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Netflix's **Q2** just landed this week. The most interesting thing is what management is telling us, and what they're about to stop telling us.
**TL;DR**
* Netflix agreed to buy HBO Max + the Warner studios late last year, got outbid by Paramount, and walked away with a **$2.8B** cash breakup fee.
* Paramount "won", and is taking on **\~$81B** of net debt to close it and currently facing antitrust lawsuits. Netflix got paid to walk.
* Operating margin keeps climbing, **\~21%** (2023) to **\~30%** (2025), guided to **\~31.5%**. A real chunk is AI making content cheaper, in their own words.
* The catch: same filing, they're quietly cutting how often they show us engagement.
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The $2.8B fee from Paramount is the whole reason Q1 profit looked huge and Q2 looks like a drop. If you look closer and strip it out then Q2 was fine, revenue **+13.4%** and operating margin **\~33.4%**, and the margin story has legs, because they're going after the biggest cost line, content, with AI. From this quarter's letter:
>"In 2026, GenAI workflows have been used in roughly 300 of our titles, with the largest concentration of work in post-production. We are increasingly leveraging these tools to deliver higher quality output more quickly and at a lower cost than traditional methods."
At their scale, shaving production cost drops almost straight to that **31.5%** margin target. They also bought an AI post-production studio in March (**\~$587M**) to press the point.
Now the catch, in the same letter, Netflix is redefining "engagement" away from raw hours **("not all hours are equal")**, and cutting its viewership report from twice a year to once:
>"After today's What We Watched report... we will shift to publishing this report annually in the first quarter, beginning in 2027. The goal of separating the publication of the report from our earnings results is to keep the focus on our primary financial metrics."
Read one way, they just want you focused on revenue and profit. Read another way: view hours grew only **\~2%** in the first half, so most of that **\~13%** revenue growth is price and ads, not more watching, and they're about to show that engagement number less often right as they lean harder on cheaper AI-made content.
And this is the second time. Back in **2024** Netflix said it would stop reporting quarterly subscriber numbers from **2025**, telling everyone to look at **revenue, profit, and engagement** as the real signal instead. Now the exact metric they pointed us to, engagement, is the one getting redefined (**"not all hours are equal"**) and published less often. **Once** is housekeeping. **Twice**, right as growth leans on price and ads, starts to look like a habit of retiring a number just as it stops flattering the story.
My opinion is that financially Netflix is doing good in terms of growth given its current size, especially that they avoided the whole HBO+Warner deal. What I really dislike is that they seem to be going in the direction of retiring the engagement metric, and providing less transparency.
You can find the indepth analysis I wrote about Netflix, on my free substack:
[https://open.substack.com/pub/secaura/p/the-current-state-of-netflix-nflx?r=1jjx11&utm\_campaign=post&utm\_medium=web&showWelcomeOnShare=true](https://open.substack.com/pub/secaura/p/the-current-state-of-netflix-nflx?r=1jjx11&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true)