Netflix, Inc.

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 and 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 managed to, we managed 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 we saw, as you see in the guide, 13% to 14% top line growth for the full year. That's roughly 12% FX neutral. We're about $6 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 into our addressable market on every measure. We're under 45% penetrated into addressable households around the world. It's probably 800 million addressable households. We're capturing, we think just 7% of addressable revenue market. It's 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 of us.

Thanks, Spence, for that thorough answer. I'll now move us along to the topic of 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 low return, Pricing Power, Higher Ads Monetization, etc. At what point would slow growth in total viewing hours become a concern?