Netflix earnings call: Password crackdown goes global; buybacks to increase
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Netflix stock (NASDAQ:NFLX) had sunk as much as 12.5% initially after an earnings report that showed better-than-expected subscriber growth but a slowdown in average revenues -- but it had largely recouped that drop before it launched its associated executive Q&A session, where questions zoomed in on plans to boost a pair of relatively new lines of business even as Netflix departed an older one.
Shortly before earnings were announced, Netflix said it was getting out of the videodisc-by-mail business it pioneered 25 years ago -- a business that had largely shrunk in the face of easier delivery through streaming video.
In the earnings call (the first without co-founder Reed Hastings), co-CEO Greg Peters addressed one of the new businesses: the crackdown on password sharing (which Netflix has said affected 100M users) via the rollout of paid sharing, where accounts are charged for extra members on their households.
"This last of the country rollouts have gone well, and maybe most important, were directionally consistent with what we saw in Latin America," Peters said. "Very much like a price increase. You see an initial cancel reaction. And then we build out of that both in terms of membership and revenue as borrowers sign up for their own Netflix accounts. And existing members purchase that extra member facility for folks that they want to share with."
That knowledge led to a broader rollout of the program slightly slower than some observers expected, he added. "It was better to take a little bit of extra time, incorporate those learnings and make this transition as smooth as possible ... And we think that approach also best serve the long term business goals as well."
As for the advertising tier, the company is "significantly optimistic" about the long term while continuing to acknowledge that it's a thoughtful learning process.
"We've got a lot of work to do to continue to develop product features that support advertisers," Peters said. "We're rolling out things like measurement and verification, but we've got a bigger, longer, longer roadmap that we have to go through there. We're improving our go-to-market and sales capabilities in partnership with Microsoft."
Economically, though, "we're pleased with our per-member ad plan economics," Chief Financial Officer Spence Neumann said. "In the U.S., it's actually been higher than our standard plan ... It's kind of a win-win because it's a lower-priced option for our members, and ... it's incremental revenue, incremental profits to the business."
There's no change to the company's capital allocation policy, IR chief Spencer Wang said, adding that it's fully investment grade. "We're still targeting to maintain minimum cash equivalent to roughly two months of revenue" -- about $5.4B in Q1's numbers, vs. $7.8B on the balance sheet, indicating $2.4B in excess cash.
That means "share repurchases will accelerate over the course of the year," Wang said.
As for a writer's strike recently authorized by Hollywood's writers union, Netflix is confident that there's enough in the pipe to soften the blow. 
"If there is [a strike], we have a large base of upcoming shows and films from around the world," co-CEO Ted Sarandos said. "We could probably serve our members better than most. We really don't want this to happen. But we have to make plans for the worst. And so we do have a pretty robust slate of releases for ... a long time."