Netflix (NFLX) Q1 FY26 earnings call: guidance and Q&A

How does the full-year margin guidance compare to prior guidance given the Warner Bros. deal costs, and where else are investments accelerating?

Netflix is maintaining its 2026 guidance for 12-14% revenue growth and 31.5% operating margin. While some Warner Bros. deal costs were pulled forward, the total M&A-related expenses for the year, including the InterPositive acquisition, are in line with initial forecasts and have no material impact on the operating margin outlook. No other significant acceleration of expenses was noted.

“So when you kind of put all that together, we're still in the ballpark, frankly, of the total that we were projecting for M&A-related expenses in the year. There's no material impact on our operating margin outlook.”

asked by Robert Fishman · answered by Spencer Neumann

What were the biggest learnings from the Warner Bros. experience, and does it change Netflix's appetite for M&A or capital structure?

The Warner Bros. deal was a 'nice-to-have,' not a 'need-to-have,' and the experience helped build Netflix's M&A muscle and test its investment discipline. The company learned to walk away when costs exceeded value. There is no change to the capital allocation philosophy, which includes organic investment, opportunistic M&A, strong liquidity, and share repurchases.

“What we did learn though is that our teams were more than up to the task. We've learned so much about deal execution, about early integration. We're really proud of the teams that did all that work.”

asked by Sean Diffley · answered by Theodore Sarandos

How is the primary quality metric for engagement performing in 2026, and what data points inform its measurement?

The primary member quality metric hit another all-time high in Q1 2026, and view hours were up at a similar rate to H2 2025. While the specific composition of the proprietary metric was not detailed, management stated it is predictive of retention. They also noted that new content forms like live events can drive significant viewing value with fewer view hours.

“And in Q1, that primary member quality metric that you referenced, it hit another all-time high. So we're making good progress there. We're excited about that.”

asked by Vikram Kesavabhotla · answered by Gregory Peters

How does Nielsen's adjusted methodology, which shows lower streaming viewership, impact Netflix, especially its advertising revenue?

Nielsen's change is a methodological adjustment in how they calculate the national TV universe, not a reflection of actual viewing behavior. It reduces the weight of streaming and increases linear, making streaming appear smaller. Netflix has its own data and maintains its $3 billion advertising revenue target for 2026, as the change does not affect ad effectiveness or consumer behavior. The company still sees tremendous growth potential, currently holding less than 5% of global TV time.

“The Nielsen gauge is not the currency for the video marketplace. And given that there is no change in consumer behavior or amount of viewing related to this shift, none of this changes our effectiveness or our aspirations in the ad space.”

asked by Rich Greenfield · answered by Gregory Peters

Can you share details about the World Baseball Classic viewership and other similar sports and live event opportunities?

The World Baseball Classic was a major success, becoming the most-watched program ever in Japan with 31.4 million viewers, and driving Japan's largest single sign-up day and highest Q1 paid net adds in Netflix's history. This event demonstrated Netflix's ability to stream multiple games concurrently and create significant business impact. The company plans more regional and global live events, including a multiyear deal with CONCACAF for rights in Mexico.

“In fact, it was the most watched program we've ever had in Japan. It is the biggest global baseball streaming event of all time. It was 31.4 million viewers.”

asked by John Hodulik · answered by Theodore Sarandos

Is the ROI on live event content spending, such as NFL games, judged the same way as scripted content, or does it offer unique ad growth opportunities?

Netflix's sports strategy remains focused on big breakthrough events rather than regular season packages, with all pursuits needing to make economic sense by considering both viewing and ad business benefits. The NFL is a valuable property, and Netflix is in discussions to expand its relationship, informed by recent learnings on valuing live events. The event strategy is working, with recent deals like CONCACAF and MMA events.

“Everything we pursue has to make economic sense in the ways that you just talked through. And when we consider this, we have to consider all the benefits that you derive both from the viewing and from the ads business.”

asked by Robert Fishman · answered by Theodore Sarandos

Can you elaborate on the growth of your advertiser base, the proportion serviced directly versus through DSPs, and your focus on top brands versus a mid-market strategy?

The advertiser base grew over 70% year-over-year in 2025 to more than 4,000, driven by an easier buying experience and increased DSP integration. Programmatic buying is becoming over 50% of the non-live ads business. Currently, Netflix concentrates on top advertising accounts serviced by its sales team, but expects continued growth in advertiser numbers and programmatic share, leading to iterative expansion into larger advertiser pools over time.

“Our advertiser base grew over 70% year-over-year in 2025 to be more than 4,000 advertisers.”

asked by Dan Salmon · answered by Gregory Peters

What informed the decision to raise subscription prices in the U.S. recently, and what are the early observations on its impact on customer acquisition and churn?

Price adjustments are part of Netflix's plan, informed by member signals like quality-weighted engagement and industry-leading retention. The full-year guidance already factors in expected pricing changes. Early signals from the recent U.S. price increases are in line with expectations and historical performance. The company maintains its philosophy of providing increasing value and adjusting prices accordingly, noting that U.S. subscribers pay the least per hour of viewing compared to other SVODs.

“As for the most recent changes, the early signals we're seeing are in line with our expectations or similar to the performance that we've observed historically with price changes in the United States.”

asked by Vikram Kesavabhotla · answered by Gregory Peters

How is AI's role in the creative process evolving, and what was the decision behind acquiring InterPositive in relation to the broader strategy?

Netflix expects generative AI to enhance content creation through better tools and processes, leveraging its technology DNA, data, and scale. AI will provide artists with improved tools for set references, previsualization, and visual effects, also enhancing onset safety. The acquisition of InterPositive accelerates Netflix's GenAI capabilities, as its proprietary technology is specifically designed for filmmakers, and is already generating interest and adoption among creators.

“With our acquisition of InterPositive, we think it accelerates our GenAI capabilities because it's a proprietary technology that was created specifically for filmmakers and specifically for filmmaking and that's different than other GenAI video applications.”

asked by Eric Sheridan · answered by Theodore Sarandos