“No entertainment company has ever programmed for so many tastes, cultures and languages.”
That’s how Netflix (NFLX+2.09%) framed its global dominance in Thursday’s Q1 earnings letter — and while the company no longer shares subscriber counts (believed to be north of 300 million), it does admit to reaching 700 million people worldwide.
Catering to this enormous, ever-splintering audience helped Netflix bring in $10.54 billion in revenue for the quarter (up 13% year-over-year), deliver a whopping $2.89 billion profit, and sustain an operating margin of 31.7%. It also helped the company confidently project near-30% margins going forward.
That level of profitability is almost unheard of in media, more in line with companies like Apple (AAPL+2.21%) or Google (GOOGL+1.23%) than Netflix’s streaming peers. For context, operating margin is the percentage of revenue a company keeps after paying for its day-to-day costs — basically, how efficiently it turns income into profit. Netflix hit 31.7% this quarter and expects to hover around 29% for the full year. That’s not just strong for streaming. That’s elite by any standard, no matter what business you’re in.
By comparison, Disney’s (DIS+0.20%) entertainment division recently posted an operating margin just above 11%. Warner Bros. Discovery (WBD+0.75%) and Paramount Global (PARA+0.51%) are barely profitable on the content side. Even Spotify (SPOT+1.35%), often grouped with Netflix because of its similar digital model, is operating at sub-10% margins — and that’s after years of red ink. Netflix isn’t just beating the curve. It’s in a category by itself.
So what’s the secret sauce? It’s not just scale, though reaching 700 million people doesn’t hurt. Netflix owns its tech stack, controls global distribution, and increasingly produces content in-country, in-language, and at scale, which is often cheaper than importing and dubbing. Its content doesn’t have to break box office records in week one. It just has to travel well, stick around, and drive engagement over time.
Combine that with aggressive cost control and the rapidly improving economics of its ad-supported tier, and suddenly you’re looking at margins that resemble Microsoft (MSFT+0.24%), not Marvel. Wall Street loves this, for obvious reasons.
But let’s be honest: the real juice for you and me may be in who’s watching what — and what’s coming next.
Netflix’s most-watched show this quarter wasn’t from the U.S. at all. That title goes to Adolescence, a U.K. series that racked up 124 million views, becoming Netflix’s third most popular English-language series of all time. On the film side, Back in Action, starring Jamie Foxx and Cameron Diaz, drew 146 million views, making it Netflix’s sixth biggest English-language film ever.
The international slate also delivered in a major way. French film Ad Vitam pulled in 63 million views, while Mexico’s Counterattack notched 59 million — both cracking the all-time top 10 for non-English films.
Several other titles had strong showings this quarter as well. Season two of The Night Agent reached 50 million views, while American Murder: The Gabby Petito Story pulled in 52 million. Zero Day, the new political thriller starring Robert De Niro, hit 55 million views, and The Life List, a feel-good tearjerker starring Sofia Carson, landed at 67 million. The workplace comedy Running Point clocked 36 million, and anime series Sakamoto Days brought in a respectable 21 million.
Even Ms. Rachel, the toddler content queen, managed 29 million views — proof that the algorithm doesn’t sleep, and neither do parents. And in case you missed it: WWE Monday Night RAW has landed on Netflix’s Global Top 10 every single week since its debut.
If Q1 showed the range of global taste, Q2 is when Netflix bets on names. The film slate includes Nonnas, starring Vince Vaughn, plus Straw, from Tyler Perry and Taraji P. Henson, and Havoc, a new action movie starring Tom Hardy.
The series lineup is just as stacked, with Forever, based on Judy Blume’s YA novel, and The Four Seasons, a reboot led by Tina Fey and Steve Carell. Ransom Canyon, a sweeping modern Western, starring Friday Night Lights alum Minka Kelly, is also set to hit later this year — clear eyes, full hearts, cowboy hats, can’t lose.
Most anticipated of all? Squid Game returns for season two on June 27, alongside a new round of the reality competition Squid Game: Unleashed.
Netflix spent most of the past few years resisting ads. But today, it’s leaning in, and Wall Street is rewarding the shift. In Q1, Netflix officially launched its in-house ad tech platform in the U.S., part of its effort to boost margins and own more of the experience.
The company didn’t disclose exactly how many users are on the $7.99 ad-supported tier, but emphasized that ad-tier membership grew more than 65% from this time last year. And while it still accounts for less than 5% of total revenue, Netflix positioned it as a recession-resilient offering — something Wall Street is clearly buying, with shares up over 3% Friday morning.
The tradeoff, of course, is sitting through ads for local tourist attractions you already know to be lackluster when all you want is to get back to Caramel Week on The Great British Bake Off. But if it keeps your subscription under $8 a month, Netflix is betting you’ll take the hit.
This quarter also marked a symbolic shift. By no longer reporting subscriber numbers, Netflix is betting the market will reward profit over growth, a far cry from its early disruptor days. And so far, the bet seems to be working.
A company that used to obsess over churn now wants us to look at free cash flow ($2.66 billion this quarter) and margin guidance (near-30%!) instead. But for everyone not reading shareholder letters? The most important thing is still the queue.
The post Binge this: Netflix’s Q1 hits blockbuster levels appeared first on Quartz.
