Hi YXI friends,

From mailing DVDs to producing Oscar-worthy films, Netflix has come a long way since the days of Blockbuster dominance 25 years ago. Today, Netflix is a global phenomenal covering 190 countries with more than 277 million paid memberships. Netflix commands as much as 8.4% of the US TV screen time, 150 basis points behind YouTube, but nearly triple that of Prime Video or Hulu.

Interestingly, while YouTube is the number 1, it has refrained from splashing on its own branded content, but instead let content creators drive the views. On the other hand, Netflix has a tight control around its content and has not attempted the shorter-form social-media style content generation.

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1. Netflix is truly global

Most of the mega-cap names we have covered so far have a heavy American bias. Netflix’s global distribution is much more balanced. The largest paid memberships come from EMEA, while US and Canada share just 30%.

2. Netflix has recovered from its challenges in 2022.

Netflix’s success formula conceptually is rather simple. There are two key drivers to its rising user base: 1) compelling content, both organic or acquired, and 2) effortless and accurate content discovery through its user interface and machine-learning algorithm.

Execution is the hard part. Keeping 600 million users constantly entertained (277 million memberships x 2+ average household members) across 190 countries, through top-down content push is no easy feat. The content has to be original, high quality, and localised.

The good news is that Netflix is doing just that.

In Q2, Netflix reached a quarterly revenue of $9.6 billion, 16.8% higher than a year ago, an accelerating from the 14.8% of Q1. Paid memberships rose by 16% YoY to 277.6 million. Popular shows and movies included Bridgerton Season 3, Baby Reindeer, Queen of Tears, The Great Indian Kapil Show, Under Paris, Atlas, Hit Man, and The Roast of Tom Brady.

This result puts the TTM revenue at a 13% growth pace, compared with just under 4% in Q2 2023.

For Q3, the management guides a slightly slower 14.5% YoY growth for its quarterly revenue, translating to $9.78 billion.

The Average Monthly Revenue per Paying Membership (ARM) came in at $11.65, pretty much flat from the year before. This will be a difficult metric to push up, and the effort right now is on getting more advertising revenue off the ad-supported tiers.

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