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Netflix (NFLX -5.4%) is streaming lower following its Q2 report last night. NFLX reported a nice EPS beat, with more modest upside revs. It also guided Q3 above analyst expectations and raised revenue guidance for FY25 to $44.80-45.20 bln and upped its full year operating margin guidance. And yet the stock is lower.

• Unfortunately, Netflix no longer reports paid memberships and ARM on a regular quarterly basis. However, we can still a good sense of how the company performed. Revenue rose a healthy 15.9% yr/yr to $11.08 bln, as NFLX marked its first-ever $11 bln quarter. However, that was only slightly above guidance. Also, the raised full year revenue guidance was primarily F/X-related. We think the F/X aspect to this takes some of the shine off the numbers.
• Revenue growth in Q2 was primarily a function of more members, higher subscription pricing and increased ad revenue. All regions experienced healthy yr/yr revenue growth, with each region posting double-digit F/X neutral increases. UCAN revenue growth accelerated yr/yr to 15% vs. 9% in Q1 due to the full quarter impact of price changes, many of which were implemented in January.
• Operating margin was a standout metric at 34.1% vs 33.3% prior guidance and NFLX guided to Q3 margin of 31.5%. Similar to past years, NFLX expects operating margin in 2H will be lower than 1H due to higher content amortization and sales and marketing costs associated with a larger second half slate. Nevertheless, NFLX raised FY25 guidance for F/X neutral operating margin to 29.5% (vs. 29% previously), or 30% on a reported basis.
• Netflix was asked about any macro concerns. It sees really nothing significant to note in the metrics. Retention remains stable and industry leading. There have been no significant shifts in plan mix or plan take rate. Engagement also remains healthy. Everything looks stable from those indicators. Also, the company noted it has historically been pretty resilient in tougher economic times as it offers an incredible entertainment value, starting at $7.99 in the US.
• Advertising is still a smaller part of the business, but NFLX reaffirmed that ad sales should double in 2025. NFLX completed the rollout of the Netflix Ads Suite, its in-house first-party ad tech platform. Advertisers are excited about the company's growing scale and its audience that's more engaged relative to peers.

So why is the stock down despite the upside? We think it's partly because F/X was a big part of the upside/guidance with the dollar having fallen. Investors would rather see upside driven by operational/demand performance. Another factor is that the stock has run quite a bit (+50% from its April lows), so sentiment was running high and the Q2 upside was not as impressive as in Q1. Despite these issues, this was an impressive quarter and it shows what a monster Netflix has become as others struggle.