Netflix’s Game-Changing Ideas: What Investors Need to Know

Media-streaming veteran Netflix (NFLX -1.51%) reported second-quarter results on Thursday, July 10. The results were consistently slightly better than management’s guidance, edging out Wall Street’s consensus estimates across the board.

As always, the numbers don’t tell the whole story. Netflix’s management provided some eye-opening commentary on the second-quarter earnings call, and investors should pay attention to these potentially game-changing insights.

Tasty tidbits from Netflix’s earnings call

The 42-minute call had way too many notable moments to cover them all in one short article, but a handful of details stood head and shoulders above the rest:

• The ad-based subscription plans are more than pulling their weight, though it will take time to generate meaningful revenues from the young advertising business.
• Awesome growth in India wasn’t a product of that market’s unique qualities. Instead, it’s an encouraging sample of broad growth trends around the world but amplified by the Indian economy’s massive scale.
• And it’s not a figment of your imagination — Netflix really is promoting its video games on a massive scale right now. With over 100 games currently available and another 80 under active development, Netflix is leaning into this large business opportunity through original games based on its exclusive shows, such as Squid Game and Emily in Paris.

That’s all helpful color commentary on Netflix’s recent success stories. But one section of that earnings call really caught my attention.

The main event: Netflix’s evolving use of AI technology

Netflix has always included machine learning and other forms of artificial intelligence (AI) in its services, but the company is taking a serious look at generative AI these days.

Co-CEOs Greg Peters and Ted Sarandos spent about one-tenth of the call time discussing the company’s plans to take advantage of AI-generated content. They tend to mention generative AI in every earnings call in recent years, but the discussion is getting deeper and more detailed.

Peters noted that Netflix has long used AI and machine learning to boost content discovery and engagement. “We think that generative AI has tremendous potential to improve our recommendations and discovery systems even further,” he said, highlighting how this technology can make it easier for users to find content they love.

For example, imagine a user interface where machine learning systems dynamically curate and personalize the home screen based on the user’s viewing habits, current trends, and even mood indicators based on recent activity. The resulting presentation of content choices is handed over to a generative AI engine for final touches, adding a personalized touch to user interactions with the viewing platform.

This could result in more accurate and engaging content suggestions, such as recommending a light-hearted comedy after a string of intense dramas — all presented to the viewer with unique descriptions and other AI-based optimizations.

Balancing AI tools with human creativity

Then, Sarandos emphasized that AI will act as a tool to assist creators, not replace them. He compared this to the evolution of animation, where technology improved quality rather than reducing costs.

“AI is going to generate a great set of creator tools, a great way for creators to tell better stories,” he noted. “And one thing that’s sure, if you look back over a hundred years of entertainment, you can see how great technology and great entertainment work hand in hand to build great big businesses.”

The core of successful content, according to Sarandos, lies in its ability to connect with audiences through strong writing, acting, and storytelling. AI can enhance these elements and help humans create them, but the focus remains on the quality of storytelling.

As filmmakers and producers experiment with AI, Netflix is committed to using these advancements to support, not replace, creative processes. This balance between technology and human creativity positions Netflix to continue delivering engaging and high-quality content. The company can use generative AI engines to boost viewer engagement and satisfaction in myriad small ways, and a more engaged audience is ultimately good news for Netflix investors.

This earnings call revealed more than just impressive numbers. Netflix’s strategic focus on AI, innovative content, and global growth underlines its commitment to staying ahead in the highly competitive media-streaming industry.

As Netflix continues to enhance its user experience and expand its market reach, investors have plenty of reasons to remain optimistic about the company’s future. The stock is flirting with all-time highs, and for good reason.