Netflix Inc (NFLX) — Q1 2023 Earnings Call Transcript

Hello. And welcome to the Netflix Q1 2023 Earnings Interview. I am Spencer Wang, VP of Finance, IR and Corporate Development. Joining me today are Co-CEOs, Ted Sarandos and Greg Peters; and CFO, Spence Neumann. Our interviewer this quarter is Jessica Reif Erlich. And as a reminder, we will be making forward-looking statements and actual results may vary. With that, Jessica, I am going to turn it over to you for your first question.

Thank you. So let’s start with Ted and Greg. You have worked together for over 15 years, but this is your first quarter as Co-CEOs. Are there any highlights you want to share?

Well, Jessica, as you pointed out, it’s our first quarter together as Co-CEOs, but after 15 years of working together, you build a lot of respect and trust in each other to help you get through some trying times. And not to let you down, there is no drama, but this was pretty much a business-as-usual quarter for us having done this together for so long. Greg and I enjoy the same kind of trust, respect, and shorthand that I enjoyed with Reed for so many years. I know that Greg did as well. So it’s not as eventful as folks might have thought, and it’s really been incredibly and wonderfully professionally stimulating to have a Co-CEO to tackle big problems together. I think one of the accomplishments we will look back on from Reed’s incredible 25 years at Netflix is facilitating this very, very smooth transition and succession.

Great. So you have recently reduced prices in 116 countries. Is this a more local approach similar to what you did in India in 2021, or is the impetus to enable a successful introduction of password sharing and advertising tiers?

I can take this one, if you want. Jessica, this is really about, we talked for the last few quarters about further refining our pricing strategy and monetization. If you think back to when we did our global launch in 2016, it was essentially across the board, a bit of a skim approach and not particularly sophisticated in terms of our pricing. Think of this as kind of the next step in our evolution for a better market fit, product market fit, and pricing fit, with the aim of growing our penetration in these markets and also better medium and long-term revenue. It’s better for our members and better for our business. But I just want to emphasize, this is not material to our business anytime in the near-term for sure. It’s a lot of countries, but it represents less than 5% of our revenue and so it’s something that will, over the long term, hopefully benefit us. We can point to an example of success similar to what we saw in India. Last December, we dropped prices in India between 20% to 60%. We saw engagement over the past year grow by about 30%, with high growth in paid net adds, and revenue, FX neutral revenue growth actually accelerated from 19% in the year prior to 24% last year. So we are not saying every market is going to play out like that, but that’s what it would look like as a success.

Great. Let’s move on to password sharing. What have you seen in your Q1 new market launches, churn, as well as conversion, and can you give us any specific insights on what you have seen in Canada, whether it’s in terms of new subscribers versus add-ons?

I will take that one. This is an important transition for us and we are working hard to make sure that we do it well and as thoughtfully as we can. The last of the country rollouts have gone well, and maybe most importantly, were directionally consistent with what we saw in Latin America. Just to remind people what that looks like, very much like a price increase, we see an initial cancellation 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. First of all, it was a strong validation to see consistent results in these new countries because there are different market characteristics between each other and also different from the original Latin American rollout countries. So getting to a positive outcome, you mentioned Canada, we are now in a positive member and positive revenue position relative to pre-rollout. That’s a really strong confirmation that we have got an approach that we can apply in many different countries with different market characteristics, including our largest revenue countries. In fact, we actually considered launching that solution sooner. But we learned from our last set of launches about some improvements, especially in areas that matter a lot to our members, like having seamless access to Netflix as they have always been using it on the go or while traveling, and making sure that we have good tools for them to manage access to their accounts and their devices. So all in, we felt based on those results that it was better to take a little extra time, incorporate those learnings, and make this transition as smooth as possible for members. We think that approach also best serves the long-term business goals. So we are going to launch this new improved version broadly, including in the United States in Q2.

So as a follow-up, the cadence you just mentioned for the U.S. in Q2. How about the rest of the world? Can you give us your thoughts on pricing and whether you have a preference for a current borrower to become a subscriber or an add-on?

The launch we are doing in Q2 is a very broad launch; it includes the United States and many other countries. I mean, we reserve the right for some countries where we think there’s a different approach, but I would say the bulk of our countries, and certainly, when considering revenue, the vast majority will be rolling out in Q2. You mentioned pricing; we will look at that on a market-by-market basis. Obviously, we tested different pricing in these last rollouts that were executed in Latin America, and that gives you a sense about how we are thinking about what is optimal pricing, especially in more affluent countries. In terms of preference, we are trying to create a structure that really supports choice. That gives an opportunity for folks to spin-off to borrower accounts where they think that’s the right solution for them, or for legitimate use cases, where somebody wants to basically buy Netflix for a family member, we want that extra member to be in place too. So we don’t really have a strong preference; we are not trying to steer in any one perspective other than using pricing to satisfy those customer choice goals, as well as considering long-term revenue optimization.

One more on password sharing. Are there any incremental costs, as it seems like content distribution and marketing are already in your expenses? So is the incremental margin 100%, or are there plans to reinvest some of this revenue so it doesn’t all flow through?

I will leave this to Spence.

I was going to say there’s really not, other than just the general allocation of resources. I wouldn’t say there are real incremental costs, but of course, we always want to reinvest. As you can see with our guidance and our objectives generally, Jessica, we are looking to reaccelerate the revenue growth, and that’s the path we are on right now. As we do that, we want to balance gradually increasing margins. You see that in our guide, where we are looking to tick up margins to the 18% to 20% range for the full year, relative to just under 18% last year. But we want to balance that with the big prize ahead of us, which we believe is important. Reinvesting to create more and more great entertainment for our members helps drive that flywheel of more entertainment, more value for members, and ultimately, more members over time, and to build a really, really big and profitable business.

So let’s move on to advertising. Netflix appears to have a huge advantage in, let’s call it, television advertising. You pretty much have nothing to lose from a legacy perspective and everything to gain on an AVOD platform. Given the limited ad load, premium video content, your huge reach and engagement, with some pretty hard-to-reach demographics, as well as the ongoing mass transition from linear to streaming, your position is enviable. Having said that, you seem to be very careful in your advertising rollout. Can you give us your key learnings to date and what the growing pains have been so far?

As you state, we are significantly optimistic about the long-term opportunity for the reasons you mention. But we have always expected and we continue to expect, frankly, this to be a gradual build. It follows a very similar process that we have used in so many other areas where we get in, we learn as we go, we iterate, and we find that approach yields great long-term outcomes as we grow and learn. Currently, we have a lot of work to do to continue to develop features that support advertisers. We are rolling out things like measurement and verification, but we have a bigger, longer roadmap ahead. We are improving our go-to-market and sales capabilities in partnership with Microsoft. There’s a lot of good work that we have to do, and some of this is hard work which varies by country. You have seen us add programmatic private marketplace that gives advertisers more ways to buy as we grow inventory. We are also trying to improve things on the consumer-facing side, making the experience better for members. And through this process, we expect those iterations, which we are trying to execute as quickly as possible while being judicious about the business, to really add up over time into a significant, highly material, and lucrative high-margin business. But there’s plenty to do, and we are trying to maintain a fast pace but also thoughtful.

There have been a lot of press reports regarding your buildup of ad tech capabilities. Can you provide an overview of plans, time frame, and cost?

I would say we have the ambition to be innovative in this space. A lot of that innovation is thinking about not a one-size-fits-all in terms of the member experience, and thinking about what’s the right time to display an ad, for example. But I would also say that we are very much in a mode right now where we are doing a lot of work that follows a well-trodden path to build a big business. When you think about verification, measurement, and programmatic efforts, those are fairly straightforward tasks. A lot of our current work is heavily in those areas. In terms of incremental costs, Spence, do you want to add in here?

Sure. Generally, Jessica, we try to, in all of this, be very thoughtful and methodical in how we build the business. With that, we also consider how it impacts our overall financials, revenues, and incremental profit contribution; we believe we can do this in a very healthy way. So that's what we are building towards. So yes, there are some costs associated, both in terms of the partnership with Microsoft and in building out our capabilities—people and tech. But all very manageable. We also talked about increasing content costs as we continue to improve the level of content parity on this plan this past quarter, which is great. It's about 95% plus viewing parity, which is again great progress. We keep moving forward, but this is all at a level that we believe is not just better for our members with a lower-priced option, but also better for our business. We think we can do it in a way that’s, without being overly specific, think of it as like 50% or more incremental profit contribution to the business.

When you come to the May advertising upfront, which is in a couple of weeks, it sounds like you are coming with the standards here now. Do you have any plans to introduce it to your premium tier, and how much scale, meaning how many subscribers you expect on the platform when the upfront commitments come in the fall?

On your first question, we are always working to improve our plan structure and pricing. We have two goals in mind when we do that. One is we want a wide range of consumers ideally accessing our great stories at a variety of prices with appropriate corresponding features. The second goal is to optimize long-term revenue. A good example of this is based on the economics of our ads plan; based on limited switching behavior we’ve seen off of standard and premium. We have upgraded the ads plan features, both in terms of video resolution and quality, and the number of concurrent streams, because we think it supports both of those goals. Beyond that, we will continue to evaluate as we always do; you have seen us make moves in this space before. We have nothing more to add on that today. In terms of scale, obviously, we are growing; we are seeking to continue to grow, but we are not going to announce a target or what we expect for upfronts at this point.

One more advertising question and then I will move on. But can you provide ARPU specifics on what you have seen so far, because you mentioned in the release that the revenue is actually higher than even the standard plan. So it seems like so far, so good?

Yeah. I can jump in. I mean, yes, overall, we are pleased with our sort of per-member ad plan economics. It's higher than our basic plan overall, and as you say, in the U.S., it’s even higher than our standard plan. So we really like the path and trajectory we are on, and it's kind of a win-win because it’s a lower-priced option for our members and it’s both incremental revenue and profit for the business. So it makes the business stronger, which allows us to reinvest into more great entertainment. So we like the direction, but again, it’s early. We are only a couple of quarters into this, Jessica, so we will improve on better targeting, measurement, and better tools and buying options for advertisers. We believe all that will reinforce and strengthen that premium CPM ad network we are building.

So maybe switching gears a little to capital returns and free cash flow. You did raise your free cash flow guidance, but you kept your margins the same for this year. What are your longer-term margin growth expectations at this point? Pre-COVID, you indicated 300 basis points of improvement per year over a few-year period. Can you provide any update to that?

We have never provided a long-term guide to our margins. But I’d say we are already in a place where we feel great about the business model we have. It’s a great business model. The business at scale with over $30 billion of revenue, healthy profit margins, growing margins, and growing free cash flow. That’s the starting point, and as I mentioned before, we are trying to balance reaccelerating revenue while increasing margins and reinvesting back into the business and our member base to help capture that big prize. We have talked on recent earnings calls where we represent we believe roughly 5% of that direct consumer spend in the areas of entertainment we participate in today, primarily in film, TV, and games. Also, we think about the member population available with over 1 billion broadband households, and even today, roughly 450 to 500 million connected TV households, and we only have about 230 million paying members today. That's why we are so focused on addressing paid sharing and improving our value proposition to bring in more members. We don’t see ourselves approaching a near-term ceiling. Traditional entertainment services and networks at scale typically work with operating margins above our current levels of about 20%. We believe we have a long way to go and some inherent advantages as a truly global entertainment network, with strong engagement and a scalable content model. So we see tremendous growth potential but are not providing specific guidance for now.

If I could add an example of that—of the scale of the business being global, every one of our big content wins starts as a local win. In success, they roll out regionally, then they reach the diaspora, and then they achieve global success. There’s no marginal cost to all that additional audience when we get it right. By creating those compelling stories that drive growth in local territories, it provides content into the pool that people can fall in love with. It’s just as likely that we can get a gigantic hit from anywhere in the world, and that’s really the scale of our operating business. To go back to what Spence said about the potential to grow margins beyond where we are today, it is very, very high.

Could you give us an update on your capital return plans? How are you thinking about capital returns over the longer term?

Sure.

I can take that one. Thanks, Jessica, for the question. We are happy to be fully investment-grade as of Q1. That’s a nice milestone for the company. You are right, there’s no change to our capital allocation philosophy. We are still targeting to maintain a minimum cash equivalent to roughly two months of revenue. Based on the Q1 numbers, that’s about $5.4 billion in minimum cash. We ended the quarter with about $7.8 billion on the balance sheet, so we have about $2.4 billion of excess cash. That’s why we indicated in the letter that our share repurchases will accelerate over the course of the year. One minor thing I forgot to mention in my intro is that this video interview will include forward-looking statements, and actual results may vary. I want to state that, and here’s evidence that this video interview is actually not scripted. Now back to you, Jessica.

So, Ted, how are you preparing for a potential writer’s strike; potential or likely?

Well, Jessica, let’s first say we respect the writers and we respect the WGA; we couldn’t be here without them. We don’t want a strike. The last time there was a strike, it was devastating to creators. It was really hard on the industry, painful for local economies that support production, and very, very bad for fans. If there is a strike, we want to work hard to find a fair and equitable deal so we can avoid one. But if there is one, we have a large base of upcoming shows and films from around the world. We could probably serve our members better than most. We really don’t want this to happen, but we had to make plans for the worst, so we do have a robust slate of releases to take us through a long period. Just to be clear, we are at the table and we will try to get to an equitable solution so there won’t be a strike.

And beyond the strike, just once you get past that, how do you expect content spending to change over the next few years? You have kind of been at the $17 billion cadence. Does it depend on revenue growth? Can you give us some color on how you are thinking about that?

Yes. It depends on revenue growth. Keep in mind, the way that content spend hits us is with starter productions and deliveries. We are still working through or coming off of those post-COVID floodgates opening, which makes the content spend a little lumpier. We expect to be back to about the $17 billion level in 2024, and the growth rate depends on the rate of revenue growth.

I completely agree with Ted's points, and I want to emphasize that there's a significant opportunity ahead. We plan to maintain an average of around $17 billion from 2022 to 2024, but there's a substantial entertainment market to pursue beyond that. As we accelerate our revenue, we see numerous opportunities to enhance viewing, engagement, and future business prospects. We anticipate reaching those goals and just need to develop our strategies accordingly.

Do you have any thoughts on revisiting your film strategy? In terms of theatrical output as well as distribution, you have had so much success at the Academy Awards. Does that change anything for you? And you also recently had a restructuring in this division. Is there anything to read from that?

No. Jessica, the film division is doing great. They are really building some great films. As you pointed out, the success at the Oscars was great. But even better was the movies that won so big were also very popular with fans. This award-winning critical acclaim translates into popularity, like, All Quiet on the Western Front, and Pinocchio were examples of this. We are proud of the films that were in the mix because they were loved by fans. We are really happy with the investment in film. Of course, we are trying to improve it, like we do with all of our films. Our release strategy, remember, is not just about directing people to a theater. It involves creating demand for a film within our subscription service. I believe having big, new, desirable content—including feature films in the first window—drives value for our members and the business. So no major changes are in play except for continual improvement of the films for our members and making a splash with films that are loved and watched.

It's really leaning into that advantage; we believe we have delivering value to our members. Because of our reach and scale, having over 230 million paying members at our average revenue per member, we can invest in these big movies, bringing them effectively to our audience as just one part of the wide range of content and must-watch entertainment for our members. It’s really about leaning into that advantage.

It’s tempting to compare services, but others don’t have that kind of scale, as you pointed out, Spence. They lack both the revenue base and viewer base to support big-budget films with a single window like we can on Netflix.

How is your live strategy evolving? Chris Rock was a huge hit, but Love is Blind had some technical issues. Is live a significant advertising driver? Do you need to invest more to beef up your technical capabilities?

Greg, do you want to grab that?

Yeah. I will kick it off. I would start by saying we are really sorry to have disappointed so many people. We didn’t meet the standard that we expect of ourselves to serve our members. Just to clarify from a technical perspective, we have the infrastructure; we had a bug that we introduced when we implemented changes to try and improve live streaming performance after the last live broadcast, Chris Rock, in March. We just didn’t see this bug in internal testing, because it became apparent only when multiple systems were under the load of millions of viewers trying to watch Love is Blind. We dislike incidents like this, but we will learn from it and improve—our fundamental infrastructure is strong. The good news is ultimately, 6.5 million viewers enjoyed and watched the show. Now, I’ll turn it over to Ted to discuss more of our strategy.

We want to use live when it makes sense creatively and when it helps deliver not only the content but the inherent excitement. So a reunion show that generates buzz and news fits well when people can enjoy it together live. Certainly, the Chris Rock Standup Show played out well because of the anticipation about what he would say in that set. We do have opportunities to project like that when we see fit. We are super disappointed that we couldn’t deliver a successful live product for everyone who wanted it during the Love is Blind Reunion, but we are thrilled that people love the show. This points to the kind of love for that brand and for the growing love for our unscripted content on Netflix. Some of these shows will have live elements. I believe those results-driven shows play out better when they are live, generating significant conversation. However, on Chris Rock, about 90% of the viewing happened afterwards, but it doesn’t overlook the fact that it was a big event when it occurred live.

Is it a big driver of advertising?

We currently do not have advertising in the live broadcast.

I have one more question on password sharing; I will just go back to that for a second. Of the 30 million you can and 100 million-plus global borrowers, that sounds like from your release, that’s actually the number of households. What is the number of potential subscribers or add-ons, and what is the potential conversion from these 100 million-plus households?

To some degree, the borrowers, they represent well-qualified individuals in the sense that they have all the technology needed to access Netflix—they have the smart TV, broadband access, and they know how the system works. Having said that, we see a range of engagement amongst those borrowers. Some users are watching as much content as a normal paying account, which leads to strong conversion likelihood. However, we see that taper off through lesser engagement, making such conversions less likely. But even in those cases, I’d say this represents an important structural shift. We will develop one-to-one relationships without pricing distortion or membership distortion, leading to a new range of potential members. We will see membership and revenue grow as we implement this approach, creating opportunities for improved offerings and extraordinary content, which Ted highlighted, ultimately leading more people to become our members over time.

Also, going back to advertising, what are the advertising features that you are most excited about?

We are sort of at this point where there are two areas of focus: what I am super excited about, and then the actual work required for the business, which we must do and that excites me too, as it’s integral to our growth. The practical components relate to measurement, verification, targeting, and expanding ways for advertisers to interact with us. I'm eager about those immediate business returns. From a technology and product perspective, we can harness a premium, fully addressable, fully targetable, fully deterministic ad streaming system, which opens up a plethora of innovative options. Consequently, we can customize our ad experiences according to user interactions rather than adhering to a uniform system. There’s an entire line of innovation that we will pursue, and we have yet to understand the complete possibilities as we work with advertisers and our members to test ideas and gauge their effectiveness.

What do you consider the walk phase?

We are getting into the walk phase, which is a combination of factors. One is scale; achieving certain sizes shifts how advertisers perceive us. Part of it is enhancing the technical features that engage advertisers—measurement, verification, targeting, programmatic buying—these all contribute. In summary, I would characterize our current phase as entering the mid-stage of growth; we have much to accomplish before reaching the run phase.

We discussed previously that it’s a multiyear process made to gradually build; we are only a couple of quarters in. I hope we are in the walk phase by the end of the year and into next year, marking this as a year of transition from crawl to walk.

I wanted to clarify something, Spence. I think you said this is a 50% margin. Typically, advertising could be as high as 80% or 85% margins. Do you expect to build up to that, or do you think it’s really just a 50% plus business?

I put ‘plus’ in there. I indicated 50% looking at our startup mode—of this business leaning a bit conservatively. Over time, we do expect margins to exceed 50%, but I don’t want to specify any figure at this point.

Moving on to gaming, can you provide data points on engagement and what you are seeing on retention?

I’m not going to provide specific points, but let me summarize where we are. We have 55 games released, with 40 more in the pipeline for this year. There are exciting games to look forward to, like Terra Nil—a reverse city builder, and our first new internal studio title, OXENFREE II, coming later this year. The trajectory mirrors what we saw with other new content categories; we build into a multiyear process, similar to film, non-fiction, or international productions. Ultimately, the goal is to provide new entertainment modalities for fans to immerse themselves in, increasing engagement and retention along with incredible stories that draw users irresistibly toward gaming.

Are there plans to monetize games directly, for example, through advertising or licensing IP to game developers?

Not currently. Our focus remains on the core initiative of delivering games based on our IP directly to our members, enhancing the experience. We strive to provide a gaming experience that motivates game creators to prioritize player enjoyment, free from other monetization concerns, such as ads or in-game purchases.

Turning to India, which is one of the biggest global markets and one of the fastest-growing right now. Spence, you mentioned the pricing change in 2021. Ted, you recently stated at a panel earlier in the year that India is your fastest-growing market. You gave statistics like engagement of 30% and revenue up 24%. But I think, Ted, you mentioned increasing your local originals from 28% last year. Can you talk about this market? What are your long-term plans? Is it actually profitable, or can we expect a real change in contribution?

What we discussed earlier about improving pricing helps us grow revenue, leading to greater engagement. It’s crucial to provide content viewers absolutely love. We’ve noted a consistent upward trend quarter-over-quarter in our films and series. Rana Naidu is a recent show that is receiving fantastic responses nationwide, creating much excitement for the service. Again, proper pricing and payment methods are essential. India is a significant opportunity because it has a massive population of entertainment-loving people; we need the right product for them and a means for business cooperation. We are focusing on creativity while refining our pricing. Although India represents a unique landscape with its demand for local content, we’ve seen local content perform well globally. This year alone has been exceptional; movies like RRR attracted audiences worldwide, and Gangubai garnered attention during its nominations for Best Foreign Language Feature. As the content opportunities expand and our accessibility grows, we can see success in India. While we're still investing in the market, I’m confident we can do very well.

Jessica, we have time for two last questions, please.

Moving on to accelerated revenue and products. Can you update us on your expectations for consumer products? You announced the La Casa collaboration for closing on your eight most iconic shows, but you also have other collaborations. It seems like an area that now that you are building up your own content seems to provide incremental opportunity.

Yes, we continue to grow in that space. The primary driver for our consumer product business is to build and deepen fandom. It does drive some revenue, but in general, we are primarily looking for opportunities that help fans connect with their favorite shows, films, and talents through merchandise. Through successful live experiences, such as the Bridgerton and Stranger Things experiences that travel globally, we are thrilled with these developments. We are stepping into new realms, like the Stranger Things stage show, and there’s much more in line. But do keep in mind that it’s primarily about fostering fandom, which can lead to revenue, but fundamentally strengthens the business.

As a last question, just a follow-up on password sharing. In the markets where you have rolled out password sharing, have you seen any movement between the tiers, for example, a household that has a premium subscription shifting to two standard or something similar?

We observe some of these effects, especially in price-sensitive markets. This situation varies significantly market by market. In price-sensitive regions, consumers established a practical or informal pricing structure by subscribing to premium and sharing it; often, they had multiple users paying a fraction of the premium. Associated with this, we see some users shifting off of those plans as we rationalize that structure and implement changes that prevent password sharing. Additionally, we enable options for features like extra members or our ad plan as an affordable entry-level price. I believe you will notice some restructuring in user plans. Again, I would characterize this as a country-specific approach where some nations respond one way while others focus more on casual sharing.

If I could quickly add onto this: the way we win over sharers and the way we grow the ad plan is to create content that people can’t live without. We are doing well on that front so far. Just this quarter alone, this past Q1, Night Agent became our sixth-largest original season of television in Netflix history, showcasing incredible success. We saw the returns on hit series like You for Season 4, substantial growth in Outer Banks’ third season, and impressive results from the second season of Ginny & Georgia—all shows that have expanded from their original first seasons and created new stars like Chase Stokes, Antonia Gentry, and Madelyn Cline, who have extensive fan bases worldwide. Also noteworthy is The Glory, which is from Korea and has become our fourth-largest non-English launch ever. Additionally, we released significant films, including You People, Your Place or Mine, and Murder Mystery 2, showing strong performance in multi-camera comedy with The 90s Show and success in unscripted options with Full Swing. We are thrilled with the content results this past quarter. Ongoing performance in this area is necessary for converting sharing accounts and growing our ad-supported tier.

You missed Beef. You didn’t mention that. It’s incredible.

My oversight on that. The reason why when we discuss our content, it sometimes sounds like a laundry list is that the breadth of hits illustrates the difficulty of this achievement; maintaining the hit quality across the breadth of entertainment varieties is a tough area to master. Each fan’s tastes are remarkably varied, necessitating a diverse range of options to satisfy different audiences, and that’s what we excel at doing at scale.

Plus one to Beef as an amazing drama; I love it.

True.

We are really pleased with the quarter. 2023 is off to a good start. Netflix is the leading streaming service in terms of engagement, revenue, and profits, and streaming remains the future of entertainment at home. Just yesterday, Nielsen released data indicating that during Q1 of 2023, Netflix was the most watched broadcaster or streamer in the U.S. by a considerable margin. We have ample room for growth. Even with the extensive viewing, we represent roughly 10% of total TV time in our most established markets including the U.S. and the U.K. On the revenue and profit front, we are growing, not as fast as we believe we can, nor as fast as we want to, but we are profitable with a clear path toward revenue and profit growth reacceleration. You will witness a broader rollout of paid sharing in Q2, continued expansion of our ad business, and ongoing growth in free cash flow. This year, we anticipate generating approximately $3.5 billion in free cash on increased margins. Remember, this account sharing initiative broadens our base of potential paying members, facilitating long-term growth at Netflix, emphasized by our focus on execution. We commit to enhancing the variety and quality of our must-watch movies, series, and games. We will consistently improve user discovery and generate buzzier, more creative marketing. When we deliver for our members, we strengthen the business. We will continue to do this better and faster than our competition, month after month, and year after year. Thanks, Jessica.