Is Netflix going to do AI Generated Content?

Yesterday, Netflix (Nasdaq: NFLX) reported its second quarter results that surpassed market expectations. The better than anticipated results were driven by a culmination of higher members, higher ad revenues, and higher pricing.

Netflix’s Financials

Netflix’s Q2 revenues grew 16% to $11.08 billion, ahead of the Street’s forecast of $11.07 billion. EPS of $7.19 was also ahead of the market’s forecast of $7.08. Netflix no longer announces details on its subscriber base.

For the current quarter, Netflix expects revenues of $11.53 billion, ahead of analyst estimates of $11.28 billion. EPS for the quarter is projected to come in at $6.87 compared with the $6.70 anticipated by the market. For the full year, Netflix raised its guidance from $43.5-$44.5 billion to $44.8-$45.2 billion.

Despite the better-than-expected performance, the market was not too thrilled with the results. In the last quarter, Netflix has benefited from the effects of currency movement. Since the start of the year, the US Dollar Index has declined roughly 10%.

Netflix’s Ad Business Focus

Netflix is focused on driving revenues from its ad segment. While it did not separately call out contribution from ad revenues, it expects to double ad revenue this year. It has signed up with major brands like Procter & Gamble and Coca-Cola for premium placements tied to hit shows. Recently, Netflix completed the roll out of Netflix Ads Suite, the in-house first-party ad tech platform, to all its ads markets. It did not share metrics, but announced that it was pleased with the early results.

Netflix recently announced plans to integrate Yahoo DSP into its programmatic offering. The partnership will allow advertisers to buy Netflix ads programmatically through Yahoo. The capability will be available later this year in all 12 of Netflix’s ad-supported countries. Besides Yahoo DSP, Netflix already has similar contracts with The Trade Desk, Google, and Microsoft as its programmatic partners.

Netflix’s Content Strategy

Netflix is hopeful of a stronger second quarter due to the line up of a slew of new content. It is expected to release the second season of Wednesday, the finale of Stranger Things, and movies Happy Gilmore 2 along with Guillermo del Toro’s Frankenstein. It continues to add live events to the lineup and announced two marquee boxing matches in Q3, including Taylor vs. Serrano rematch and the Canelo vs. Crawford fight in September. Netflix also tied up with NFL earlier and will showcase the NFL Christmas Day doubleheader.

Netflix is also experimenting with using AI for content development. For the Argentine sci-fi series, El Eternauta, they used virtual production and AI-powered visual effects tools. The first-ever gen-AI footage that Netflix streamed saw its VFX sequence completed ten times faster than it could have been completed with traditional VFX tools.

Last quarter, Netflix launched a redesigned TV homepage that is expected to improve member experience. The simpler, more intuitive view is expected to showcase the breadth of its portfolio better. Netflix believes that the new UI will also help improve the personalized recommendations for its members.

While Netflix is experimenting with AI in various ways, they haven’t announced plans to produce entire films or TV shows solely generated by AI.

Netflix’s stock is trading at $1,274.17 with a market capitalization of $542.3 billion. It hit a 52-week high of $1,341.15 in June and has recovered from the 52-week low of $587.04 that it was trading at a year ago.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Photo Credit: Tumisu from Pixabay