MS Conference Transcript
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Netflix March 2, 2020 02:45 PM EST Speaker ID: Page !1 Netflix March 2, 2020 02:40 PM EST Ben Swinburne: Hi, this is Ben Swinburne. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures, or at the registration desk. And we're really excited to welcome back to the conference Netflix, and welcome for the first time the man to my left, Spence Neumann, CFO. Spence, thanks for being here. Spence Neumann: Thanks for having me. Ben Swinburne: I bet you have a lot going on this week. Spence Neumann: Yeah, a lot going on. I feel like, hopefully, I am a leg up because I showed up in person relative to our board member, who just was the voice of God. But, hey, so I think we have, hopefully, before we get going just a video for folks who are maybe a little less familiar with Netflix about what we've been up to and where we're headed. Ben Swinburne: Okay, roll tape. [Video Played] Bruce Springsteen: This is what I pursued as my purpose, because I wanted to hear the whole story. I wanted to know my story, your story, felt like I needed to understand as much of it as I could in order to understand myself. Who was I? Where was I going? Where were we going together as the people? I studied, and I played, and I worked to be a part of that story in this place and in this time. But most of all, I wanted to be able to tell that story to you. [Music Playing] Man 1: I was fully prepared to take one for the team. Man 2: Oh, ho-ho-ho, my God, this is incredible. I'm a massive fan of yours. [Music Playing] Man 3: Try not to cry. Try not to lose it. Woman 1: So, what happens next? What do we do next? Netflix March 2, 2020 02:45 PM EST Speaker ID: Page !2 [Music Playing] Man 4: The future is not yet written. [End of Video] Spence Neumann: All right, that always gets me fired up, not the least of which because I'm a Jersey kid and Bruce is playing the voiceover there. But also, just for kind of where we are and where we're headed, hopefully, it gives you a sense. We're about telling the stories of -- from anywhere in the world, the greatest stories come from anywhere and can be enjoyed anywhere, and that's a lot of what that's about is that storytelling. So, anyway, yeah. Ben Swinburne: That's great, yeah. And if you just learned what Netflix is from that video, you need to step outside and some people need to talk to you. Well, thank you for that, Spence. I wanted to ask you, it's been I guess, what, a little over a year now, I think, since you've been at the company? Spence Neumann: Yeah. Ben Swinburne: How has your role and your focus evolved over that period of time? What are your priorities in your seat, looking out over 2020? Spence Neumann: Well, it's definitely evolved a lot. I mean, we try to get folks up the learning curve quickly at the company, but I think it was day eight when I was on my first earnings call, so my head is hopefully spinning a little bit less. And what I'm focused on is a lot of what you saw on that screen and how do we -- how do I, in my role, help support the company in terms of where we're going? So, one, in terms of you know, we're trying to get better with content every day. And that's not just the creative executives, but how do we as a finance and operations team support those initiatives, whether it's the metrics we look at to gauge the effectiveness and impact of our content to, you know, how we support our creative teams and product teams around the world in scaling, you know, our production capabilities globally. So, that's one. Two is just, how do we support just scaling our business globally? So, you see in our business, 90 percent-plus of our subscriber growth recently has been coming from outside of the U.S., and you know, EMEA, APAC, and LATAM regions. And so, what are the implications for how do we successfully scale our organization, not just our finance team, but our company? And then, with all of that, how do we deliver on continuing to grow and build on what's a healthy business today, but making it healthier and stronger over time? So, delivering on our business objectives of growing our memberships, growing our revenues, scaling our profit margins and overall profitability, and now moving to improve our cash flow trajectory over time. So, spending a lot of time focusing on those business deliverables. Ben Swinburne: Great. Well, I'm sure we'll dive into all of those topics in this conversation, but before we do, I wanted to ask you something that, I don't know, I don't get to ask a lot on these stages, which is about the culture of the company, in particular, the freedom and responsibility sort of manifest that Netflix has, which I interpret as you delegate a lot and let people make their own decisions and sort of run on their own, but obviously, correct me if I'm wrong. And the question is, given how much bigger the company is today than it was when it was obviously founded, how does that -- how is that a successful operating strategy when you're producing the amount of content the company is producing? It just seems like it gets more and more challenging, the bigger and bigger you guys get globally, particularly on the content production side. Netflix March 2, 2020 02:45 PM EST Speaker ID: Page !3 Spence Neumann: Yeah, that's fair. So, I'd say it's actually less about the overall, you know, the challenge to our culture from overall size as much as how the company is evolving in terms of the number of new people and growth of our head count. So, we're still relatively small; we're only about 8,000 employees. But we've been growing a lot over the past few years, so as new employees are coming on board, and also, the changing complexion and mix of our employee base, as we are more and more global and local in that global growth. So as we change in that regard, how do we ensure that our culture remains healthy, that those new employees understand what freedom and responsibility and judgement is all about? And so, you know, for us, the good news is, one, it is not just a culture memo that's online or on the, you know, on the hallway message board. It is something we live and breathe every day. We are very focused on continuing to communicate and learn from it. And it's also not static. It is something that evolves, and purposefully, we're trying to get better all the time to evolve for that changing mix of our employee base and the changing nature of our company over time. So, it is something that we focus on a lot. We're trying to get better all the time. And, you know, the other thing is, a lot about what makes that work is we try to lead across the company with radical transparency and context. And when we do that, it helps a freedom and responsibility and judgement culture scale, because if we provide that information, we provide that context, we provide that transparency, then we give us -- and we're not so kind of restricted by our past, but that just informs our future and we continue to build on that, I think it kind of lends itself to a healthy growing culture. Ben Swinburne: Got it. Thank you; that's helpful. I want to step back and ask you a little bit about the subscriber opportunity ahead of the business. You know, certainly those who are maybe more bearish on the stock would argue that the business is maturing. Your net adds obviously are still healthy, but they were down a tick last year versus the prior year. We also can look at some of your regional numbers like EMEA and APAC and see, you know, penetration is still quite low in those regions. How do you, from where you sit, articulate the global opportunity for Netflix, sort of sitting here right now in early 2020? Spence Neumann: Sure. I mean, we look at it as, we're in many ways just getting started. Our long-term opportunity is kind of big and unchanged. We talked about that a bit on the last earnings call. You know, the good news is that, around the world, people love film and television entertainment. That's pretty universal. There's, depending on how you look at addressable market, whether it's, you know, we're not in China, but outside China, about 800 million broadband households, about 800 million pay TV households. We were at about 167 million paying members at the last quarter, ranging from a little over 50 percent penetrated in the U.S. to less than 10 percent penetrated in the APAC region.