|
| Purchases of investments | () | | | | | | () | | | () | |
| Proceeds from maturities of investments | | | | | | | | | | | |
| Net cash provided by (used in) investing activities | () | | | | | | () | | | | |
| Cash flows from financing activities: | | | | | | | |
| Proceeds from issuance of debt | | | | | | | | | | | |
|
| 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 provided by (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 at beginning of period | | | | | | | | | | | |
| Cash, cash equivalents and restricted cash at end of period | $ | | | | $ | | | | $ | | | | $ | | |
See accompanying notes to the consolidated financial statements.
NETFLIX, INC.
Consolidated Balance Sheets
(in thousands, except share and par value data)
| | | | | | | | | | | |
| As of |
| September 30,
2024 | | December 31,
2023 |
| (unaudited) | | |
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) | par value; shares authorized at September 30, 2024 and December 31, 2023; and issued and outstanding at September 30, 2024 and December 31, 2023, respectively | | | | | |
Treasury stock at cost ( and shares at September 30, 2024 and December 31, 2023, respectively) | () | | | () | |
| Accumulated other comprehensive loss | () | | | () | |
Retained earnings | | | | | |
Total stockholders’ equity | | | | | |
Total liabilities and stockholders’ equity | $ | | | | $ | | |
See accompanying notes to the consolidated financial statements.
NETFLIX, INC.
Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | | September 30,
2024 | | September 30,
2023 | | September 30,
2024 | | September 30,
2023 |
| Total stockholders' equity, beginning balances | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | |
| Common stock and additional paid-in capital: | | | | | | | | |
Beginning balances | | $ | | | | $ | | | | $ | | | | $ | | |
| Issuance of common stock | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | | | | | | | | |
| Ending balances | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | |
| Treasury stock: | | | | | | | | |
Beginning balances | | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| Repurchases of common stock to be held as treasury stock | | () | | | () | | | () | | | () | |
| Ending balances | | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| | | | | | | | |
| Accumulated other comprehensive loss: | | | | | | | | |
Beginning balances | | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| Other comprehensive income (loss) | | () | | | () | | | () | | | | |
| Ending balances | | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| | | | | | | | |
| Retained earnings: | | | | | | | | |
| Beginning balances | | $ | | | | $ | | | | $ | | | | $ | | |
Net income | | | | | | | | | | | | |
| Ending balances | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | |
Total stockholders' equity, ending balances | | $ | | | | $ | | | | $ | | | | $ | | |
See accompanying notes to the consolidated financial statements.
NETFLIX, INC.
Notes to Consolidated Financial Statements
(unaudited)
1.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Interim results are not necessarily indicative of the results for a full year.
The following is provided to update the Company’s significant accounting policies previously described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
months or less. The hedging contracts may reduce, but do not entirely eliminate, the effect of foreign currency exchange movements, and the Company may choose not to hedge certain exposures.The gain or loss on derivative instruments designated as cash flow hedges of forecasted foreign currency revenue is initially reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into “Revenues” on the Consolidated Statements of Operations in the same period the forecasted transaction affects earnings. The gain or loss on derivative instruments designated as cash flow hedges of firmly committed or forecasted transactions related to the licensing and production of content assets is initially reported as a component of AOCI and reclassified into “Cost of Revenues” on the Consolidated Statements of Operations in the same period the hedged transaction affects earnings, which occurs as the underlying hedged content assets are amortized. Cash flows from hedging activities are classified in the same category as the cash flows for the underlying item being hedged within "Net cash provided by operating activities" on the Consolidated Statements of Cash Flows.
In the event that the likelihood of occurrence of the underlying forecasted transactions is determined to be probable not to occur, the gains or losses on the related cash flow hedges are reclassified from AOCI to “Interest and other income (expense)” in the Consolidated Statements of Operations in the period of dedesignation.
Fair value hedges
The Company designates forward contracts as fair value hedges to manage the foreign exchange risk on its foreign-currency denominated debt. These hedges may reduce, but do not entirely eliminate, the effect of foreign currency exchange movements, and the Company may choose not to hedge the full amount of its exposure. The gain or loss on derivative instruments designated as fair value hedges included in the assessment of hedge effectiveness is recognized in “Interest and other income (expense),” net with the offsetting foreign currency remeasurement gains and losses on the hedged items. The Company excludes forward points from the assessment of hedge effectiveness and recognizes the initial value of the excluded component over the life of the hedging instrument in “Interest and other income (expense).” The difference between changes in fair value of the excluded component and the amount recognized in earnings is recognized as a component in
.
See Note 9 Stockholders' Equity to the consolidated financial statements for further information regarding stock-based compensation.
2.
million and $ million are included in “Streaming revenues” for the three and nine months ended September 30, 2024, respectively. No hedge gains and losses were recognized as “Streaming revenues” in the comparative prior year periods. See Note 7 Derivative Financial Instruments and Hedging Activities for further information.
United States and Canada (UCAN)
| | $ | | | | $ | | | | $ | | | | Paid net membership additions | | | | | | | | | | | | |
| Paid memberships at end of period (1) | | | | | | | | | | | | |
|
|
Europe, Middle East, and Africa (EMEA)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | As of/Nine Months Ended |
| | | September 30,
2024 | | September 30,
2023 | | September 30,
2024 | | September 30,
2023 |
| | | (in thousands) |
| Streaming revenues | | $ | | | | $ | | | | $ | | | | $ | | |
| Paid net membership additions | | | | | | | | | | | | |
| Paid memberships at end of period (1) | | | | | | | | | | | | |
|
|
Latin America (LATAM)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | As of/Nine Months Ended |
| | | September 30,
2024 | | September 30,
2023 | | September 30,
2024 | | September 30,
2023 |
| | | (in thousands) |
| Streaming revenues | | $ | | | | $ | | | | $ | | | | $ | | |
| Paid net membership additions (losses) | | () | | | | | | | | | | |
| Paid memberships at end of period (1) | | | | | | | | | | | | |
|
|
Asia-Pacific (APAC)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | As of/Nine Months Ended |
| | | September 30,
2024 | | September 30,
2023 | | September 30,
2024 | | September 30,
2023 |
| | | (in thousands) |
| Streaming 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 cards and other prepaid memberships that have not been fully redeemed. As of September 30, 2024, 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 as of December 31, 2023 is a result of the increase in membership fees billed due to increased memberships and price increases.
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 | | | | | | | | | | | |
| Effect of dilutive stock-based awards | | | | | | | | | | | |
| Weighted-average number of shares | | | | | | | | | | | |
| Diluted earnings per share | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | |
4.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Level 1 securities: | | | | | | | | | | | | | | | |
| Money market funds | | | | | | | | | | | | | | | | | | | | | | | |
| Level 2 securities: | | | | | | | | | | | | | | | |
| Time Deposits (1) | | | | | | | | | | | | | | | | | | | | | | | |
| Government securities (2) | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2023 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Cash and cash equivalents | | Short-term investments | | Other Current Assets | | Non-current Assets |
| | (in thousands) |
| Cash | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| 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.
(2) The Company's government securities mature within one year.
Other current assets include restricted cash for deposits related to self-insurance. Non-current assets include restricted cash related to letter of credit agreements. The fair value of available-for-sale securities, 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 and Note 7 Derivative Financial Instruments and Hedging Activities to the consolidated financial statements for further information regarding the fair value of the Company’s senior notes and derivative financial instruments.
5.
| | $ | | |
| | | |
Produced content, net | | | |
Released, less amortization | | | | | |
In production | | | | | |
In development and pre-production | | | | | |
| | | | | |
| | | |
Content assets, net | $ | | | | $ | | |
| | | |
As of September 30, 2024, the amount of accrued participations and residuals was not material.
| | $ | | | | $ | | | | $ | | | | Produced content | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
Property and Equipment, Net
| | $ | | | | | Buildings and improvements | | | | | | | | 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 | | $ | | | | $ | | | | |
| | $ | | | | $ | | | | $ | | | | Right-of-use assets obtained in exchange for new operating lease obligations | | | | | | | | | | | |
| | | | | | | | | | | |
| As of |
| September 30,
2024 | | December 31,
2023 |
| (in thousands) |
| Operating lease right-of-use assets, net | $ | | | | $ | | |
| | | |
| Current operating lease liabilities | | | | | |
| Non-current operating lease liabilities | | | | | |
| Total operating lease liabilities | $ | | | | $ | | |
Other Current Assets
| | $ | | | Prepaid expenses | | | | | | |
Other | | | | | | |
Total other current assets | | $ | | | | $ | | |
6.
million, net of $ million of issuance costs and $ million of discounts, 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, 2023, the Company had aggregate outstanding notes of $ million, net of $ million of issuance costs. Each of the Notes 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, net of hedging impacts, totaling $ million for the three months ended September 30, 2024 and remeasurement gain, net of hedging impacts, totaling $ million for the nine months ended September 30, 2024). See Note 7 Derivative Financial Instruments and Hedging Activities to the consolidated financial statements for further information regarding the Company’s derivative and non-derivative financial instruments.
% 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 | | | | | | | | August 2024 | | August 2034 | | | | | | |
% Senior Notes | | | | | | | | August 2024 | | August 2054 | | | | | | |
| | $ | | | | $ | | | | | | | | $ | | | | $ | | |
(1) The following Senior Notes have a principal amount denominated in euros: % Senior Notes for € million, % Senior Notes for € million, % Senior Notes for € million, % Senior Notes for € million, and % Senior Notes for € million.
In the nine months ended September 30, 2024, the Company repaid upon maturity the $ million aggregate principal amount of its % Senior Notes.
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, 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. Certain of the Notes additionally limit the ability to enter into sale and lease-back transactions and create, assume, incur or guarantee additional indebtedness of certain of the Company's subsidiaries. As of September 30, 2024 and December 31, 2023, the Company was in compliance with all related covenants.
, $ billion unsecured revolving credit facility that matures on April 12, 2029 (the “Revolving Credit Agreement”), to replace its previous $ billion unsecured revolving credit facility. As of September 30, 2024, 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 per annum equal to a base rate (the “Alternate Base Rate”) plus an applicable margin or (ii) a per annum rate equal to an adjusted term SOFR rate (the “Adjusted Term SOFR Rate”) plus an applicable margin. The applicable margin for Alternate Base Rate loans will range from % to %, and the applicable margin for Adjusted Term SOFR Rate loans will range from % to %, each based on the Company’s credit ratings.
The Revolving Credit Agreement contains customary affirmative covenants and negative covenants (and customary baskets and exceptions with respect thereto) for a credit facility of this size and type and requires the Company to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of to 1.0 as of the last day of each fiscal quarter. As of September 30, 2024 and December 31, 2023, the Company was in compliance with all related covenants and ratios.
7.
| | $ | | | Fair value hedges | | | | | |
| Derivatives not designated as hedging instruments:
| | | |
| Foreign exchange contracts | | | | | |
Total | $ | | | | $ | | |
As of September 30, 2024, approximately $ billion of the Company’s euro–denominated Senior Notes was designated as a hedge of the foreign exchange risk of the Company’s net investment in certain foreign subsidiaries. See Note 6 Debt for further information on the Company’s debt obligations.
Fair Value of Derivative Contracts
| | $ | | | | $ | | | | $ | | | | Derivatives not designated as hedging instruments: | | | | | | | |
| Foreign exchange contracts | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
|
| | $ | | | | $ | | | | $ | | |
| Derivatives not designated as hedging instruments: | | | | | | | |
| Foreign exchange 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 September 30, 2024, 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.
Master Netting Agreements
In order to mitigate counterparty credit risk, the Company enters into master netting agreements with its counterparties for its foreign currency exchange contracts which permit the parties to settle amounts on a net basis under certain conditions. The Company has elected to present its derivative assets and liabilities on a gross basis on its Consolidated Balance Sheets.
The Company also enters into collateral security arrangements with its counterparties that require the parties to post cash collateral when certain contractual thresholds are met. No cash collateral was received or posted by the Company as of September 30, 2024 and December 31, 2023.
| | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| Derivative liabilities | | | | | | | | | | () | | | | | | | |
| | | |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2023 |
| | | | | | | Gross Amount Not Offset in the Consolidated Balance Sheets | | |
| | Gross Amount Recognized in the Consolidated Balance Sheets | | Gross Amount Offset in the Consolidated Balance Sheets | | Net Amount Presented in the Consolidated Balance Sheets | | Financial Instruments | | Collateral Received and Posted | | Net Amount |
| | (in thousands) |
| Derivative assets | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| Derivative liabilities | | | | | | | | | | () | | | | | | | |
| | | |
| | | |
|
|
|
|
|
|
|
|
Restricted Stock Unit Activity
The Company grants time-based restricted stock unit (“RSU”) awards and performance-based restricted stock unit (“PSU”) awards to certain executive officers. RSU awards vest quarterly over a period subject to the executive’s continued employment or service with the Company through the vesting date. PSU awards have performance periods ranging from one to and vest depending on the Company’s achievement of predetermined market-based performance targets.
| | $ | | |
Granted | | | | |
Vested | () | | | | |
Forfeited | | | | | |
| Balances as of September 30, 2024 | | | | $ | | |
Stock-based Compensation
Total stock-based compensation expense was $ million and $ million for the three and nine months ended September 30, 2024, respectively, and $ million and $ million for the three and nine months ended September 30, 2023, respectively.
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 three and nine months ended September 30, 2024, the Company repurchased and shares, respectively, for an aggregate amount of $ billion and $ billion, respectively. As of September 30, 2024, $ billion remains available for repurchases. Shares repurchased by the Company are accounted for when the transaction is settled. As of September 30, 2024, there were no unsettled share repurchases. 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 | | | | () | | | () | | | () | | | | | | | | | () | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | | | | | () | | | | | | | | | | | | () | |
Net change in accumulated other comprehensive income (loss) | | | | () | | | () | | | () | | | | | | | | | () | |
| Balances as of September 30, 2024 | $ | () | | | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | () | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation
Adjustments | | Net Investment Hedge Gains (Losses) | | Change in Unrealized Gains (Losses) on Cash Flow Hedges | | Change in Unrealized Gains (Losses) on Excluded Component of Fair Value Hedges | | Change in Unrealized Gains (Losses)
on AFS Securities | | Tax (Expense) Benefit | | Total |
| (in thousands) |
| Balances as of December 31, 2023 | $ | () | | | $ | | | | $ | () | | | $ | | | | $ | | | | $ | | | | $ | () | |
Other comprehensive income (loss) before reclassifications | () | | | () | | | | | | () | | | | | | | | | () | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | | | | | () | | | | | | | | | | | | () | |
Net change in accumulated other comprehensive income (loss) | () | | | () | | | () | | | () | | | | | | | | | () | |
| Balances as of September 30, 2024 | $ | () | | | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | | | | $ | () | |
The following tables summarize the changes in accumulated balances of other comprehensive income (loss) for the three and nine months ended September 30, 2023:
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| Foreign Currency Translation
Adjustments | | Net Investment Hedge Gains (Losses) | | Change in Unrealized Gains (Losses) on Cash Flow Hedges | | Change in Unrealized Gains (Losses) on Excluded Component of Fair Value Hedges | | Change in Unrealized Gains (Losses)
on AFS Securities | | Tax (Expense) Benefit | | Total |
| (in thousands) |
| Balances as of June 30, 2023 | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | |
Other comprehensive income (loss) before reclassifications | () | | | | | | | | | | | | | | | () | | | () | |
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| Net change in accumulated other comprehensive income (loss) | () | | | | | | | | | | | | | | | () | | | () | |
Balances as of September 30, 2023 | $ | () | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | |
) | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | Other comprehensive income (loss) before reclassifications | () | | | | | | | | | | | | | | | () | | | | |
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amounts were reclassified from AOCI into the Consolidated Statements of Operations in the three and nine months ended September 30, 2023.
10.
| | $ | | | | $ | | | | $ | | |
| Effective tax rate | | | % | | | % | | | % | | | % |
11.
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 the purposes of making operating decisions, assessing financial performance and allocating resources. Total U.S. revenues were $ billion and $ billion, respectively, for the three and nine months ended September 30, 2024, and $ billion and $ billion, respectively, for the three and nine months ended September 30, 2023. See Note 2 Revenue Recognition for additional information about streaming revenue by region.
| | $ | | | | International | | | | | |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include, but are not limited to, statements regarding: our core strategy; our ability to improve our content offerings and service; our future financial performance, including expectations regarding revenues, deferred revenue, operating income and margin, net income, expenses, and profitability; liquidity, including the sufficiency of our capital resources, net cash provided by (used in) operating activities, and access to financing sources; capital allocation strategies, including any stock repurchases or repurchase programs; seasonality; impact of foreign exchange rate fluctuations, including on net income, revenues and average revenues per paying member; expectations regarding hedging activity; impact of interest rate fluctuations; adequacy of existing facilities; future regulatory changes and their impact on our business; intellectual property; price changes and testing; accounting treatment for changes related to content assets; acquisitions; membership growth, including impact of content and pricing changes on membership growth; member viewing patterns; future contractual obligations, including unknown content obligations and timing of payments; our global content and marketing investments, including investments in original programming; content amortization; resolution of tax examinations; tax expense; unrecognized tax benefits; deferred tax assets; and our ability to effectively manage change and growth. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on January 26, 2024, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item 1A.
We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.
Investors and others should note that we announce material financial and other information to our investors using our investor relations website (ir.netflix.net), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media and blogs to communicate with our members and the public about our company, our services and other issues. It is possible that the information we
post on social media and blogs could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the social media channels and blogs listed on our investor relations website.
Overview
We are one of the world’s leading entertainment services with approximately 283 million paid memberships in over 190 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.
Our core strategy is to grow our business globally within the parameters of our operating margin target. We strive to continuously improve our members’ experience by offering compelling content that delights them and attracts new members. We seek to drive conversation around our content to further enhance member joy, and we are continuously enhancing our user interface to help our members more easily choose content that they will find enjoyable.
Our membership growth exhibits a seasonal pattern that reflects variations when consumers buy internet-connected screens and when they tend to increase their viewing. Historically, the fourth quarter represents our greatest streaming membership growth. In addition, our membership growth can be impacted by our content release schedule and changes to pricing and plans.
Results of Operations
The following represents our consolidated performance highlights:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of/Three Months Ended | | Change |
| September 30,
2024 | | September 30,
2023 | | Q3'24 vs. Q3'23 |
| (in thousands, except revenue per membership and percentages) |
Financial Results: | | | | | | | |
Streaming revenues | $ | 9,824,703 | | | $ | 8,519,306 | | | $ | 1,305,397 | | | 15 | % |
| DVD revenues (1) | — | | | 22,362 | | | (22,362) | | | (100) | % |
| Total revenues | $ | 9,824,703 | | | $ | 8,541,668 | | | $ | 1,283,035 | | | 15 | % |
| | | | | | | |
| Operating income | $ | 2,909,477 | | | $ | 1,916,394 | | | $ | 993,083 | | | 52 | % |
| Operating margin | 29.6 | % | | 22.4 | % | | 7.2 | % | | |
| | | | | | | |
Global Streaming Memberships: | | | | | | | |
| Paid net membership additions | 5,073 | | | 8,763 | | | (3,690) | | | (42) | % |
| Paid memberships at end of period | 282,720 | | | 247,153 | | | 35,567 | | | 14 | % |
Average paying memberships | 280,184 | | | 242,772 | | | 37,412 | | | 15 | % |
Average monthly revenue per paying membership | $ | 11.69 | | | $ | 11.70 | | | $ | (0.01) | | | — | % |
| Constant currency change (2) | | | 5 | % |
(1) We discontinued our DVD-by-mail service in September 2023. The discontinuance of our DVD business had an immaterial impact on our operations and financial results.
(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 (“ARM”) 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 ARM, we calculate 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 and exclude the impact of hedging gains or losses realized as revenues. Constant currency percentage change in ARM is calculated as the percentage change between current period constant currency ARM and the prior comparative period ARM. The impact of hedging gains or losses is excluded from both the current and prior periods. For the three and nine months ended September 30, 2024, our revenues would have been approximately $476 million and $1,177 million higher, respectively, excluding the impact of hedging and had foreign currency exchange rates remained constant with those for the three and nine months ended September 30, 2023. The unfavorable foreign exchange rate impacts in the three and nine months ended September 30, 2024 were primarily driven by the devaluation of the Argentine peso relative to the U.S. dollar.
Operating margin for the three months ended September 30, 2024 increased seven percentage points as compared to the prior comparative period, primarily due to revenues growing at a faster rate as compared to the growth in cost of revenues and lower general and administrative expenses.
Streaming Revenues
We primarily derive revenues from monthly membership fees for services related to streaming content to our members. We offer a variety of streaming membership plans, the price of which varies by country and the features of the plan. As of September 30, 2024, pricing on our paid plans ranged from the U.S. dollar equivalent of $1 to $33 per month, and pricing on our extra member sub accounts ranged from the U.S. dollar equivalent of $2 to $8 per month. We expect that from time to time the prices of our membership plans in each country may change and we may test other plan and price variations.
We also earn revenue from advertisements presented on our streaming service, consumer products, live events and various other sources. Revenues earned from sources other than monthly membership fees were not material for the three and nine months ended September 30, 2024 and September 30, 2023.
Three months ended September 30, 2024 as compared to the three months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | Q3'24 vs. Q3'23 |
| | | (in thousands, except percentages) |
Streaming revenues | | $ | 9,824,703 | | | $ | 8,519,306 | | | $ | 1,305,397 | | | 15 | % |
|
|
Nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | YTD'24 vs. YTD'23 |
| | | (in thousands, except percentages) |
Streaming revenues | | $ | 28,754,453 | | | $ | 24,807,633 | | | $ | 3,946,820 | | | 16 | % |
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Streaming revenues for the three and nine months ended September 30, 2024 increased 15% and 16% as compared to the three and nine months ended September 30, 2023, respectively, primarily due to the growth in average paying memberships and price increases, partially offset by unfavorable changes in foreign exchange rates.
The following tables summarize streaming revenue and other streaming membership information by region for the three and nine months ended September 30, 2024 and 2023. Hedging gains of $48 million and $70 million are included in “Streaming revenues” for the three and nine months ended September 30, 2024, respectively. No hedging gains and losses were recognized as “Streaming revenues” in the comparative prior year period. See Note 7 Derivative Financial Instruments and Hedging Activities to the consolidated financial statements for further information regarding the Company’s derivative and non-derivative financial instruments.
United States and Canada (UCAN)
Three months ended September 30, 2024 as compared to the three months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | Q3'24 vs. Q3'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 4,322,476 | | | $ | 3,735,133 | | | $ | 587,343 | | | 16 | % |
| Paid net membership additions | | 694 | | | 1,750 | | | (1,056) | | | (60) | % |
| Paid memberships at end of period | | 84,803 | | | 77,321 | | | 7,482 | | | 10 | % |
| Average paying memberships | | 84,456 | | | 76,446 | | | 8,010 | | | 10 | % |
| Average monthly revenue per paying membership | | $ | 17.06 | | | $ | 16.29 | | | $ | 0.77 | | | 5 | % |
| Constant currency change | | | | | | | | 5 | % |
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Nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Nine Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | YTD'24 vs. YTD'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 12,842,351 | | | $ | 10,943,226 | | | $ | 1,899,125 | | | 17 | % |
| Paid net membership additions | | 4,675 | | | 3,025 | | | 1,650 | | | 55 | % |
| Paid memberships at end of period | | 84,803 | | | 77,321 | | | 7,482 | | | 10 | % |
| Average paying memberships | | 83,078 | | | 75,259 | | | 7,819 | | | 10 | % |
| Average monthly revenue per paying membership | | $ | 17.18 | | | $ | 16.16 | | | $ | 1.02 | | | 6 | % |
| Constant currency change | | | | | | | | 6 | % |
|
|
Europe, Middle East, and Africa (EMEA)
Three months ended September 30, 2024 as compared to the three months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | Q3'24 vs. Q3'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 3,133,466 | | | $ | 2,693,146 | | | $ | 440,320 | | | 16 | % |
| Paid net membership additions | | 2,167 | | | 3,953 | | | (1,786) | | | (45) | % |
| Paid memberships at end of period | | 96,131 | | | 83,760 | | | 12,371 | | | 15 | % |
| Average paying memberships | | 95,048 | | | 81,784 | | | 13,264 | | | 16 | % |
| Average monthly revenue per paying membership | | $ | 10.99 | | | $ | 10.98 | | | $ | 0.01 | | | — | % |
| Constant currency change | | | | | | | | 1 | % |
|
|
Nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Nine Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | YTD'24 vs. YTD'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 9,099,431 | | | $ | 7,772,957 | | | $ | 1,326,474 | | | 17 | % |
| Paid net membership additions | | 7,318 | | | 7,031 | | | 287 | | | 4 | % |
| Paid memberships at end of period | | 96,131 | | | 83,760 | | | 12,371 | | | 15 | % |
| Average paying memberships | | 92,722 | | | 79,142 | | | 13,580 | | | 17 | % |
| Average monthly revenue per paying membership | | $ | 10.90 | | | $ | 10.91 | | | $ | (0.01) | | | — | % |
| Constant currency change | | | | | | | | 1 | % |
|
|
Latin America (LATAM)
Three months ended September 30, 2024 as compared to the three months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | Q3'24 vs. Q3'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 1,240,892 | | | $ | 1,142,811 | | | $ | 98,081 | | | 9 | % |
| Paid net membership additions (losses) | | (68) | | | 1,179 | | | (1,247) | | | (106) | % |
| Paid memberships at end of period | | 49,182 | | | 43,645 | | | 5,537 | | | 13 | % |
| Average paying memberships | | 49,216 | | | 43,056 | | | 6,160 | | | 14 | % |
| Average monthly revenue per paying membership | | $ | 8.40 | | | $ | 8.85 | | | $ | (0.45) | | | (5) | % |
| Constant currency change | | | | | | | | 27 | % |
|
|
Nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Nine Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | YTD'24 vs. YTD'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 3,610,045 | | | $ | 3,290,438 | | | $ | 319,607 | | | 10 | % |
| Paid net membership additions | | 3,185 | | | 1,946 | | | 1,239 | | | 64 | % |
| Paid memberships at end of period | | 49,182 | | | 43,645 | | | 5,537 | | | 13 | % |
| Average paying memberships | | 48,187 | | | 42,129 | | | 6,058 | | | 14 | % |
| Average monthly revenue per paying membership | | $ | 8.32 | | | $ | 8.68 | | | $ | (0.36) | | | (4) | % |
| Constant currency change | | | | | | | | 23 | % |
|
|
Asia-Pacific (APAC)
Three months ended September 30, 2024 as compared to the three months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | Q3'24 vs. Q3'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 1,127,869 | | | $ | 948,216 | | | $ | 179,653 | | | 19 | % |
| Paid net membership additions | | 2,280 | | | 1,881 | | | 399 | | | 21 | % |
| Paid memberships at end of period | | 52,604 | | | 42,427 | | | 10,177 | | | 24 | % |
| Average paying memberships | | 51,464 | | | 41,487 | | | 9,977 | | | 24 | % |
| Average monthly revenue per paying membership | | $ | 7.31 | | | $ | 7.62 | | | $ | (0.31) | | | (4) | % |
| Constant currency change | | | | | | | | (2) | % |
|
|
Nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Nine Months Ended | | Change |
| | | September 30,
2024 | | September 30,
2023 | | YTD'24 vs. YTD'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 3,202,626 | | | $ | 2,801,012 | | | $ | 401,614 | | | 14 | % |
| Paid net membership additions | | 7,266 | | | 4,404 | | | 2,862 | | | 65 | % |
| Paid memberships at end of period | | 52,604 | | | 42,427 | | | 10,177 | | | 24 | % |
| Average paying memberships | | 48,930 | | | 40,083 | | | 8,847 | | | 22 | % |
| Average monthly revenue per paying membership | | $ | 7.27 | | | $ | 7.76 | | | $ | (0.49) | | | (6) | % |
| Constant currency change | | | | | | | | (3) | % |
|
|
Total | | $ | 46,250,463 | | | $ | 14,905,268 | | | $ | 31,345,195 | |
(1)As of September 30, 2024, content obligations were comprised of $4.5 billion included in “Current content liabilities” and $1.9 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and $16.3 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.
The material cash requirements above do 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 to the 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. See Note 5 Balance Sheet Components in the accompanying notes to our consolidated financial statements for further details regarding leases.
Cash Flows
The following tables summarize our cash flows:
Three months ended September 30, 2024 as compared to the three months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Change |
| September 30,
2024 | | September 30,
2023 | | Q3'24 vs. Q3'23 |
| (in thousands, except percentages) |
Net cash provided by operating activities | $ | 2,321,101 | | | $ | 1,992,315 | | | $ | 328,786 | | | 17 | % |
Net cash provided by (used in) investing activities | (1,869,109) | | | 296,071 | | | (2,165,180) | | | (731) | % |
Net cash provided by (used in) financing activities | 226,596 | | | (2,475,108) | | | 2,701,704 | | | 109 | % |
Net cash provided by operating activities for the three months ended September 30, 2024 increased $329 million as compared to the corresponding period in 2023, primarily driven by a $686 million or 41% increase in net income, an increase in adjustments for non-cash expenses, and favorable changes in working capital, mainly due to the timing of payments for taxes. These cash inflows were partially offset by an increase in payments for content assets. The payments for content assets increased $890 million, from $3,210 million to $4,100 million, or 28%.
Net cash provided by (used in) investing activities for the three months ended September 30, 2024 decreased $2,165 million as compared to the corresponding period in 2023, primarily due to purchases of investments of $1.7 billion, coupled with there being no proceeds from maturities of investments in the three months ended September 30, 2024, as compared to proceeds from maturities of investments of $400 million in the three months ended September 30, 2023.
Net cash provided by (used in) financing activities for the three months ended September 30, 2024 increased $2,702 million as compared to the corresponding period in 2023, primarily due to proceeds from the issuance of debt of $1,794 million, coupled with an $800 million decrease in the repurchases of common stock from $2.5 billion in the three months ended September 30, 2023 to $1.7 billion in the three months ended September 30, 2024.
Nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Change |
| September 30,
2024 | | September 30,
2023 | | YTD'24 vs. YTD'23 |
| (in thousands, except percentages) |
Net cash provided by operating activities | $ | 5,824,470 | | | $ | 5,611,287 | | | $ | 213,183 | | | 4 | % |
Net cash provided by (used in) investing activities | (2,023,110) | | | 130,155 | | | (2,153,265) | | | (1,654) | % |
Net cash used in financing activities | (3,395,729) | | | (3,498,530) | | | (102,801) | | | (3) | % |
Net cash provided by operating activities for the nine months ended September 30, 2024 increased $213 million as compared to the corresponding period in 2023, primarily driven by a $2,373 million or 53% increase in net income, an increase in adjustments for non-cash expenses, and favorable changes in working capital, partially offset by an increase in payments for content assets. The payments for content assets increased $2,774 million, from $9,660 million to $12,434 million, or 29%.
Net cash provided by (used in) investing activities for the nine months ended September 30, 2024 decreased $2,153 million as compared to the corresponding period in 2023, primarily due to purchases of investments for an aggregate amount of $1.7 billion in the nine months ended September 30, 2024 as compared to purchases of investments for an aggregate amount of $505 million in the nine months ended September 30, 2023, coupled with there being no maturities of investments in the nine months ended September 30, 2024, as compared to maturities of investments of $902 million in the nine months ended September 30, 2023.
Net cash used in financing activities for the nine months ended September 30, 2024 decreased $103 million as compared to the corresponding period in 2023, primarily due to proceeds from the issuance of debt of $1,794 million in the nine months ended September 30, 2024 and a $412 million increase in the proceeds from the issuance of common stock from $119 million in the nine months ended September 30, 2023 to $531 million in the nine months ended September 30, 2024. These cash inflows were partially offset by a $1.8 billion increase in the repurchases of common stock from an aggregate amount of $3.5 billion of repurchases in the nine months ended September 30, 2023 to $5.3 billion in the nine months ended September 30, 2024, coupled with the repayment upon maturity of the $400 million aggregate principal amount of our 5.750% Senior Notes in the nine months ended September 30, 2024 as compared to no repayments of debt in the corresponding period in 2023.
Indemnification
The information set forth under Note 8 Commitments and Contingencies to the consolidated financial statements under the caption “Indemnification” is incorporated herein by reference.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023, describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
For financial market risks related to changes in interest rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II of our Annual Report on Form 10-K for the year ended December 31, 2023. Our exposure to market risk has not changed significantly since December 31, 2023.
Interest Rate Risk
As of September 30, 2024, our cash equivalents were generally invested in money market funds and time deposits. Interest paid on such funds fluctuates with the prevailing interest rate. Our short-term investments are primarily comprised of investments in government securities. These securities are classified as available-for-sale and are recorded at fair value with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (“AOCI”) within Stockholders' equity in the Consolidated Balance Sheets. Changes in interest rates could adversely affect the market value of these securities.
As of September 30, 2024, we had $16.1 billion of debt, consisting of fixed rate unsecured debt in fifteen tranches due between 2025 and 2054. Refer to Note 6 Debt 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 56% of revenue and 30% of operating expenses for the nine months ended September 30, 2024. We therefore have foreign currency risk related to these currencies, which are primarily the euro, British pound, Brazilian real, Argentine peso, 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. Excluding the impact of hedging gains or losses realized as revenues, our revenues for the nine months ended September 30, 2024 would have been approximately $1,177 million higher had foreign currency exchange rates remained constant with those for the nine months ended September 30, 2023. The unfavorable foreign exchange rate impact in the nine months ended September 30, 2024 was primarily driven by the devaluation of the Argentine peso relative to the U.S. dollar. 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.
We enter into foreign exchange forward contracts to mitigate fluctuations in forecasted U.S. dollar-equivalent revenues 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 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 September 30, 2024 and December 31, 2023, the amounts recorded in AOCI related to our foreign exchange contracts, before taxes, would have been approximately $1.9 billion and $958 million lower, respectively. 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.
We enter 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 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 September 30, 2024 and December 31, 2023, the amounts recorded in AOCI related to our foreign exchange contracts, before taxes, would have been approximately $133 million and $71 million lower, respectively. 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 use non-derivative instruments to mitigate foreign exchange risk related to our net investments in certain foreign subsidiaries. These non-derivative instruments 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 a portion of our foreign currency-denominated Senior Notes in euros as net investment hedges and the gains or losses on these non-derivative instruments are reported as a component of AOCI and remain in AOCI until the hedged net investment is sold or liquidated, at which point the amounts recognized in AOCI are reclassified into 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 nine months ended September 30, 2024, we began entering into foreign exchange forward contracts to mitigate the foreign exchange risk on intercompany transactions and monetary assets and liabilities that are not denominated in the functional currencies of the Company and its subsidiaries. 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. Certain contracts are not designated as hedging instruments and the gains or losses on these derivative instruments are recorded in “Interest and other income (expense)” in the Consolidated Statements of Operations. We also designate certain contracts as fair
value hedges to mitigate the foreign exchange risk on the remeasurement of our foreign-currency denominated debt. The gains or losses on these derivative instruments included in the assessment of hedge effectiveness are recorded in “Interest and other income (expense),” net with the offsetting foreign currency remeasurement gains and losses on the hedged items. If an adverse change in exchange rates of 10% was applied to our monetary assets and liabilities denominated in currencies other than the functional currencies as of September 30, 2024 and December 31, 2023, income before income taxes would have been approximately $22 million and $516 million lower, respectively, after considering the offsetting impact of the foreign currency exchange contracts and our net investment hedges. The decrease in the hypothetical adverse change in income before taxes from $516 million as of December 31, 2023 to $22 million as of September 30, 2024 is primarily driven by our use of non-derivative and derivative instruments to mitigate foreign exchange risk related to the remeasurement of foreign-currency denominated balances during the nine months ended September 30, 2024.
Item 4.Controls and Procedures
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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q 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 the Company have been detected.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
The information set forth under Note 8 Commitments and Contingencies in the notes to the consolidated financial statements under the caption “Legal Proceedings” is incorporated herein by reference.
Item 1A.Risk Factors
There have been no material changes from the risk factors previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Company Purchases of Equity Securities
Stock repurchases during the three months ended September 30, 2024 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Programs (1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1) |
| | | | | | | | (in thousands) |
July 1 - 31, 2024 | | 943,075 | | | $ | 656.47 | | | 943,075 | | | $ | 4,135,755 | |
August 1 - 31, 2024 | | 884,428 | | | $ | 655.59 | | | 884,428 | | | $ | 3,555,932 | |
September 1 - 30, 2024 | | 723,536 | | | $ | 692.53 | | | 723,536 | | | $ | 3,054,860 | |
Total | | 2,551,039 | | | | | 2,551,039 | | | |
| | |
(1) In March 2021, the Company’s Board of Directors authorized the repurchase of up to $5 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 $10 billion, also with no expiration date. For further information regarding stock repurchase activity, see Note 9 Stockholders’ Equity to the consolidated financial statements in this Quarterly Report. |
| (2) Average price paid per share includes costs associated with the repurchases. |
Item 5.Other Information
Rule 10b5-1 Trading Plans
(1) | | | | | | | | | | (2) | | | | | | | | | | |
| | |
(1) Richard Barton, a member of the Board of Directors, entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1 on July 26, 2024. Mr. Barton's 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 December 31, 2025, or upon the earlier completion of all authorized transactions under the plan. |
(2) Timothy Haley, a member of the Board of Directors, trusts for which he serves as a trustee and a partnership for which he serves as the sole general partner and limited partner, entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1 on August 6, 2024. The plan provides for the potential sale of up to shares of Netflix common stock. The plan expires on November 6, 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 6.Exhibits
(a) Exhibits:
See Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.
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-3 | | 333-281071 | | 4.1 | | July 29, 2024 | | |
| | | | | | | | | | | | |
| | | | 8-K | | 001-35727 | | 4.2 | | August 1, 2024 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| 101 | | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, 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.
SIGNATURES
Pursuant to the requirements 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: | October 18, 2024 | By: | /s/ Ted Sarandos |
| | | Ted Sarandos
Co-Chief Executive Officer
(Principal executive officer) |
| | | |
| Dated: | October 18, 2024 | By: | /s/ Greg Peters |
| | | Greg Peters
Co-Chief Executive Officer
(Principal executive officer) |
| | | |
| Dated: | October 18, 2024 | By: | /s/ Jeffrey Karbowski |
| | | Jeffrey Karbowski
Chief Accounting Officer
(Principal accounting officer) |
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