Table of Contents
a. Key Points
Price hikes in the USA went as expected.
A large $2.8 billion exit fee, collected from Warner Brothers, propped up net income and free cash flow during the quarter.
Reed Hastings will not run for executive chairman re-election.
Live Sports continue to be a great source of subscriber growth.
Watch hour growth was stable sequentially.
b. Demand
Beat revenue estimates by 0.6% & beat guidance by 0.7%.
Revenue outperformance was helped by modestly outperforming subscriber growth and foreign exchange.
By geography:
USA + Canada (UCAN) revenue missed estimates by 0.6%.
Europe, Middle Eastern and African (EMEA) revenue beat estimates by 1.2%.
Latin American (LatAm) revenue beat estimates by 3%.
Asia-Pacific revenue beat estimates by 2.1%.
Netflix said it is now approaching 1 billion total consumers under a subscription. They also spoke about being under 45% penetrated within their 800 million household total addressable market and only 7% penetrated in terms of the revenue opportunity within those households.
c. Profits & Margins
Slightly beat EBIT estimates & beat guidance by 1%.
EBIT rose by 18% Y/Y.
EBIT beat was driven by revenue outperformance.
Beat $0.76 EPS estimates by $0.47. This includes a large $2.8B fee collected from Warner Brothers as a penalty from that company exiting their agreement with Netflix.
Beat FCF estimates by 78%, with the large beat driven by the same fee described above.
If we exclude the Warner Brothers $2.8B fee and assume a stable Y/Y tax rate, Netflix would have earned about $0.75 per share and missed estimates by a penny. If we assume a similar impact on FCF, the result was 3% below expectations. The net income and free cash flow margins in the table below exclude the $2.8B collection and the tax noise associated with it for more normal comps.
d. Balance Sheet
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$12.3B cash & equivalents. The company has resumed their share repurchase program after pausing it during Warner Brothers M&A negotiations.
$14.4B total debt.
Share count -1.7% Y/Y.
e. Guidance & Valuation
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