Netflix, Inc. (NASDAQ:NFLX) Q3 2019 Earnings Conference Call Transcript

Oct 16, 2019 • 06:00 pm ET

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Netflix, Inc. (NASDAQ:NFLX) Q3 2019 Earnings Conference Call Transcript

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Presentation
Operator
Spencer Wang

Good afternoon and welcome to the Netflix Q3 2019 Earnings Interview. I'm Spencer Wang, VP of IR and Corporate Development. Joining me today are CEO, Reed Hastings; CFO, Spence Neumann; Chief Content Officer, Ted Sarandos and Chief Product Officer, Greg Peters. Our interviewer this quarter is Mike Morris from Guggenheim. As a reminder, we'll be making forward-looking statements and actual results may vary.

With that let me turn it over to Mike for his first question.

Analyst
Michael C. Morris

Thank you, Spencer. Good afternoon. Let's start by talking about both member trends and the outlook that you just provided for members in the fourth quarter. Starting with the third quarter, can you speak a bit about some of the key drivers that -- you're results came in relatively in line with your guidance, talk about the gross add dynamic and the churn dynamic there relative to what you were expecting coming into the quarter, please?

Executive
Wilmot Reed Hastings

Relatively in line, it was the most accurate member forecast we've had in years. Spencer, over to you.

Executive
Spencer Adam Neumann

Spencer -- it's Spence, I'll take you -- we've got a lot of Spencers on the call. Yes, I'd first say, Michael, it was a really strong quarter. I mean, not just around subscribers but on overall business performance. There was record revenues for Q3, record operating profit, and nearly $1 billion of operating profit and record paid net adds for the quarter.

We delivered on the subscriber front slightly ahead of where we expected, outside of the US. In the US, we were a little bit short. To your question what -- we're talking very, very small numbers here, but we did see some elevated churn in the quarter that -- we'd seen some elevated churn following our price increases in the US and that ticked up and sustained through the quarter longer than it had in the past, but these are really small changes. We're talking about a 10th of a percentage point in churn and that's why at the same time these price increases are hugely revenue positive for us as you saw in the quarter, and so we take a bulk of that revenue and reinvest it back into service, into great content, into great product experience for our members to continue to deliver on the value proposition and continue to grow our business.

Analyst
Michael C. Morris

Okay. I want to come back to the topic of churn. But before we do, I just want to ask about the fourth quarter outlook. On the last call we spoke about potentially seeing a record year of net subscriber, net member additions in 2019, the guide does not imply about at this point. So can you talk a bit about perhaps, what changed, and I think the big question in investors' minds is, will 2018 represent a peak year for member ads or can you get back to growing on top of that level again?

Executive
Spencer Adam Neumann

Sure, I'll take that one again, too. So in terms of our guide for the year, yes,