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Streaming revenues for the year ended December 31, 2023 increased 7% as compared to the year ended December 31, 2022, primarily due to the 8% growth in average paying memberships, partially offset by a 1% decrease in average monthly revenue per paying membership. The decrease in average monthly revenue per paying membership was primarily due to changes in plan mix, higher membership growth in regions with lower average monthly revenue per paying membership, partially offset by limited price increases. Additionally, streaming revenues for the year ended December 31, 2023 were further impacted by unfavorable fluctuations in foreign exchange rates.
The following tables summarize streaming revenue and other streaming membership information by region for the years ended December 31, 2023, 2022 and 2021.
United States and Canada (UCAN)
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| | As of/Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except revenue per membership and percentages) |
| Revenues | | $ | 14,873,783 | | | $ | 14,084,643 | | | $ | 12,972,100 | | | $ | 789,140 | | | 6 | % |
| Paid net membership additions (losses) | | 5,832 | | | (919) | | | 1,279 | | | 6,751 | | | 735 | % |
| Paid memberships at end of period (1) | | 80,128 | | | 74,296 | | | 75,215 | | | 5,832 | | | 8 | % |
| Average paying memberships | | 76,126 | | | 74,001 | | | 74,234 | | | 2,125 | | | 3 | % |
| Average monthly revenue per paying membership | | $ | 16.28 | | | $ | 15.86 | | | $ | 14.56 | | | $ | 0.42 | | | 3 | % |
| Constant currency change (2) | | | | | | | | | | 3 | % |
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Europe, Middle East, and Africa (EMEA)
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| | As of/Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except revenue per membership and percentages) |
| Revenues | | $ | 10,556,487 | | | $ | 9,745,015 | | | $ | 9,699,819 | | | $ | 811,472 | | | 8 | % |
| Paid net membership additions | | 12,084 | | | 2,693 | | | 7,338 | | | 9,391 | | | 349 | % |
| Paid memberships at end of period (1) | | 88,813 | | | 76,729 | | | 74,036 | | | 12,084 | | | 16 | % |
| Average paying memberships | | 80,928 | | | 73,904 | | | 69,518 | | | 7,024 | | | 10 | % |
| Average monthly revenue per paying membership | | $ | 10.87 | | | $ | 10.99 | | | $ | 11.63 | | | $ | (0.12) | | | (1) | % |
| Constant currency change (2) | | | | | | | | | | (1) | % |
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Latin America (LATAM)
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| | As of/Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except revenue per membership and percentages) |
| Revenues | | $ | 4,446,461 | | | $ | 4,069,973 | | | $ | 3,576,976 | | | $ | 376,488 | | | 9 | % |
| Paid net membership additions | | 4,298 | | | 1,738 | | | 2,424 | | | 2,560 | | | 147 | % |
| Paid memberships at end of period (1) | | 45,997 | | | 41,699 | | | 39,961 | | | 4,298 | | | 10 | % |
| Average paying memberships | | 42,802 | | | 40,000 | | | 38,573 | | | 2,802 | | | 7 | % |
| Average monthly revenue per paying membership | | $ | 8.66 | | | $ | 8.48 | | | $ | 7.73 | | | $ | 0.18 | | | 2 | % |
| Constant currency change (2) | | | | | | | | | | 10 | % |
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Asia-Pacific (APAC)
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| | As of/Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except revenue per membership and percentages) |
| Revenues | | $ | 3,763,727 | | | $ | 3,570,221 | | | $ | 3,266,601 | | | $ | 193,506 | | | 5 | % |
| Paid net membership additions | | 7,315 | | | 5,391 | | | 7,140 | | | 1,924 | | | 36 | % |
| Paid memberships at end of period (1) | | 45,338 | | | 38,023 | | | 32,632 | | | 7,315 | | | 19 | % |
| Average paying memberships | | 41,033 | | | 35,019 | | | 28,461 | | | 6,014 | | | 17 | % |
| Average monthly revenue per paying membership | | $ | 7.64 | | | $ | 8.50 | | | $ | 9.56 | | | $ | (0.86) | | | (10) | % |
| Constant currency change (2) | | | | | | | | | | (6) | % |
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(1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or certain other promotions that may be offered by the Company to new or rejoining members. Certain members have the option to add extra member sub accounts. These extra member sub accounts are not included in paid memberships. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellations, as a result of a failed method of payment, become effective immediately. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company’s internal systems, which utilize industry standard geo-location technology.
(2) We believe the non-GAAP financial measure of constant currency revenue is useful in analyzing the underlying trends in average monthly revenue per paying membership absent foreign currency fluctuations. However, this non-GAAP financial measure should be considered in addition to, not as a substitute for, or superior to other financial measures prepared in accordance with GAAP. In order to exclude the effect of foreign currency rate fluctuations on average monthly revenue per paying membership, we estimate current period revenue assuming foreign exchange rates had remained constant with foreign exchange rates from each of the corresponding months of the prior-year period. For the year ended December 31, 2023, our revenues would have been approximately $597 million higher had foreign currency exchange rates remained constant with those for the year ended December 31, 2022.
Cost of Revenues
Amortization of content assets makes up the majority of cost of revenues. Expenses directly associated with the acquisition, licensing and production of content (such as payroll, stock-based compensation, facilities, and other related personnel expenses, costs associated with obtaining rights to music included in our content, overall deals with talent, miscellaneous production related costs and participations and residuals), streaming delivery costs and other operations costs make up the remainder of cost of revenues. We have built our own global content delivery network (“Open Connect”) to help us efficiently stream a high volume of content to our members over the internet. Delivery expenses, therefore, include equipment costs related to Open Connect, payroll and related personnel expenses and all third-party costs, such as cloud computing costs, associated with delivering content over the internet. Other operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs directly incurred in making our content available to members.
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| | | Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except percentages) |
| Cost of revenues | | $ | 19,715,368 | | | $ | 19,168,285 | | | $ | 17,332,683 | | | $ | 547,083 | | | 3 | % |
| As a percentage of revenues | | 58 | % | | 61 | % | | 58 | % | | | | |
The increase in cost of revenues for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was due to a $171 million increase in content amortization relating to our existing and new content, coupled with a $376 million increase in other cost of revenues primarily due to an increase in expenses directly associated with the acquisition, licensing and production of content.
Marketing
Marketing expenses consist primarily of advertising expenses and certain payments made to our marketing and advertising sales partners, including consumer electronics ("CE") manufacturers, multichannel video programming distributors ("MVPDs"), mobile operators and ISPs. Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll, stock-based compensation, facilities, and other related expenses for personnel that support sales and marketing activities.
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| | | Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except percentages) |
| Marketing | | $ | 2,657,883 | | | $ | 2,530,502 | | | $ | 2,545,146 | | | $ | 127,381 | | | 5 | % |
| As a percentage of revenues | | 8 | % | | 8 | % | | 9 | % | | | | |
The increase in marketing expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to a $146 million increase in advertising expenses and a $21 million increase in personnel-related costs, partially offset by a $39 million decrease in payments to our marketing partners.
Technology and Development
Technology and development expenses consist primarily of payroll, stock-based compensation, facilities, and other related expenses for technology personnel responsible for making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendations, merchandising and infrastructure. Technology and development expenses also include costs associated with general use computer hardware and software.
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| | | Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except percentages) |
| Technology and development | | $ | 2,675,758 | | | $ | 2,711,041 | | | $ | 2,273,885 | | | $ | (35,283) | | | (1) | % |
| As a percentage of revenues | | 8 | % | | 9 | % | | 8 | % | | | | |
Technology and development expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022 remained relatively flat.
General and Administrative
General and administrative expenses consist of payroll, stock-based compensation, facilities, and other related expenses for corporate personnel. General and administrative expenses also include professional fees and other general corporate expenses.
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| | | Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except percentages) |
| General and administrative | | $ | 1,720,285 | | | $ | 1,572,891 | | | $ | 1,351,621 | | | $ | 147,394 | | | 9 | % |
| As a percentage of revenues | | 5 | % | | 5 | % | | 5 | % | | | | |
The increase in general and administrative expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to a $82 million increase in third-party expenses and a $78 million increase in personnel-related costs.
Interest Expense
Interest expense consists primarily of the interest associated with our outstanding debt obligations, including the amortization of debt issuance costs. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further detail on our debt obligations.
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| | | Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except percentages) |
| Interest expense | | $ | 699,826 | | | $ | 706,212 | | | $ | 765,620 | | | $ | (6,386) | | | (1) | % |
| As a percentage of revenues | | 2 | % | | 2 | % | | 3 | % | | | | |
Interest expense for the year ended December 31, 2023 consisted primarily of $698 million of interest on our Notes. Interest expense for the year ended December 31, 2023 as compared to the year ended December 31, 2022 remained relatively flat.
Interest and Other Income (Expense)
Interest and other income (expense) consists primarily of foreign exchange gains and losses on foreign currency denominated balances and interest earned on cash, cash equivalents and short-term investments.
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| | | Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except percentages) |
| Interest and other income (expense) | | $ | (48,772) | | | $ | 337,310 | | | $ | 411,214 | | | $ | (386,082) | | | (114) | % |
| As a percentage of revenues | | — | % | | 1 | % | | 1 | % | | | | |
Interest and other income (expense) decreased primarily due to foreign exchange losses of $293 million for the year ended December 31, 2023 as compared to a gain of $282 million for the year ended December 31, 2022. The foreign exchange loss in the year ended December 31, 2023 was primarily driven by the non-cash loss of $176 million from the remeasurement of our Senior Notes denominated in euros, coupled with the remeasurement of cash and content liability positions in currencies other than the functional currencies. The foreign exchange gain in the year ended December 31, 2022 was primarily driven by the non-cash $353 million gain from the remeasurement of our Senior Notes denominated in euros, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies. The change in foreign currency gains and losses was partially offset by a $221 million increase in interest income earned due to higher average interest rates and investment balances for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Provision for Income Taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | Change |
| | | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| | | (in thousands, except percentages) |
| Provision for income taxes | | $ | 797,415 | | | $ | 772,005 | | | $ | 723,875 | | | $ | 25,410 | | | 3 | % |
| Effective tax rate | | 13 | % | | 15 | % | | 12 | % | | | | |
The decrease in our effective tax rate for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily due to a decrease in foreign taxes. See Note 10 Income Taxes to the consolidated financial statements for further information regarding income taxes.
Liquidity and Capital Resources
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| As of December 31, | | Change |
| 2023 | | 2022 | | 2023 vs. 2022 |
| (in thousands, except percentages) |
| Cash, cash equivalents, restricted cash and short-term investments | $ | 7,139,488 | | | $ | 6,081,858 | | | $ | 1,057,630 | | 17 | % |
| Short-term and long-term debt | 14,543,261 | | | 14,353,076 | | | 190,185 | | 1 | % |
Cash, cash equivalents, restricted cash and short-term investments increased $1,058 million in the year ended December 31, 2023 primarily due to cash provided by operations, partially offset by the repurchase of stock.
Debt, net of debt issuance costs, increased $190 million primarily due to the remeasurement of our euro-denominated notes. The amount of principal and interest due in the next twelve months is $1,077 million. The amount of principal and interest due beyond the next twelve months is $16,662 million. As of December 31, 2023, no amounts had been borrowed under our $1 billion Revolving Credit Agreement. See Note 6 Debt in the accompanying notes to our consolidated financial statements.
We anticipate that our future capital needs from the debt market will be more limited compared to prior years. Our ability to obtain this or any additional financing that we may choose or need, including for potential strategic acquisitions and investments, will depend on, among other things, our development efforts, business plans, operating performance, and the condition of the capital markets at the time we seek financing. We may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.
In March 2021, our Board of Directors authorized the repurchase of up to $5 billion of our common stock, with no expiration date, and in September 2023, the Board of Directors increased the share repurchase authorization by an additional $10 billion, also with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may discontinue any repurchases of our common stock at any time without prior notice. In the fiscal year ended December 31, 2023, the Company repurchased 14,513,790 shares of common stock for an aggregate amount of $6,045 million. As of December 31, 2023, $8.4 billion remains available for repurchases.
Our primary uses of cash include the acquisition, licensing and production of content, marketing programs, streaming delivery and personnel-related costs, as well as strategic acquisitions and investments. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. For example, production costs are paid as the content is created, well in advance of when the content is available on the service and amortized. We expect to continue to significantly invest in global content, particularly in original content, which will impact our liquidity. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for the next twelve months and beyond.
Our material cash requirements from known contractual and other obligations primarily relate to our content, debt and lease obligations. As of December 31, 2023, the expected timing of those payments are as follows:
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| Contractual obligations (in thousands): | | Total | | Next 12 Months | | Beyond 12 Months |
| Content obligations (1) | | $ | 21,713,349 | | | $ | 10,328,923 | | | $ | 11,384,426 | |
| Debt (2) | | 17,739,159 | | | 1,077,261 | | | 16,661,898 | |
| Operating lease obligations (3) | | 3,088,899 | | | 513,506 | | | 2,575,393 | |
| Total | | $ | 42,541,407 | | | $ | 11,919,690 | | | $ | 30,621,717 | |
(1)As of December 31, 2023, content obligations were comprised of $4.5 billion included in "Current content liabilities" and $2.6 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $14.6 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.
Content obligations include amounts related to the acquisition, licensing and production of content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. The contractual obligations table above does not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $1 billion to $4 billion over the next three years, with the payments for the vast majority of such amounts expected to occur after the next twelve months. The foregoing range is based on considerable management judgments and the actual amounts may differ. Once we know the title that we will receive and the license fees, we include the amount in the contractual obligations table above.
(2)Debt obligations include our Notes consisting of principal and interest payments. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further details.
(3)Operating lease obligations are comprised of operating lease liabilities included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Consolidated Balance Sheets, inclusive of imputed interest. Operating lease obligations also include additional obligations that are not reflected on the Consolidated Balance Sheets as they did not meet the criteria for recognition. As of December 31, 2023, the Company has additional operating leases for real estate that have not yet commenced of $343 million which has been included above. See Note 5 Balance Sheet Components in the accompanying notes to our consolidated financial statements for further details regarding leases.
In addition, as of December 31, 2023, we had gross unrecognized tax benefits of $327 million, of which $221 million was classified in “Other non-current liabilities" in the Consolidated Balance Sheets. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.
Free Cash Flow
We define free cash flow as cash provided by (used in) operating activities less purchases of property and equipment and change in other assets. We believe free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make strategic acquisitions and investments and for certain other activities like stock repurchases. Free cash flow is considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net income, operating income, net cash provided by operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP.
In assessing liquidity in relation to our results of operations, we compare free cash flow to net income, noting that the major recurring differences are the timing impact between content payments and amortization, non-cash stock-based compensation expense, non-cash remeasurement gain/loss on our euro-denominated debt, excess property and equipment purchases over depreciation, and other working capital differences. Working capital differences primarily include deferred revenue, taxes and semi-annual interest payments on our outstanding debt. Our receivables from members generally settle quickly.
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| | Year Ended December 31, | | Change |
| | 2023 | | 2022 | | 2021 | | 2023 vs. 2022 |
| (in thousands) | | | |
Net cash provided by operating activities | $ | 7,274,301 | | | $ | 2,026,257 | | | $ | 392,610 | | | $ | 5,248,044 | | 259 | % |
Net cash provided by (used in) investing activities | 541,751 | | | (2,076,392) | | | (1,339,853) | | | 2,618,143 | | 126 | % |
Net cash used in financing activities | (5,950,803) | | | (664,254) | | | (1,149,776) | | | 5,286,549 | | 796 | % |
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Non-GAAP reconciliation of free cash flow: | | | | | | | | |
Net cash provided by operating activities | 7,274,301 | | | 2,026,257 | | | 392,610 | | | 5,248,044 | | 259 | % |
| Purchases of property and equipment | (348,552) | | | (407,729) | | | (524,585) | | | (59,177) | | (15) | % |
Change in other assets | — | | | — | | | (26,919) | | | — | | — | % |
Free cash flow | $ | 6,925,749 | | | $ | 1,618,528 | | | $ | (158,894) | | | $ | 5,307,221 | | 328 | % |
Net cash provided by operating activities increased $5,248 million from the year ended December 31, 2022 to $7,274 million for the year ended December 31, 2023. The increase in net cash provided by operating activities was primarily driven by a decrease in payments for content assets, coupled with a $916 million or 20% increase in net income and favorable changes in working capital. The payments for content assets decreased $3,519 million, from $16,660 million to $13,140 million, or 21%.
Net cash provided by (used in) investing activities increased $2,618 million from the year ended December 31, 2022 to $542 million for the year ended December 31, 2023. The increase in net cash provided by (used in) investing activities is primarily due to proceeds from the maturities of short-term investments, net of purchases, and there being no acquisitions in the year ended December 31, 2023, as compared to acquisitions for an aggregate amount of $757 million in the year ended December 31, 2022.
Net cash used in financing activities increased $5,287 million from the year ended December 31, 2022 to $5,951 million for the year ended December 31, 2023. The increase in net cash used in financing activities is primarily due to repurchases of common stock for an aggregate amount of $6,045 million in the year ended December 31, 2023, as compared to no repurchases of common stock in the year ended December 31, 2022, partially offset by the absence of debt maturities in the year ended December 31, 2023 as compared to the repayment upon maturity of the $700 million aggregate principal amount of our 5.500% Senior Notes in February 2022.
Free cash flow was $1,518 million higher than net income for the year ended December 31, 2023 primarily due to $1,057 million of amortization expense exceeding cash payments for content assets, $339 million of non-cash stock-based compensation expense, $176 million of non-cash remeasurement loss on our euro-denominated debt, and $47 million in other favorable working capital differences, partially offset by $101 million of property and equipment purchases exceeding depreciation expense.
Indemnifications
The information set forth under Note 8 Commitments and Contingencies in the accompanying notes to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K is incorporated herein by reference.
Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. The Securities and Exchange Commission ("SEC") has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Content
We acquire, license and produce content, including original programming, in order to offer our members unlimited viewing of video entertainment. The content licenses are for a fixed fee and specific windows of availability. Payment terms for certain content licenses and the production of content require more upfront cash payments relative to the amortization expense. Payments for content, including additions to content assets and the changes in related liabilities, are classified within "Net cash provided by operating activities" on the Consolidated Statements of Cash Flows.
We recognize content assets (licensed and produced) as "Content assets, net" on the Consolidated Balance Sheets. For licensed content, we capitalize the fee per title and record a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known and the title is accepted and available for streaming. For produced content, we capitalize costs associated with the production, including development costs, direct costs and production overhead. Participations and residuals are expensed in line with the amortization of production costs.
Based on factors including historical and estimated viewing patterns, we amortize the content assets (licensed and produced) in “Cost of revenues” on the Consolidated Statements of Operations over the shorter of each title's contractual window of availability or estimated period of use or ten years, beginning with the month of first availability. The amortization is on an accelerated basis, as we typically expect more upfront viewing, and film amortization is more accelerated than TV series amortization. On average, over 90% of a licensed or produced content asset is expected to be amortized within four years
after its month of first availability. We review factors that impact the amortization of the content assets on a regular basis. Our estimates related to these factors require considerable management judgment.
In the normal course of business, we, or a third-party producing content on our behalf, may qualify for tax incentives through eligible spend on productions. The accounting for tax incentives is dependent on the particular type of incentive, including the nature of the benefit and the location the incentive is earned. In general, tax incentives are realized as cash receipts and may be received prior to or after a title launches on our service. Upon a title’s launch, any amounts we are eligible for through qualified production spend but have not received, are recognized in “Other current assets” or “Other non-current assets” on the Consolidated Balance Sheets as receivables. Tax incentives are generally accounted for as a reduction to the cost basis of content assets (presented in “Content assets, net”) and reduce content amortization over the life of the title (as presented in “Cost of revenues”) on the Consolidated Statements of Operations.
Our business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. To date, we have not identified any such event or changes in circumstances. If such changes are identified in the future, these aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.
Income Taxes
We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance when it is more likely than not they will not be realized.
Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.
In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying business. Actual operating results in future years could differ from our current assumptions, judgments and estimates.
We do not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates.
See Note 10 Income Taxes to the consolidated financial statements for further information regarding income taxes.
Recent Accounting Pronouncements
The information set forth under Note 1 to the consolidated financial statements under the caption “Basis of Presentation and Summary of Significant Accounting Policies” is incorporated herein by reference.
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks related to interest rate changes and the corresponding changes in the market values of our debt and foreign currency fluctuations.
Interest Rate Risk
At December 31, 2023, our cash equivalents and short-term investments were generally invested in money market funds and time deposits. Interest paid on such funds fluctuates with the prevailing interest rate.
As of December 31, 2023, we had $14.6 billion of debt, consisting of fixed rate unsecured debt in fourteen tranches due between 2024 and 2030. Refer to Note 6 to the consolidated financial statements for details about all issuances. The fair value
of our debt will fluctuate with movements of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. The fair value of our debt will also fluctuate based on changes in foreign currency rates, as discussed below.
Foreign Currency Risk
We operate our business globally and transact in multiple currencies. Currencies denominated in other than the U.S. dollar accounted for 57% of revenue and 28% of operating expenses for the year ended December 31, 2023. We therefore have foreign currency risk related to these currencies, with our largest exposures being the euro, the British pound, the Brazilian real, the Canadian dollar, and the Mexican peso.
Accordingly, volatility in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenue and operating income as expressed in U.S. dollars. For the year ended December 31, 2023, our revenues would have been approximately $597 million higher had foreign currency exchange rates remained constant with those in the same period of 2022. See Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for further information regarding our non-GAAP financial measure of constant currency.
In the year ended December 31, 2023, we entered into foreign exchange forward contracts to mitigate fluctuations in forecasted U.S. dollar-equivalent revenues occurring in January 2024 and beyond from changes in foreign currency exchange rates. These contracts may reduce, but do not entirely eliminate, the effect of foreign currency exchange fluctuations, and we may choose not to hedge certain exposures. We designate these contracts as cash flow hedges of forecasted foreign currency revenue and initially record the gains or losses on these derivative instruments as a component of accumulated other comprehensive income (“AOCI") and reclassify the amounts into “Revenues” on the Consolidated Statements of Operations in the same period the forecasted transaction affects earnings. If the U.S dollar weakened by 10% as of December 31, 2023, the amount recorded in AOCI related to our foreign exchange contracts, before taxes, would have been approximately $958 million lower. This adverse change in AOCI would be expected to offset a corresponding favorable foreign currency change in the underlying forecasted revenues when recognized in earnings.
In the year ended December 31, 2023, we also entered into foreign exchange forward contracts to mitigate fluctuations in forecasted and firmly committed U.S. dollar-equivalent transactions related to the licensing and production of content assets occurring in January 2024 and beyond from changes in foreign currency exchange rates. These contracts may reduce, but do not entirely eliminate, the effect of foreign currency exchange fluctuations, and we may choose not to hedge certain exposures. We designate these contracts as cash flow hedges and initially record the gains or losses on these derivative instruments as a component of AOCI and reclassify the amounts into “Cost of Revenues” to offset the hedged exposures as they affect earnings, which occurs as the underlying hedged content assets are amortized. If the U.S dollar strengthened by 10% as of December 31, 2023, the amount recorded in AOCI related to our foreign exchange contracts, before taxes, would have been approximately $71 million lower. This adverse change in AOCI would be expected to offset a corresponding favorable foreign currency change in the underlying exposures when recognized in earnings.
We have also experienced and will continue to experience fluctuations in our net income as a result of gains (losses) on the settlement and the remeasurement of monetary assets and liabilities denominated in currencies that are not the functional currency. In the year ended December 31, 2023, we recognized a $293 million foreign exchange loss primarily due to the non-cash remeasurement of our Senior Notes denominated in euros and the remeasurement of cash and content liabilities denominated in currencies other than the functional currencies.
In addition, the effect of exchange rate changes on cash, cash equivalents and restricted cash as disclosed on the Consolidated Statements of Cash Flows in the year ended December 31, 2023 was an increase of $83 million.
Item 8.Financial Statements and Supplementary Data
The consolidated financial statements and accompanying notes listed in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K are included immediately following Part IV hereof and incorporated by reference herein.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Our management, including our co-Chief Executive Officers and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Netflix have been detected.
(b)Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework). Based on our assessment under the framework in Internal Control—Integrated Framework (2013 framework), our management concluded that our internal control over financial reporting was effective as of December 31, 2023. The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report that is included herein.
(c)Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Netflix, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Netflix, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Netflix, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated January 26, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | | | | |
| /s/ Ernst & Young LLP |
| San Jose, California | |
| January 26, 2024 | |
Item 9B.Other Information
Rule 10b5-1 Trading Plans
| | | | | | | 2/7/2025 | | | | | |
(1) Ted Sarandos, co-CEO and a member of the Board of Directors, entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1 on November 10, 2023. Mr. Sarandos' plan provides for the potential exercise of vested stock options and the associated sale of up to shares of Netflix common stock. The plan expires on February 7, 2025, or upon the earlier completion of all authorized transactions under the plan. |
Other than those disclosed above, none of our directors or officers or a "non-Rule 10b5-1 trading arrangement" as defined in Item 408 of Regulation S-K.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10.Directors, Executive Officers and Corporate Governance
Information regarding our directors and executive officers is incorporated by reference from the information contained under the sections “Proposal One: Election of Directors,” and “Code of Ethics” in our Proxy Statement for the Annual Meeting of Stockholders.
Item 11.Executive Compensation
Information required by this item is incorporated by reference from information contained under the sections “Compensation Discussion and Analysis” and “Compensation of Named Executive Officers and Other Matters” in our Proxy Statement for the Annual Meeting of Stockholders.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item is incorporated by reference from information contained under the sections “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our Proxy Statement for the Annual Meeting of Stockholders.
Item 13.Certain Relationships and Related Transactions, and Director Independence
Information required by this item is incorporated by reference from information contained under the section “Certain Relationships and Related Transactions” and “Director Independence” in our Proxy Statement for the Annual Meeting of Stockholders.
Item 14.Principal Accountant Fees and Services
Information with respect to principal independent registered public accounting firm fees and services is incorporated by reference from the information under the caption “Proposal Two: Ratification of Appointment of Independent Registered Public Accounting Firm” in our Proxy Statement for the Annual Meeting of Stockholders.
PART IV
Item 15.Exhibits, Financial Statement Schedules
(a)The following documents are filed as part of this Annual Report on Form 10-K:
(1)Financial Statements:
The financial statements are filed as part of this Annual Report on Form 10-K under “Item 8. Financial Statements and Supplementary Data.”
(2)Financial Statement Schedules:
The financial statement schedules are omitted as they are either not applicable or the information required is presented in the financial statements and notes thereto under “Item 8. Financial Statements and Supplementary Data.”
(3)Exhibits:
See Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.
Item 16. Form 10–K Summary
None.
NETFLIX, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Netflix, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Netflix, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated January 26, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | |
| Content Amortization |
| Description of the Matter | As disclosed in Note 1 to the consolidated financial statements “Organization and Summary of Significant Accounting Policies”, the Company acquires, licenses and produces content, including original programming (“Content”). The Company amortizes Content based on factors including historical and estimated viewing patterns.
Auditing the amortization of the Company’s Content is complex and subjective due to the judgmental nature of amortization which is based on an estimate of future viewing patterns. Estimated viewing patterns are based on historical and forecasted viewing. If actual viewing patterns differ from these estimates, the pattern and/or period of amortization would be changed and could affect the timing of recognition of content amortization. |
| |
How We Addressed the
Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the content amortization process. For example, we tested controls over management’s review of the content amortization method and the significant assumptions, including the historical and forecasted viewing hour consumption, used to develop estimated viewing patterns. We also tested management’s controls to determine that the data used in the model was complete and accurate.
To test content amortization, our audit procedures included, among others, evaluating the content amortization method, testing the significant assumptions used to develop the estimated viewing patterns and testing the completeness and accuracy of the underlying data. For example, we assessed management’s assumptions by comparing them to current viewing trends and current operating information including comparing previous estimates of viewing patterns to actual results. We also performed sensitivity analyses to evaluate the potential changes in the content amortization recorded that could result from changes in the assumptions. |
| | | | | |
| /s/ |
| We have served as the Company's auditor since 2012. | |
| |
| January 26, 2024 | |
NETFLIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Revenues | | $ | | | | $ | | | | $ | | |
| Cost of revenues | | | | | | | | | |
Marketing | | | | | | | | | |
Technology and development | | | | | | | | | |
General and administrative | | | | | | | | | |
| Operating income | | | | | | | | | |
| Other income (expense): | | | | | | |
| Interest expense | | () | | | () | | | () | |
| Interest and other income (expense) | | () | | | | | | | |
| Income before income taxes | | | | | | | | | |
| Provision for income taxes | | () | | | () | | | () | |
| Net income | | $ | | | | $ | | | | $ | | |
| | | | | | |
| Earnings per share: | | | | | | |
| Basic | | $ | | | | $ | | | | $ | | |
| Diluted | | $ | | | | $ | | | | $ | | |
| Weighted-average shares of common stock outstanding: | | | | | | |
| Basic | | | | | | | | | |
| Diluted | | | | | | | | | |
See accompanying notes to consolidated financial statements.
NETFLIX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| Net income | $ | | | | $ | | | | $ | | |
| Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | | | | () | | | () | |
| Cash flow hedges: | | | | | |
Net unrealized gains (losses), net of tax benefit (expense) of $ million, $, and $, respectively | () | | | | | | | |
| Total other comprehensive loss | () | | | () | | | () | |
| Comprehensive income | $ | | | | $ | | | | $ | | |
See accompanying notes to consolidated financial statements.
NETFLIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | | | | $ | | | | $ | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Additions to content assets | | () | | | () | | | () | |
| Change in content liabilities | | () | | | | | | | |
| Amortization of content assets | | | | | | | | | |
| Depreciation and amortization of property, equipment and intangibles | | | | | | | | | |
| Stock-based compensation expense | | | | | | | | | |
| Foreign currency remeasurement loss (gain) on debt | | | | | () | | | () | |
| Other non-cash items | | | | | | | | | |
| Deferred income taxes | | () | | | () | | | | |
| Changes in operating assets and liabilities: | | | | | | |
| Other current assets | | () | | | () | | | () | |
| Accounts payable | | | | | () | | | | |
| Accrued expenses and other liabilities | | | | | () | | | | |
| Deferred revenue | | | | | | | | | |
| Other non-current assets and liabilities | | () | | | () | | | () | |
| Net cash provided by operating activities | | | | | | | | | |
| Cash flows from investing activities: | | | | | | |
| Purchases of property and equipment | | () | | | () | | | () | |
| Change in other assets | | | | | | | | () | |
| Acquisitions | | | | | () | | | () | |
| Purchases of short-term investments | | () | | | () | | | | |
| Proceeds from maturities of short-term investments | | | | | | | | | |
| Net cash provided by (used in) investing activities | | | | | () | | | () | |
| Cash flows from financing activities: | | | | | | |
|
|
| Repayments of debt | | | | | () | | | () | |
| Proceeds from issuance of common stock | | | | | | | | | |
| Repurchases of common stock | | () | | | | | | () | |
| Taxes paid related to net share settlement of equity awards | | | | | | | | () | |
| Other financing activities | | () | | | | | | | |
| Net cash used in financing activities | | () | | | () | | | () | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | | | | () | | | () | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | | | | () | | | () | |
| Cash, cash equivalents and restricted cash, beginning of year | | | | | | | | | |
| Cash, cash equivalents and restricted cash, end of year | | $ | | | | $ | | | | $ | | |
| Supplemental disclosure: | | | | | | |
| Income taxes paid | | $ | | | | $ | | | | $ | | |
| Interest paid | | | | | | | | | |
See accompanying notes to consolidated financial statements.
NETFLIX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | 2023 | | 2022 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | | | | $ | | |
| Short-term investments | | | | | | |
| Other current assets | | | | | | |
| Total current assets | | | | | | |
| Content assets, net | | | | | | |
| Property and equipment, net | | | | | | |
| Other non-current assets | | | | | | |
| Total assets | | $ | | | | $ | | |
| Liabilities and Stockholders’ Equity | | | | |
| Current liabilities: | | | | |
| Current content liabilities | | $ | | | | $ | | |
| Accounts payable | | | | | | |
| Accrued expenses and other liabilities | | | | | | |
| Deferred revenue | | | | | | |
| Short-term debt | | | | | | |
| Total current liabilities | | | | | | |
| Non-current content liabilities | | | | | | |
| Long-term debt | | | | | | |
| Other non-current liabilities | | | | | | |
| Total liabilities | | | | | | |
| Commitments and contingencies (Note 8) | | | | |
| Stockholders’ equity: | | | | |
Preferred stock, $ par value; shares authorized at December 31, 2023 and December 31, 2022; shares issued and outstanding at December 31, 2023 and December 31, 2022 | | | | | | |
Common stock, $ par value; shares authorized at December 31, 2023 and December 31, 2022; and issued and outstanding at December 31, 2023 and December 31, 2022, respectively | | | | | | |
Treasury stock at cost ( and shares at December 31, 2023 and December 31, 2022) | | () | | | () | |
| Accumulated other comprehensive loss | | () | | | () | |
| Retained earnings | | | | | | |
| Total stockholders’ equity | | | | | | |
| Total liabilities and stockholders’ equity | | $ | | | | $ | | |
See accompanying notes to consolidated financial statements.
NETFLIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock and Additional
Paid-in Capital | | Treasury Stock | | Accumulated
Other
Comprehensive Income (Loss) | | Retained
Earnings | | Total
Stockholders’
Equity |
| | Shares | | Amount | | | | | | | | |
| Balances as of December 31, 2020 | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Net income | — | | | — | | | — | | | — | | | | | | | |
| Other comprehensive loss | — | | | — | | | — | | | () | | | — | | | () | |
Issuance of common stock upon exercise of options | | | | | | | — | | | — | | | — | | | | |
| Repurchases of common stock | () | | | — | | | () | | | — | | | — | | | () | |
| Shares withheld related to net share settlement | () | | | — | | | () | | | — | | | — | | | () | |
Stock-based compensation expense | — | | | | | | — | | | — | | | — | | | | |
| Balances as of December 31, 2021 | | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | | |
Net income | — | | | — | | | — | | | — | | | | | | | |
| Other comprehensive loss | — | | | — | | | — | | | () | | | — | | | () | |
Issuance of common stock upon exercise of options | | | | | | | — | | | — | | | — | | | | |
|
|
Stock-based compensation expense | — | | | | | | — | | | — | | | — | | | | |
| Balances as of December 31, 2022 | | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | | |
Net income | — | | | — | | | — | | | — | | | | | | | |
| Other comprehensive loss | — | | | — | | | — | | | () | | | — | | | () | |
Issuance of common stock upon exercise of options | | | | | | | — | | | — | | | — | | | | |
| Repurchases of common stock | () | | | — | | | () | | | — | | | — | | | () | |
|
Stock-based compensation expense | — | | | | | | — | | | — | | | — | | | | |
| Balances as of December 31, 2023 | | | | $ | | | | $ | () | | | $ | () | | | $ | | | | $ | | |
See accompanying notes to consolidated financial statements.
NETFLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
million paid memberships in over countries enjoying TV series, films and games across a wide variety of genres and languages. Members can play, pause and resume watching as much as they want, anytime, anywhere, and can change their plans at any time.
, beginning with the month of first availability. The amortization is on an accelerated basis, as the Company typically expects more upfront viewing, and film amortization is more accelerated than TV series amortization. On average, over % of a licensed or produced content asset is expected to be amortized within after its month of first availability. The Company reviews factors impacting the amortization of the content assets on a regular basis. The Company's estimates related to these factors require considerable management judgment.In the normal course of business, the Company, or a third-party producing content on the Company's behalf, may qualify for tax incentives through eligible spend on productions. The accounting for tax incentives is dependent on the particular type of incentive, including the nature of the benefit and the location the incentive is earned. In general, tax incentives are realized as cash receipts and may be received prior to or after a title launches on the Company’s service. Upon a title’s launch, any amounts the Company is eligible for through qualified production spend but has not received, are recognized in “Other current assets” or “Other non-current assets” on the Company’s Consolidated Balance Sheets as receivables. Tax incentives are generally accounted for as a reduction to the cost basis of the Company’s content assets (presented in “Content assets, net”) and reduce content amortization over the life of the title (as presented in “Cost of revenues”) on the Consolidated Statements of Operations.
The Company's business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. To date, the Company has not identified any such event or changes in circumstances. If such changes are identified in the future, these aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.
years, or the expected lease term for leasehold improvements, if applicable.
See Note 2 Revenue Recognition to the consolidated financial statements for further information regarding revenues.
Advertising expenses were $ million, $ million and $ million for the years ended December 31, 2023, 2022 and 2021, respectively.
See Note 10 Income Taxes to the consolidated financial statements for further information regarding income taxes.
Foreign currency transactions resulted in a loss of $ million, a gain of $ million, and a gain of $ million for the years ended December 31, 2023, 2022, and 2021, respectively. These gains and losses were primarily due to the non-cash remeasurement of our Senior Notes denominated in euros and the remeasurement of cash and content liability positions denominated in currencies other than functional currencies.
See Note 9 Stockholders' Equity to the consolidated financial statements for further information regarding stock-based compensation.
2.
| | $ | | | | $ | | | | Paid net membership additions (losses) | | | | | () | | | | |
| Paid memberships at end of period (1) | | | | | | | | | |
|
|
Europe, Middle East, and Africa (EMEA)
| | | | | | | | | | | | | | | | | | | | |
| | As of/Year Ended December 31, |
| | | 2023 | | 2022 | | 2021 |
| | | (in thousands) |
| Revenues | | $ | | | | $ | | | | $ | | |
| Paid net membership additions | | | | | | | | | |
| Paid memberships at end of period (1) | | | | | | | | | |
|
|
| | $ | | | | $ | | | | Paid net membership additions | | | | | | | | | |
| Paid memberships at end of period (1) | | | | | | | | | |
|
|
Asia-Pacific (APAC)
| | | | | | | | | | | | | | | | | | | | |
| | As of/Year Ended December 31, |
| | | 2023 | | 2022 | | 2021 |
| | | (in thousands) |
| Revenues | | $ | | | | $ | | | | $ | | |
| Paid net membership additions | | | | | | | | | |
| Paid memberships at end of period (1) | | | | | | | | | |
|
|
| | |
| (1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or certain other promotions that may be offered by the Company to new or rejoining members. Certain members have the option to add extra member sub accounts. These extra member sub accounts are not included in paid memberships. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellations, as a result of a failed method of payment, become effective immediately. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company’s internal systems, which utilize industry standard geo-location technology. |
Deferred revenue consists of membership fees billed that have not been recognized, as well as gift and other prepaid memberships that have not been fully redeemed. As of December 31, 2023, total deferred revenue was $ million, the vast majority of which was related to membership fees billed that are expected to be recognized as revenue within the next month. The remaining deferred revenue balance, which is related to gift cards and other prepaid memberships, will be recognized as revenue over the period of service after redemption, which is expected to occur over the next 12 months. The $ million increase in deferred revenue as compared to the balance of $ million for the year ended December 31, 2022, is a result of the increase in membership fees billed due to increased memberships.
3.
| | $ | | | | $ | | | | Shares used in computation: | | | | | |
| Weighted-average shares of common stock outstanding | | | | | | | | |
| Basic earnings per share | $ | | | | $ | | | | $ | | |
| Diluted earnings per share: | | | | | |
| Net income | $ | | | | $ | | | | $ | | |
| Shares used in computation: | | | | | |
| Weighted-average shares of common stock outstanding | | | | | | | | |
| Employee stock options | | | | | | | | |
| Weighted-average number of shares | | | | | | | | |
Diluted earnings per share | $ | | | | $ | | | | $ | | |
Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive.
| | | | | | |
4.
| | $ | | | | $ | | | | $ | | | | $ | | | | Level 1 securities: | | | | | | | | | |
| Money market funds | | | | | | | | | | | | | | |
| Level 2 securities: | | | | | | | | | |
| Time Deposits (1) | | | | | | | | | | | | | | |
| | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
|
|
(1) The majority of the Company's time deposits are international deposits, which mature within one year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 |
| | Cash and cash equivalents | | Short-term investments | | Other Current Assets | | Non-current Assets | | Total |
| | (in thousands) |
| Cash | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Level 1 securities: | | | | | | | | | |
| Money market funds | | | | | | | | | | | | | | |
| Level 2 securities: | | | | | | | | | |
| Time Deposits (2) | | | | | | | | | | | | | | |
| | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
(2) The majority of the Company's time deposits are domestic deposits, which mature within one year.
Other current assets include restricted cash for deposits related to self-insurance and letter of credit agreements. Non-current assets include restricted cash related to letter of credit agreements. The fair value of cash equivalents and short-term investments included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.
See Note 6 Debt to the consolidated financial statements for further information regarding the fair value of the Company’s senior notes.
There were material gross realized gains or losses for the years ended December 31, 2023 and 2022.
5.
| | $ | | | | | | |
Produced content, net | | | |
Released, less amortization | | | | | |
In production | | | | | |
In development and pre-production | | | | | |
| | | | | |
| | | |
| Content assets, net | $ | | | | $ | | |
As of December 31, 2023, approximately $ million, $ million, and $ million of the $ million unamortized cost of the licensed content is expected to be amortized in each of the next three years. As of December 31, 2023, approximately $ million, $ million, and $ million of the $ million unamortized cost of the produced content that has been released is expected to be amortized in each of the next three years.
As of December 31, 2023, the amount of accrued participations and residuals was not material.
| | $ | | | | $ | | | | Produced content (1) | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | |
(1) Tax incentives earned on qualified production spend generally reduce the cost-basis of content assets and result in lower content amortization over the life of the title. For the years ended December 31, 2023 and 2022, tax incentives resulted in lower content amortization on produced content of approximately $ million and $ million, respectively.
Property and Equipment, Net
| | $ | | | | | | Buildings | | | | | | | | years |
| Leasehold improvements | | | | | | | | Over life of lease |
| Furniture and fixtures | | | | | | | | years |
| Information technology | | | | | | | | years |
| Corporate aircraft | | | | | | | | - years |
| Machinery and equipment | | | | | | | | - years |
| Capital work-in-progress | | | | | | | | |
| Property and equipment, gross | | | | | | | | |
| Less: Accumulated depreciation | | () | | | () | | | |
| Property and equipment, net | | $ | | | | $ | | | | |
Leases
The Company has entered into operating leases primarily for real estate. These leases generally have terms which range from year to years, and often include or more options to renew. These renewal terms can extend the lease term from year to years, and are included in the lease term when it is reasonably certain that the Company will exercise the option. These operating leases are included in "Other non-current assets" on the Company's Consolidated Balance Sheets, and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligations to make lease payments are included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Company's Consolidated Balance Sheets. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company has entered into various short-term operating leases with an initial term of twelve months or less. These leases are not recorded on the Company's Consolidated Balance Sheets. All operating lease expense is recognized on a straight-line basis over the lease term. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has certain contracts for real estate which may contain lease and non-lease components which it has elected to treat as a single lease component.
| | $ | | | | $ | | | | Short-term lease cost | | | | | | | | |
| Total lease cost | $ | | | | $ | | | | $ | | |
Information related to the Company's operating right-of-use assets and related operating lease liabilities were as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| (in thousands) |
| Cash paid for operating lease liabilities | $ | | | | $ | | | | $ | | |
| Right-of-use assets obtained in exchange for new operating lease obligations | | | | | | | | |
| | $ | | | | | | |
| Current operating lease liabilities | $ | | | | $ | | |
| Non-current operating lease liabilities | | | | | |
| Total operating lease liabilities | $ | | | | $ | | |
| | | |
| Weighted-average remaining lease term | years | | years |
| Weighted-average discount rate | | % | | | % |
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| Thereafter | | |
| | |
| Less imputed interest | () | |
| Total operating lease liabilities | $ | | |
The Company has additional operating leases for real estate of $ million which have not commenced as of December 31, 2023, and as such, have not been recognized on the Company's Consolidated Balance Sheets. These operating leases are expected to commence in 2024 with lease terms between and years.
Other Current Assets
| | $ | | | Prepaid expenses | | | | | | |
Other (1) | | | | | | |
Total other current assets | | $ | | | | $ | | |
(1) $ million and $ million of receivables related to tax incentives earned on production spend are included in Other as of December 31, 2023 and 2022, respectively.
6.
million, net of $ million of issuance costs, with varying maturities (the "Notes"). Of the outstanding balance, $ million, net of issuance costs, is classified as short-term debt on the Consolidated Balance Sheets. As of December 31, 2022, the Company had aggregate outstanding long-term notes of $ million, net of $ million of issuance costs. Each of the Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at fixed rates. A portion of the outstanding Notes is denominated in foreign currency (comprised of € million) and is remeasured into U.S. dollars at each balance sheet date (with remeasurement loss totaling $ million for the year ended December 31, 2023).
% Senior Notes$ | | | | $ | | | | February 2014 | | March 2024 | | $ | | | | $ | | | % Senior Notes | | | | | | | February 2015 | | February 2025 | | | | | | |
% Senior Notes (1) | | | | | | | April 2020 | | June 2025 | | | | | | |
% Senior Notes | | | | | | | April 2020 | | June 2025 | | | | | | |
% Senior Notes | | | | | | | October 2016 | | November 2026 | | | | | | |
% Senior Notes (1) | | | | | | | May 2017 | | May 2027 | | | | | | |
% Senior Notes | | | | | | | October 2017 | | April 2028 | | | | | | |
% Senior Notes | | | | | | | April 2018 | | November 2028 | | | | | | |
% Senior Notes (1) | | | | | | | October 2018 | | May 2029 | | | | | | |
% Senior Notes | | | | | | | October 2018 | | May 2029 | | | | | | |
% Senior Notes (1) | | | | | | | April 2019 | | November 2029 | | | | | | |
% Senior Notes | | | | | | | April 2019 | | November 2029 | | | | | | |
% Senior Notes (1) | | | | | | | October 2019 | | June 2030 | | | | | | |
% Senior Notes | | | | | | | October 2019 | | June 2030 | | | | | | |
| $ | | | | $ | | | | | | | | $ | | | | $ | | |
|
|
|
% Senior Notes for € million, % Senior Notes for € million, % Senior Notes for € million, % Senior Notes for € million, and % Senior Notes for € million.
Each of the Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to % of the principal plus accrued interest. The Company may redeem the Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest and an applicable premium. The Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of certain of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. As of December 31, 2023 and December 31, 2022, the Company was in compliance with all related covenants.
Revolving Credit Facility
On March 6, 2023, the Company amended its $ billion unsecured revolving credit facility ("Revolving Credit Agreement") to replace the London interbank offered rate to a variable secured overnight financing rate (the “Term SOFR Rate”) as the rate to which interest payments are indexed, among other things. The Revolving Credit Agreement matures on June 17, 2026. Revolving loans may be borrowed, repaid and reborrowed until June 17, 2026, at which time all amounts borrowed must be repaid. The Company may use the proceeds of future borrowings under the Revolving Credit Agreement for
amounts have been borrowed under the Revolving Credit Agreement.The borrowings under the Revolving Credit Agreement bear interest, at the Company’s option, of either (i) a floating rate equal to a base rate (the “Alternate Base Rate”) or (ii) a rate equal to the Term SOFR Rate (or the applicable benchmark replacement), plus a margin of %. The Alternate Base Rate is defined as the greatest of (A) the rate of interest published by the Wall Street Journal, from time to time, as the prime rate, (B) the federal funds rate, plus % and (C) the Term SOFR Rate for a one-month tenor, plus %. The Term SOFR Rate is the forward-looking secured overnight financing rate administered by the Federal Reserve Bank of New York or a successor administrator, for the relevant interest period, but in no event shall the Term SOFR Rate be less than % per annum.
The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Agreement at an annual rate of %. The Revolving Credit Agreement requires the Company to comply with certain covenants, including covenants that limit or restrict the ability of the Company’s subsidiaries to incur debt and limit or restrict the ability of the Company and its subsidiaries to grant liens and enter into sale and leaseback transactions; and, in the case of the Company or a guarantor, merge, consolidate, liquidate, dissolve or sell, transfer, lease or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole. As of December 31, 2023 and December 31, 2022, the Company was in compliance with all related covenants.
7.
| | $ | | | Total | $ | | | | $ | | |
Fair Value of Derivative Contracts
| | $ | | | | $ | | | | $ | | | | Total | $ | | | | $ | | | | $ | | | | $ | | |
|
|
The Company classifies derivative instruments in the Level 2 category within the fair value hierarchy. These instruments are valued using industry standard valuation models that use observable inputs such as interest rate yield curves, and forward and spot prices for currencies.
As of December 31, 2023, the pre-tax net accumulated loss on our foreign currency cash flow hedges included in AOCI on the Consolidated Balance Sheets expected to be recognized in earnings within the next 12 months is $ million.
$ | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | | | | | | | | | | | | () | | | | | | | |
|
|
Effect of Derivative Instruments on Consolidated Financial Statements
) | | $ | | | | $ | | | | Total | $ | () | | | $ | | | | $ | | |
(1) No amounts were excluded from the assessment of effectiveness.
No gains or losses on derivative instruments were reclassified from AOCI into the Consolidated Statements of Operations in the year ended December 31, 2023.
8.
billion of obligations comprised of $ billion included in "Current content liabilities" and $ billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $ billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for recognition. At December 31, 2022, the Company had $ billion of obligations comprised of $ billion included in "Current content liabilities" and $ billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $ billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for recognition.
| | $ | | | | Due after one year and through 3 years | | | | | |
| Due after 3 years and through 5 years | | | | | |
| Due after 5 years | | | | | |
| Total content obligations | $ | | | | $ | | |
Content obligations include amounts related to the acquisition, licensing and production of content. Obligations that are in non-U.S. dollar currencies are translated to the U.S. dollar at period end rates. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements as well as other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of such license agreements. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. However, the unknown obligations are expected to be significant.
Legal Proceedings
From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.
The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.
Non-Income Taxes
The Company is routinely under audit by various tax authorities with regard to non-income tax matters. The subject matter of non-income tax audits primarily arises from disputes on the tax treatment and tax rate applied to our revenue in certain jurisdictions. We accrue non-income taxes that may result from examinations by, or any negotiated agreements with, these tax authorities when a loss is probable and reasonably estimable.
Similar to other U.S. companies doing business in Brazil, the Company is involved in a number of matters with Brazilian tax authorities regarding non-income tax assessments. Although the Company believes it has meritorious defenses to these matters, there is inherent complexity and uncertainty with respect to these matters, and the final outcome may be materially different from our expectations. The current potential exposure with respect to the various issues with Brazilian tax authorities regarding non-income tax assessments is estimated to be approximately $ million, which is expected to increase over time.
Guarantees—Indemnification Obligations
In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.
The Company’s obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify
amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.
9.
vote per share on all matters to be voted upon by the Company’s stockholders.Stock Option Plan
In June 2020, the Company's stockholders approved the 2020 Stock Plan, which was adopted by the Company's Board of Directors in March 2020 subject to stockholder approval. The 2020 Stock Plan provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants.
| | | | | $ | | | | | | | | Granted | () | | | | | | | | | | | |
| Exercised | — | | | () | | | | | | | | |
| Expired | — | | | () | | | | | | | | |
| Balances as of December 31, 2021 | | | | | | | $ | | | | | | |
| Granted | () | | | | | | | | | | | |
| Exercised | — | | | () | | | | | | | | |
| Expired | — | | | () | | | | | | | | |
| Balances as of December 31, 2022 | | | | | | | $ | | | | | | |
| Granted | () | | | | | | | | | | | |
| Exercised | — | | | () | | | | | | | | |
| Expired | — | | | () | | | | | | | | |
| Balances as of December 31, 2023 | | | | | | | $ | | | | | | $ | | |
Vested and expected to vest as of December 31, 2023 | | | | | | $ | | | | | | $ | | |
Exercisable as of December 31, 2023 | | | | | | $ | | | | | | $ | | |
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of 2023 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of 2023. This amount changes based on the fair market value of the Company’s common stock.
| | $ | | | | $ | | | | Cash received from options exercised | | | | | | | | | |
contractual term regardless of employment status. Stock options granted to certain named executive officers vest on the anniversary of the grant date, subject to the employee’s continuous employment or service with the Company through the vesting date. % | | | % | | | % | | Expected volatility | | % - % | | % - % | | % - % |
| Risk-free interest rate | | % - % | | % - % | | % - % |
| Suboptimal exercise factor | | - | | - | | - |
| Valuation data: | | | | | | |
| Weighted-average fair value (per share) | | $ | | | | $ | | | | $ | | |
| Total stock-based compensation expense (in thousands) | | | | | | | | | |
| Total income tax impact on provision (in thousands) | | | | | | | | | |
The Company considers several factors in determining the suboptimal exercise factor, including the historical and estimated option exercise behavior.
The Company calculates expected volatility based solely on implied volatility. The Company believes that implied volatility of publicly traded options in its common stock is more reflective of market conditions, and given consistently high trade volumes of the options, can reasonably be expected to be a better indicator of expected volatility than historical volatility of its common stock.
In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the contractual term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of in the option valuation model. The Company does not use a post-vesting termination rate as options are generally fully vested upon grant date.
The total fair value of stock options that vested during the year ended December 31, 2023 was $ million. The Company did not grant any stock options subject to vesting conditions in the years ended December 31, 2022 and 2021. As of December 31, 2023, $ million of total unrecognized compensation cost related to nonvested stock options is expected to be recognized over a weighted-average period of years.
Stock Repurchases
In March 2021, the Company’s Board of Directors authorized the repurchase of up to $ billion of its common stock, with no expiration date, and in September 2023, the Board of Directors increased the share repurchase authorization by an additional $ billion, also with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. The Company is not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, general economic, business and market conditions, and alternative investment opportunities. The Company may discontinue any repurchases of its common stock at any time without prior notice. During the year ended December 31, 2023, the Company repurchased shares for an aggregate amount of $ million. As of December 31, 2023, $ billion remains available for repurchases. Shares repurchased by the Company are accounted for when the transaction is settled. Direct costs incurred to acquire the shares are included in the total cost of the shares.
Accumulated Other Comprehensive Income (Loss)
| | $ | | | | $ | | | Other comprehensive income (loss) before reclassifications | () | | | | | | () | |
Balances as of December 31, 2021 | () | | | | | | () | |
Other comprehensive income (loss) before reclassifications | () | | | | | | () | |
Balances as of December 31, 2022 | () | | | | | | () | |
Other comprehensive income (loss) before reclassifications | | | | () | | | () | |
Balances as of December 31, 2023 | $ | () | | | $ | () | | | $ | () | |
10.
| | $ | | | | $ | | | | Foreign | | | | | | | | |
| Income before income taxes | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | State | | | | | | | | |
| Foreign | | | | | | | | |
| Total current | | | | | | | | |
| Deferred tax provision: | | | | | |
| Federal | () | | | () | | | | |
| State | () | | | () | | | () | |
| Foreign | () | | | () | | | | |
| Total deferred | () | | | () | | | | |
| Provision for income taxes | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | State income taxes, net of Federal income tax effect | | | | | | | | |
| Foreign earnings at other than U.S. rates | () | | | | | | () | |
| Research and development tax credit | () | | | () | | | () | |
| Excess tax benefits on stock-based compensation | () | | | () | | | () | |
| Foreign-derived intangible income deduction | () | | | () | | | () | |
| Nontaxable and nondeductible items | | | | | | | | |
| Other | | | | | | | | |
| Provision for income taxes | $ | | | | $ | | | | $ | | |
| Effective Tax Rate | | % | | | % | | | % |
| | $ | | | | Tax credits and net operating loss carryforwards | | | | | |
| Capitalized research expenses | | | | | |
| Accruals and reserves | | | | | |
| Operating lease liabilities | | | | | |
| Unrealized losses | | | | | |
| Other | | | | | |
| Total deferred tax assets | | | | | |
| Valuation allowance | () | | | () | |
| Net deferred tax assets | | | | | |
| Deferred tax liabilities: | | | |
| Depreciation & amortization | () | | | () | |
| Operating right-of-use lease assets | () | | | () | |
| Unrealized gains | | | | () | |
| Acquired intangibles | () | | | () | |
| Other | () | | | | |
| Total deferred tax liabilities | () | | | () | |
| Net deferred tax assets | $ | | | | $ | | |
The following table shows the deferred tax assets and liabilities within our Consolidated Balance Sheets:
| | | | | | | | | | | |
| | As of December 31, |
| | 2023 | | 2022 |
| | (in thousands) |
| Total deferred tax assets: | | | |
| Other non-current assets | $ | | | | $ | | |
| Total deferred tax liabilities: | | | |
| Other non-current liabilities | () | | | | |
| Net deferred tax assets | $ | | | | $ | | |
million of California R&D tax credit carryforwards which can be carried forward indefinitely, $ million of state net operating loss carryforwards which will begin to expire in 2026, $ million of foreign tax credit carryforwards which will begin to expire in 2033, and $ million of foreign net operating loss carryforwards which will begin to expire in 2024. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. As of December 31, 2023, the valuation allowance of $ million was primarily related to California R&D tax credits, state net operating loss carryforwards, and foreign tax credits that the Company does not expect to realize.
At December 31, 2023, we have not provided for applicable U.S. income and foreign withholding taxes on approximately $ million of our foreign undistributed earnings because such earnings are intended to be indefinitely reinvested. At December 31, 2023, we provided taxes and recorded a deferred tax liability on our undistributed foreign earnings for which we are not indefinitely reinvested.
The unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year are classified as “Other non-current liabilities” and a reduction of deferred tax assets which is classified as "Other non-current assets" in the Consolidated Balance Sheets. As of December 31, 2023 and 2022, the total amount of gross unrecognized tax benefits was $ million and $ million, respectively, of which $ million and $ million, respectively, if recognized, would favorably impact the Company’s effective tax rate.
| $ | | | $ | | | | Increases related to tax positions taken during the current period | | | | | | |
| Increases related to tax positions taken during prior periods | | | | | | |
| Decreases related to tax positions taken during prior periods | () | | () | | | |
| Decreases related to settlements with taxing authorities | () | | | | | |
| Decreases related to expiration of statute of limitations | | | | | | |
| Balance at the end of the year | $ | | | $ | | | $ | | |
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes and in “Other non-current liabilities” in the Consolidated Balance Sheets. During the years ended December 31, 2023, 2022 and 2021, the Company recorded $ million, $ million, and less than $ million, respectively, of interest and penalties in the provision for income taxes. The amount of interest and penalties accrued at December 31, 2023 and 2022 was $ million and $ million, respectively.
The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for years 2016 through 2018 and is subject to examination for 2019 through 2022. The foreign and state tax returns for years 2016 through 2022 are subject to examination by various state and foreign jurisdictions. While the Company is in various stages of inquiry and examination with certain taxing authorities and we believe that our tax positions will more likely than not be sustained, it is nonetheless possible that future obligations related to these matters could arise. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from an examination.
Given the potential outcome of current examinations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. However, an estimate of the range of reasonably possible adjustments cannot be made at this time.
11.
% of their annual salary through payroll deductions, but not more than the statutory limits set by the Internal Revenue Service. The Company matches employee contributions at the discretion of the Board. During the years ended December 31, 2023, 2022 and 2021, the Company’s matching contributions totaled $ million, $ million and $ million, respectively.
| | $ | | | | $ | | | | Health benefits | | | | | | | | |
| Total contributions | $ | | | | $ | | | | $ | | |
12.
operating segment. The Company's chief operating decision maker ("CODM") is its co-chief executive officers, who review financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources. Total U.S. revenues were $ billion, $ billion and $ billion for the years ended December 31, 2023, 2022 and 2021, respectively. See Note 2 Revenue Recognition for additional information about streaming revenue by region.
| | $ | | | | International | | | | | |
EXHIBIT INDEX
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| Form | | File No. | | Exhibit | | Filing Date | |
| | | | 8-K | | 001-35727 | | 3.1 | | June 8, 2022 | | |
| | | | 8-K | | 001-35727 | | 3.2 | | February 24, 2023 | | |
| | | | S-1/A | | 333-83878 | | 4.1 | | April 16, 2002 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | February 19, 2014 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | February 5, 2015 | | |
| | | | 8-K | | 001-35727 | | 4.2 | | February 5, 2015 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | October 27, 2016 | | |
| | | | 10-Q | | 001-35727 | | 4.7 | | April 20, 2017 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | May 3, 2017 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | October 26, 2017 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | April 26, 2018 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | October 26, 2018 | | |
| | | | 8-K | | 001-35727 | | 4.3 | | October 26, 2018 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | April 29, 2019 | | |
| | | | 8-K | | 001-35727 | | 4.3 | | April 29, 2019 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | October 25, 2019 | | |
| | | | 8-K | | 001-35727 | | 4.3 | | October 25, 2019 | | |
| | | | 8-K | | 001-35727 | | 4.1 | | April 28, 2020 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| Form | | File No. | | Exhibit | | Filing Date | |
| | | | 8-K | | 001-35727 | | 4.3 | | April 28, 2020 | | |
| | | | 10-K | | 001-35727 | | 4.2 | | January 26, 2023 | | |
| | | | S-1/A | | 333-83878 | | 10.1 | | March 20, 2002 | | |
| | | | Def 14A | | 000-49802 | | A | | April 20, 2011 | | |
| | | | Def 14A | | 001-35727 | | A | | April 22, 2020 | | |
| | | | 8-K | | 001-35727 | | Item 5.02 | | January 24, 2018 | | |
| | | | 8-K | | 001-35727 | | 10.1 | | December 9, 2022 | | |
| | | | 8-K | | 001-35727 | | 10.1 | | September 10, 2021 | | |
| | | | 10-Q | | 001-35727 | | 10.15 | | October 18, 2017 | | |
| | | | 8-K | | 001-35727 | | 10.1 | | April 1, 2019 | | |
| | | | 8-K | | 001-35727 | | 10.1 | | June 17, 2021 | | |
| | | | 10-Q | | 001-35727 | | 10.2 | | April 21, 2023 | | |
| | | | 10-K | | 001-35727 | | 10.11 | | January 27, 2022 | | |
| | | | 10-K | | 001-35727 | | 10.11 | | January 26, 2023 | | |
| | | | 8-K | | 001-35727 | | 10.1 | | December 8, 2023 | | |
| | | | 8-K | | 001-35727 | | 10.2 | | December 8, 2023 | | |
| | | | 8-K | | 001-35727 | | 10.3 | | December 8, 2023 | | |
| | | | 8-K | | 001-35727 | | 10400 | | December 8, 2023 | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| 24 | | Power of Attorney (see signature page) | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| Form | | File No. | | Exhibit | | Filing Date | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| | | | | | | | | | | | X |
| 101 | | The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Balance Sheets, (v) Consolidated Statements of Stockholders' Equity and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags | | | | | | | | | | X |
| 104 | | The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL | | | | | | | | | | X |
* These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.
† Indicates a management contract or compensatory plan
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | Netflix, Inc. |
| | | | | |
| Dated: | January 26, 2024 | | By: | | /S/ TED SARANDOS |
| | | | | Ted Sarandos Co-Chief Executive Officer (principal executive officer) |
| | | | | |
| Dated: | January 26, 2024 | | By: | | /S/ GREG PETERS |
| | | | | Greg Peters Co-Chief Executive Officer (principal executive officer) |
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ted Sarandos, Greg Peters, and Spencer Neumann, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
/S/ TED SARANDOS | | Co-Chief Executive Officer and Director (principal executive officer) | | January 26, 2024 |
| Ted Sarandos | | |
| | | | |
/S/ GREG PETERS | | Co-Chief Executive Officer and Director (principal executive officer) | | January 26, 2024 |
| Greg Peters | | |
| | | | |
/S/ SPENCER NEUMANN | | Chief Financial Officer (principal financial officer) | | January 26, 2024 |
| Spencer Neumann | | |
| | | | |
/S/ JEFFREY KARBOWSKI | | Chief Accounting Officer (principal accounting officer) | | January 26, 2024 |
| Jeffrey Karbowski | | |
| | | | |
/S/ REED HASTINGS | | Executive Chairman and Director | | January 26, 2024 |
| Reed Hastings | | |
| | | | |
/S/ RICHARD BARTON | | Director | | January 26, 2024 |
| Richard Barton | | |
| | | | |
/S/ MATHIAS DÖPFNER | | Director | | January 26, 2024 |
| Mathias Döpfner | | |
| | | | |
/S/ TIMOTHY M. HALEY | | Director | | January 26, 2024 |
| Timothy M. Haley | | |
| | | | |
/S/ JAY C. HOAG | | Director | | January 26, 2024 |
| Jay C. Hoag | | |
| | | | |
/S/ LESLIE J. KILGORE | | Director | | January 26, 2024 |
| Leslie J. Kilgore | | |
| | | | |
/S/ STRIVE MASIYIWA | | Director | | January 26, 2024 |
| Strive Masiyiwa | | |
| | | | |
/S/ ANN MATHER | | Director | | January 26, 2024 |
| Ann Mather | | |
| | | | | | | | | | | | | | |
| | | | |
/S/ SUSAN RICE | | Director | | January 26, 2024 |
| Susan Rice | | |
| | | | |
/S/ BRAD SMITH | | Director | | January 26, 2024 |
| Brad Smith | | |
| | | | |
/S/ ANNE SWEENEY | | Director | | January 26, 2024 |
| Anne Sweeney | | |
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