Netflix announced its second quarter financial report today: revenue of $9.559 billion, an increase of 16.8% year-on-year; net income of $2.147 billion, an increase of 44% year-on-year; diluted earnings per share were $4.88, a growth from $3.29 in the same period last year.

Netflix exceeded Wall Street analysts' expectations for revenue and diluted earnings per share in the second quarter, and the total number of paid streaming service users worldwide also exceeded expectations. Netflix's outlook for diluted earnings per share for the third quarter exceeded expectations, but its outlook for revenue fell short of expectations. After the financial report was released, Netflix's stock price rose slightly in after-hours trading.

Following the release of the financial report, Netflix co-CEOs Ted Sarandos and Greg Peters, CFO Spencer Neumann, and Vice President of Investor Relations Spencer Wang and other company executives attended the subsequent earnings conference call to interpret the key points and answer questions.

The following is the content of the Q&A session:

JPMorgan analyst Doug Anmuth: Can Spencer provide a detailed overview of the trend in customer churn rate? In addition, what are the factors driving the company's revenue growth this quarter?

Spencer Neumann: We are quite satisfied with the overall performance of the company in the second quarter, and the overall performance growth is strong. The development momentum of all business lines is good, with significant growth in revenue, membership, and profit. Speaking of the growth in membership, the paid user base grew on a very large scale this quarter, mainly driven by a stronger customer acquisition capability, which was slightly better than we expected. In addition, the retention rate also maintained a relatively healthy level, which is the case in all regions.

Regarding the overall growth of the company, there are three key factors that drove the growth of the membership. First, our content sector had a strong performance. Netflix has launched a variety of themes and works in various regions, and I believe we will talk about more details later. Pay sharing has also brought some positive effects, and these effects are still continuing. However, as we have said in recent conference calls, it is increasingly difficult to completely sort out this part of the impact. However, in the business sector, there has obviously been healthy organic growth, and we are getting better at optimizing services into business value. In terms of converting paid accounts, in terms of paid members, including entry-level package prices and the services provided by ad-included packages, Netflix's extremely attractive prices have brought a lot of business revenue.

Considering all these factors, paid users achieved a relatively outstanding growth in the second quarter. More importantly, we also achieved outstanding performance in driving healthy growth in revenue and profit: revenue increased by 17% year-on-year, and the operating margin increased by 5 percentage points year-on-year.

JPMorgan analyst Doug Anmuth: In the second quarter, India ranked second and third in net additions of paid users and growth in revenue, respectively. Is this market experiencing a turning point where the company's business is about to take off? Or is this growth more attributable to the success of certain specific content sectors of Netflix in the second quarter?

Ted Sarandos: I think the growth in the Indian market is very similar to what we see in other regions around the world. The fit between Netflix's content products and the market is the driving factor that attracts members, retains members, and promotes the monetization ability of members. This quarter is still the case.

We launched "Lust Stories", a fantastic series directed by Sanjay Leela Bhansali, one of India's most famous filmmakers. He took over this grand series and brought it to Netflix, which is also the largest drama series we have produced in India so far. In addition to this, our original movies and movies purchased for streaming as another channel of pay-TV have appeared immediately after being released in theaters, and Netflix members are eagerly anticipating this. If we select good content and arrange it well, we can improve the fit between our products and the market, increase user engagement, and increase the number of members and revenue. I think this model applies anywhere else, as long as we can keep the Indian audience's freshness and excitement for Netflix content, we certainly have a lot of room for growth in India.

Bank of America analyst Jessica Reeve Erlick: Spencer, how should we view the speed of the company's future profit margin expansion, and what are the driving factors behind this year's better-than-expected profit margin performance?

Spencer Neumann: Obviously, we are satisfied with the current trend of the company's profit margin, and our focus is to maintain healthy revenue growth every year and improve profit margin. In this regard, our achievements so far have been very good. As you can see in the investor letter, our current goal is to achieve an operating margin of 26% for the full year, which is higher than our previous expectation of 25%. Assuming we can achieve this goal, year-on-year growth will increase by five percentage points.

Looking ahead, the magnitude of annual margin expansion may fluctuate due to forex volatility or other business considerations, resulting in annual fluctuations. However, we are committed to increasing margins every year and there is still significant room to further improve margins and absolute profits in the long run. We can continue to do this in the coming years.

Futu Holdings analyst Steve Cahall: The company raised its full-year revenue and margin expectations, but did not change the forecast of about $6 billion in free cash flow. Is it due to pre-existing cash outflows or other factors affecting the company's free cash flow outlook?

Spencer Newman: There are no other factors affecting it. As we mentioned, Netflix is expected to have free cash flow of about $6 billion this year. There is always some uncertainty in timing of matters such as content expenditure and, sometimes, tax timing, which is the reason we maintain the cash flow at around $6 billion level without any other adjustments.

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