Netflix, Inc.

Good afternoon and welcome to the Netflix Q1 2021 earnings interview. I'm Spencer Wong, VP of IR and Corporate Development. Joining me today are co-CEO Reed Hastings, co-CEO and Chief Content Officer Ted Sarandos, COO and Chief Product Officer Greg Peters, and CFO Spence Newman. Our interviewer this quarter is Nidhi Gupta from Fidelity. As a reminder, we'll be making forward-looking statements and actual results may vary. With that, let me turn it over to Nidhi for her first question.

Thanks, Spencer. Thank you all for having me. Great to be with you. And thank you all for all the great work over the years. It's been great for us to be on this journey with you as shareholders. So with that, let's just jump right in. Obviously, you were comping a really big Q1 last year with 16 million net ads. The net ads this quarter came in below your expectations and below the streets expectations. Any additional color you can provide on what caused this?

Hey, Nidhi, it's Spence. I guess I'll take this one first. Hopefully you can see us. It looks like it's a little frozen. Maybe it's just frozen on our end. But look, so in terms of Q1 performance, it really boils down to COVID, frankly. As you know, the extraordinary events of COVID have had a big impact on the world, continue to have a big impact on the world. And for us, at a minimum, creates just some short-term kind of choppiness in some of the business trends that we see in our business. So In particular, we had this huge pull forward in 2020 in terms of our subscriber additions, nearly 40 million paid net ads in 2020. And we also had a near global shutdown in production, which we've been ramping safely and at scale through much of last year and into this year. But it did push some key title launches into the back end of this year. So The combination of those two things does create some noise. It's super hard to obviously kind of forecast quarterly subscribers in a typical quarter for us and particularly hard in this environment. In fact, on page two of our earnings letter, we show our actuals relative to forecast, which in our guide is our internal forecast for subscribers. And And, you know, because it's our forecast, we're going to miss every quarter. It's just a matter of whether they're bigger or smaller misses. And we can see over the past five years, our biggest kind of misses to forecast, either up or down, you know, most of those big misses, the biggest were in the past five quarters relative to the past five years, and that was these five quarters of COVID. So it's just a difficult time to forecast the business. But the key is the business remains healthy. Our engagement, our viewing per household was up year over year in Q1. Our churn was down year over year. And the business is still growing. So even at 4 million paid net ads, if you kind of take COVID out and look over the past two years, we've grown from two years ago at about 150 million members to almost 210 million now. So that's nearly 40% growth and about just under 20%. over an average over each of those two years which is in line with the past couple years so the business remains healthy and that's because the long-term driver is this big transition from linear to streaming entertainment and that remains as as healthy as ever but you do see little little um kind of noise in the near term but a lot of long-term clarity thank you that's helpful