration in other expenses in the year.

Thanks, Spence. Thanks, Ted. Thanks, Greg. Well, following up on that question, we have from Shawn Diffley of Morgan Stanley. His question is, what have been your biggest learnings from the Warner Brothers experience and does it in any way change your appetite for M&A or capital structure going forward?

So, at the risk of being a broken record here, I just want to remind you that we said this from the beginning that the WB deal was a nice-to-have, not a need-to-have. We were very confident in the core business. So, we really looked at this going into it that our biggest risk was losing focus on our core business while we were working on the transaction. So, as you can see from our Q1 results, we did not lose focus. We were very encouraged by the team's ability to stay focused on our core business while like, you know, exploring this opportunity as well. Historically, we've been builders and not buyers. So, there were certainly questions internally and externally about our ability to do a deal of this size. What we did learn though was that our teams were more than up to the task. We learned so much about deal execution, about early integration. We're really proud of the teams that did all that work. We were proud to win the bid. We were confident in our ability to get to the finish line with regulators for the approvals that we needed. And but mostly, we really built our M&A muscle. And the most important benefit of this entire exercise though was that we tested our investment discipline. And when the cost of this deal grew beyond the net value to our business and to our shareholders, we were willing to put emotion and ego aside and walk away. And doing it at this level, I think sets up our teams to understand that that's the expectation of them day-to-day. I would like to add though that we met a bunch of great people in the WB deal during this process. So, if there's any emotion in all of this, it was the disappointment of not getting to work with those folks and we were really looking forward to that. We do but we do come through this with no change in our capital allocation philosophy. You know, we invest in the business both organically and opportunistically with M&A like you just saw with Inter Positive. We do that while maintaining strong liquidity and returning excess cash to shareholders through share repurchase. So, M&A for us remains a tool to help us achieve our goals and as you can see with the WB deal, we'll remain very disciplined in how and how we approach it.

Thank you, Ted. All right, I'll move us along now to the next topic, which is on engagement and the question here comes from Vikram Kesavabhotla of Baird. The question is, last quarter, you shared that your primary quality metric for engagement achieved an all-time high in 2025. How is this metric performing so far in 2026? What are some examples of the data points that inform your measurement of quality?

Thanks, Greg. Our next question on engagement comes from Rich Greenfield of Lightshed Partners. Nielsen adjusted their methodology. The end result was lower streaming viewership and higher broadcast and cable viewership. Albeit, the trend lines were similar. Nielsen has delayed implementing these changes into its monthly gauge report until 2026. The base of Netflix viewership will be lower, but also more room to take share. Curious how you think about the coming impact, especially on your advertising revenue.

Thanks, Greg. We have several questions that have come in about our content and content strategy. The first I'll begin with John Hulick of UBS. Any details you can share about the World Baseball Classic viewership? Are there other similar sports and live event opportunities out there that can appeal to a global audience and drive engagement?

Well, thanks for asking, John, about the World Baseball Classic, cuz it was a hit. That was amazing. In fact, it was the most watched program we've ever had in Japan. It is the biggest global baseball streaming event of all time. It was 31.4 million viewers. It was really exciting to see how this played out. And events like this are super important because they as Greg was just saying, they really drive outsized business impact, and they're kind of a proof point that all engagement is not created equal. For those few days that it was really an incredible time for our members in Japan, but the WBC drove the largest single sign-up day ever in Japan. And Japan led our Q1 member growth around the world. And Japan had its highest quarter of paid net adds in our history. It's also the kind of was the first big regional live event for us outside of the US, which was great, and we got to flex a new muscle here really, which was, you know, streaming multiple games concurrently. So, a big expansion of our capabilities. It's very, very exciting. So, we were excited, the fans were thrilled, and the leagues were super excited. So, yes, so much more to come.

Totally. One other thing on it, not to dismiss WBC, but also just thinking about it because it may for as great as it was, and it was great, you may notice that APAC was our strongest FX neutral revenue growth market for the quarter, and it wasn't just because of this. Actually, we had really strong performance in a number of areas in APAC. We had a great quarter in India, really strong quarter in Korea, Southeast Asia showed strength. So, just wanted to kind of make the point across the board in APAC. We executed. It wasn't just one title, one country. And I'd say, too, that it was exciting to see people pick up on recent original series. So, that viewing went up. You saw some of those shows pop back into the top 10. The success of One Piece on the heels of the WBC, too. So, it was a really great time, you know, for the content, and it all just came together with that gigantic halo of the WBC.

All right, I'll take the next question from Robert Fishman of Moffett Nathanson. His question is, with the NFL in the market for new packages, do you judge ROI on live event content spending the same way as scripted content, or does adding NFL games give you the ability to drive higher CPMs and ad growth that one-off scripted shows wouldn't be able to deliver?

That's a great question, Robert. I mean, I'll take a step up, which is first of all, our sports strategy is pretty much unchanged. We're mostly interested in those big breakthrough events, less so in the regular season packages. Everything we pursue has to make economic sense in the ways that you just talked through. And when we consider this, we have to consider all the benefits you derive from both from the viewing and from the ads business. So, as a reminder, sports is an important piece of our live strategy, but that strategy also includes other big live events. We had Skyscraper Live, the Star Search reboot with live voting, which was really exciting, the BTS comeback concert. But sports is an important component of that live business, and we've had a number of successes there, including our opening night MLB baseball game with the Yankees and the Giants, our Christmas Day NFL games, some big fights, the WBC we just talked about in Japan. And then if and the NFL is a great property, and it delivers value as part of our total offering, and we are in discussions right now cuz we think there's an opportunity to expand the relationship. But overall, it's within the same strategy, focused on creating big events for them. We've learned a lot about how what works and how to value the NFL and live generally over the last couple of years. And this is going to inform how we have those discussions and help us be much even more disciplined about it. I'd point out, you know, the event strategy is working. We've announced Tuesday we have a multi-year deal with CONCACAF for rights in Mexico, and that's in addition to like Women's World Cup in US and Canada, our first big global MMA event with Ronda Rousey and Carano. So, this is we're ramping up our sports events globally and local for local, both in terms of volume and profile. But we really do this because I think we bring a lot of value. We receive a lot of value, but most importantly, our members receive a lot of value.

Thanks, Ted. Our next question comes from Peter Supino of Wolfe Research. Help us better understand your business model in podcasting. I think he means probably business strategy in podcasting.

Great. We'll now shift over to the topic of advertising, and this question comes from Dan Salmon of New Street Research. Can you share more on the growth of your total advertiser base? What proportion of advertisers are being serviced directly by the Netflix sales team? And what proportion are buying on Netflix through third-party DSP partners? Are you still largely focused on the top 500 brands, or is a mid-market strategy beginning to emerge?

Thanks Greg. Let's see I'll move on to a question around plans and pricing and this one comes from Vikram Kesavabhotla of Baird. What informed your decision to raise subscription prices in the US recently? What are your early observations regarding the impact on customer acquisition and churn in the region.

And maybe just Greg just to add to that kind of that value we're delivering and kind of how we see it in the metrics. I just think of the retention that we're seeing in the business that kind of that are the churn factor the opposite of strong retention. We saw it across the board this quarter every region was better year over year. So that's really encouraging in terms of the value provided which also speaks to a little bit earlier when you talked about our kind of primary engagement value metric where we had kind of a record in Q4 of last year record again in Q1 of this year which is playing out in the numbers.

Thanks Spence. Couple questions on gaming the first of which comes from Eric Sheridan of Goldman Sachs. You are in your fifth year of the gaming strategy what have been the key learnings over that period? How do platform games change user consumption habits? What do you see as the most interesting areas to invest behind gaming in the coming years?

Greg, a follow-up question on games from Brian Pitts of Capital. The recent announcement of Netflix Playground is seemingly one of your biggest moves into the video game space today. Would you help us understand how you will measure success with Playground and the incremental value you expect it will drive for your broader subscriber base? Maybe start with just explaining for folks what Netflix Playground is?

Thanks, Greg. Let's see. Next question from Eric Sheridan of Goldman Sachs. Entering 2026, how would you characterize the current competitive landscape for content? Are you seeing any differences in competitive intensity by geography, language, and/or format?

Well, first of all, you know, competition is not new for Netflix. Consumers have always had an incredible amount of choices when it comes to entertainment. And we've continued to grow, as kind of what Greg said earlier, by offering enormous value to our members. And we grow against other services who are launching against us all over the world. Now, great projects are immensely competitive and they remain so. And those are the projects we want. So, we've been pleased that Bela and the content team have been able to land some of the most competitive projects recently, like Strangers with Gwyneth Paltrow attached to star, which is this great incredible New York Times best-selling book that everyone was after for the adaptation. Rabbit Rabbit with Adam Driver, which is going to be directed by Philip Barantini who directed Adolescence for us. Incredibly competitive project that we were able to land. And so, and I'd say I'm really proud of the team, but also it's not just about paying the most because relationships really matter, particularly when there's a lot of competitive choices. So, providing a great experience for creators, delivering a big audience for them. This is hard work. So, they want people to see it. Delivering a ton of buzz, which is what we do constantly in the work that we do. And we're seeing a lot of repeat business, which is an ultimate sign that we're doing our job well here. So, this week we're today actually Beef season 2 starts. And if you look at that project, the show's creator Sonny Lee, he did the first season. It was the most honored limited series of the year when it came out 2 years ago. 45 individual awards and was a massive hit for us all over the world. We just did an overall deal with Sonny, so he's going to be creating for Netflix for years. And that cast, Oscar Isaac, just starred in Frankenstein who was Golden Globe nominated for that performance. He's got another film coming out this year. And another project that we just greenlit with Oscar. So, we're thrilled about that. Carey Mulligan who's done multiple projects for Netflix including her Oscar nominated performance in Maestro. She's in Narnia coming up later this year. She was in Mudbound. She's in Dig. We love working with Carey. She's a genius. Charles Melton who was a Golden Globe nominee for May December. Incredible in the new season of Beef. Even Kaley Cuoco who was just in Wake Up Dead Man. So, like the whole cast is like Netflix family. So, I think that's a really good sign that we're doing something right. Running Point comes out next week. It's our another new hit series with Mindy Kaling who we've worked with steadily, who we love the relationship. We hope she does, too. And it's not just happening in the US, by the way. Alex Pina who created La Casa de Papel has done a bunch of multiple projects since that show and including one he's working on right now. So, if repeat business is a sign of success, I'm really excited about what we're doing. But, you know, what I also think about competition in the terms of the folks not just who we're competing for projects with or competing with our members with, but we're also a customer to most of these folks. So, you know, Running Point is produced by Warner Brothers for us. We license shows like Watson and Mayor of Kingstown for Paramount. We have a pay one deal with Sony. We have it with NBC Universal that includes DreamWorks Animation and Illumination. Our investment in those films and in co-productions and in licensing actually feeds the entire movie ecosystem around the world. So, while it's a little unusual to have, you know, to be the customer and the competitor, it's not that unusual in the entertainment business and we manage those relationships pretty well.

Thanks, Ted. Eric Sheridan from Goldman also has another question this time on AI. How does the company's approach to the role AI can play in the creative process continue to evolve? With the announced acquisition of Inter Positive, can you discuss the decision around that deal measured against your broader strategy?

Well, in general, we expect GenAI to help make content better and better. Better tools, better processes. And I think Netflix is going to remain at the forefront in the exploration and innovation of AI in the creative process. You know, given our technology DNA, we have a significant and unique data assets here. We have tremendous scale. So, we see that as all, you know, great opportunities to leverage new technical capabilities across every aspect of the business. So, I think, you know, AI is going to deliver benefits for our members, for creators, and for our employees. So, on the content side specifically to your question, you know, it takes a great artist to make great art. And AI won't change that. But, AI will give those artists better tools to bring those visions to life in ways that we're just scratching the surface on. So, you know, today our talent leverages these tools for things like set references, pre-visualization, visual effects, sequence prep, shot planning. All of these things, by the way, also improve onset safety, which is something that's not talked about enough. And this is all just the beginning. You know, with our acquisition of Inter Positive, we think it accelerates our GenAI capabilities because it's a proprietary technology that was created specifically for filmmakers and specifically for filmmaking. And thus, you know, different than other GenAI video applications. So, while our ownership of Inter Positive is very new, we have generated a bunch of interest with our creators who spent time with the tools. And we're seeing real momentum build around adoption.

Great. We have time for one last question which comes from Rich Greenfield of LightShed Partners. He's asking about Reed's decision to not stand for re-election at our upcoming annual meeting. The question is, you have talked publicly that Reed Hastings preferred to build versus buy. Was Netflix's decision to pursue Warner Brothers a key factor in his timing of leaving the Netflix board this year?

Sorry if anyone who was looking for some palace intrigue here. Not so. Reed was a big champion for that deal. He championed it with the board. The board unanimously supported the deal. So, we had perfect alignment with management and the board on the Warner Brothers deal. So, that was absolutely had nothing to do with it. And Ted, do you want to close us out then with some words on the decision? Absolutely. Look, Reed Hastings, our founder and our board chair, let us know that he's decided not to run for re-election for our board at the next shareholder meeting. It's very unusual for a founder to step away from the board of the company after succession, but Reed is no ordinary founder. The first time I met Reed in 1999, he said that he was building a company that would be around long after him and that requires succession. Now, imagine talking about succession while you're just starting to build. When Reed took the first steps in all of this more than a decade ago, he said he would hang around for about another 10 years. And it's only been six. But, this is Reed's style. Make decisions and move fast. We have a long history of going from brainstorm to scale at breakneck speed in almost everything we do. Reed will remain the chairman and a member of our board through his current term. The board and the nominating committee are going to take the next steps in reshaping the board in the months to come. But, I want to say on a personal note, I've been very fortunate in my life to have great bosses. People who've inspired me, who've coached me, who gave me opportunities. Reed did these things at levels unimaginable. You know, Reed is an economist and an engineer in his head, but he's a teacher in his heart. And Reed not only shared the spotlight, a real rarity in Hollywood by the way, he pushed me into the spotlight and celebrated the wins and coached through the misses and in short made me the executive that I am today. I'm forever grateful. He built a company of risk-takers and a culture where character matters and nobody rests in the pursuit of excellence. I have loved working with and for Reed through amazing twists and turns in our business and he has modeled what it is to be a leader and a friend. You know, in reflecting on Reed's leadership here at Netflix, I was reminded of a quote from Max DePree. He said, 'The first responsibility of a leader is to define reality and the last is to say thank you. And in between the two, the leader must become a servant and a debtor.' That sums up the progress of an artful leader. Reed Hastings is the ultimate artful leader. And he leaves me and Greg enormous shoes to fill. You know, in the spirit of an artful leader work in progress, I say to Reed, 'Thank you.'

Thank you, Reed. I echo that as well.

Greg, and with that, we'll conclude the call on that note. So, I just want to thank everybody for joining us again and we will see you next quarter.