Netflix, Inc.

Good afternoon and welcome to the Netflix Q2 2025 earnings interview. I'm Spencer Wong, VP of Finance, IR, and Corporate Development. Joining me today are co-CEOs Ted Sarandos and Greg Peters and CFO Spence Newman. As a reminder, we'll be making forward-looking statements and actual results may vary. We'll take questions submitted by the analyst community and we will begin with our results and our forecast. The first question comes from Steve Cahal of Wells Fargo. The question is, since the revenue increase in your forecast is primarily FX driven, we're curious about the components of the constant currency increase. Is this due to a better underlying revenue growth or are there specific expenses that are coming in better like content amortization?

All right, well, I will take that one. Thanks, Steve. So as you saw in the letter, we increased our full-year revenue guidance to $44.8 to $45.2 billion. That's up from the prior guide of $43.5 to $44.5 billion, so up about a billion at the midpoint of the range and a tighter range. As you know, it primarily reflects the FX impact from the weakening dollar relative to most other currencies. But the good news is we're also seeing strength in our underlying business. We've got healthy member growth, and that even picked up nicely at the end of Q2, a bit more than we expected. And we think that'll carry through with our strong back half slate. So we're reflecting that in our latest forecast. And we're also seeing nice momentum in ad sales. Still off a pretty small base, but good growth. And it's on pace to roughly double our revenue in the year. And it's a bit ahead of beginning of year expectations. When we carry all that through to operating margin, our operating expenses are essentially unchanged, which is part of your question. So they're basically unchanged forecast to forecast. So we're largely flowing through the expected higher revenues to profit margin. So that's why our updated target full year reported margin is up a point from 29 to 30%. And that 50 basis point increase in FX neutral margin is really just that revenue lift from stronger membership growth and ads relative to prior forecast flowing through to margin.

Thank you, Spence. We'll take our next question from Barton Crockett of Rosenblatt Securities. Why is operating margin guidance for the full year only 30% after the upside in 2Q and a forecast of 31.5% for the third quarter? Is there a timing issue, FX issue, or is there a new level of spending that will continue beyond the fourth quarter of 2025?