Netflix Experiments with AI to Improve Content Discovery

Yesterday, Netflix (Nasdaq: NFLX) reported its first quarter results that surpassed market expectations. Over the last quarter, Netflix has also been attracted to the AI fever. It recently announced plans of leveraging AI search engine capabilities for its users.

Netflix’s Financials

Netflix’s Q1 revenues grew 13% to $10.54 billion, ahead of the Street’s forecast of $10.5 billion. EPS of $6.61 was also ahead of the market’s forecast of $5.69.

Netflix no longer announces details on its subscriber base. It attributed the increase in revenue to slightly higher-than-forecasted subscription and ad revenue. Ad revenues still remain a very small component of their total revenue.

For the second quarter, Netflix expects revenues to grow 15% to $11.04 billion driven by the recent price changes, continued growth in membership, and advertising revenue. The market was looking for revenues of $10.9 billion. It expects Q2 EPS to be $7.03, ahead of the market’s estimate of $6.24.  Netflix expects to end the year with revenues of $43.5-$44.5 billion, compared with the market’s estimate of $44.3 billion.

Netflix’s Monetization Drive

Netflix has now reached over 700 million subscribers worldwide. The recent quarter reflected the impact of a recent price increase in its large markets, including US, UK, and Argentina. Netflix is now looking to adjust prices in other regions. This week, it adjusted prices in France.

Additionally, Netflix is also looking to drive monetization through advertising. Its ads plan allows it to offer consumers access to Netflix at a lower price point. It is also looking to enhance its capabilities for advertisers. It rolled out the Netflix Ads Suite, an in-house first party ad tech platform, in the US earlier this month. In the coming months, it will launch the Netflix Ads Suite in its remaining ads markets. The ads platform will help advertisers get access to better reporting and offer better measurement, targeting, ad format, and programmatic capabilities.

Netflix’s AI Focus

Netflix is exploring the use of AI to attract viewers. Earlier this month, for some of its users, it began testing an AI-powered search feature that has been developed in collaboration with OpenAI. This new feature allows users to search for content using specific and nuanced terms, such as mood or theme, instead of the more traditional search parameters such as show names or actor names.

Netflix wants to let users search using natural language queries and help them discover content using AI. The search feature is being offered as an opt-in service to iOS users in Australia and New Zealand. Netflix plans to expand the availability to the US soon. The service will help viewers find an easier way to discover content instead of having to scroll through Netflix’s content library to find something to watch.

Netflix recently announced targets to double its revenue by 2030 with an intention to join the $1 trillion club. That is a hefty goal for Netflix – one that it hopes to achieve by continuing to draw viewers and content to its platform.

Netflix’s stock is trading at $973.03 with a market capitalization of $416.2 billion. It hit a 52-week high of $1,064.50 in February and a 52-week low of $542.01 in April last year.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Photo Credit: Souvik Banerjee from Pixabay