Table of Contents
a. Key Points
Total watch hours continue to grow at a sluggish pace.
Removing quarterly watch hour growth disclosures.
Bought back $5B in stock this quarter, marking a new record.
Revenue still continues to grow at a solid pace thanks mainly to pricing power and ads.
The free cash flow miss was noisy. Annual free cash flow expectations were reiterated.
b. Demand
Slightly missed total revenue estimates. 12% foreign exchange neutral revenue growth met estimates. The tiny miss was related to currency headwinds.
Ad revenue from rising ad load, price hikes and some member growth drove the Y/Y revenue expansion.
Missed U.S. + Canada (UCAN) revenue estimates by 1.5%.
Slightly beat Europe, Middle East & Africa (EMEA) revenue estimates.
c. Profits & Margins
Beat EBIT estimate by 1.5% & beat guide by 2.1%.
EBIT margin fell Y/Y as expected due to content amortization timing for 2026. They expect slower cost growth for the rest of the year to enable Y/Y EBIT margin leverage. They also reiterated annual EBIT expectations.
Beat EPS estimate by $0.02 & beat guide by $0.01. EPS rose by 11% Y/Y.
Missed FCF estimate by 44%. This metric is very noisy on a quarterly basis due to content spend timing.
FCF was also hurt by cash tax payment timing related to the Warner Bros. termination fee they collected.
d. Balance Sheet
$9B cash & equivalents.
$14.5B total debt.
-2% Y/Y dilution. They bought back nearly $5B in stock this quarter, marking a record. They have $27B left in buyback capacity.
e. Guidance & Valuation
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