|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
| | $ | | | | $ | | | | $ | | | | $ | | |
| Level 1 securities: | | | | | | | | | |
| Money market funds | | | | | | | | | | | | | | |
| Level 2 securities: | | | | | | | | | |
| Time Deposits (1) | | | | | | | | | | | | | | |
| | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2023 |
| | 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 (1) | | | | | | | | | | | | | | |
| | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
(1) The majority of the Company's time deposits are international deposits, which 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 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.
5.
| | $ | | |
| | | |
Produced content, net | | | |
Released, less amortization | | | | | |
In production | | | | | |
In development and pre-production | | | | | |
| | | | | |
| | | |
Content assets, net | $ | | | | $ | | |
| | | |
As of March 31, 2024, the amount of accrued participations and residuals was not material.
| | $ | | | | Produced content | | | | | |
| Total | $ | | | | $ | | |
| | $ | | | | | 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. 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.
| | $ | | | | Right-of-use assets obtained in exchange for new operating lease obligations | | | | | |
| | | | | | | | | | | |
| As of |
| March 31,
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 | $ | | | | $ | | |
| | $ | | | Prepaid expenses | | | | | | |
Other | | | | | | |
Total other current assets | | $ | | | | $ | | |
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, 2023, the Company had aggregate outstanding 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 gain totaling $ million for the three months ended March 31, 2024). % 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 | | | | | | |
| | $ | | | | $ | | | | | | | | $ | | | | $ | | |
(1) The following Senior Notes have a principal amount denominated in euro: % Senior Notes for € million, % Senior Notes for € million, % Senior Notes for € million, % Senior Notes for € million, and % Senior Notes for € million.
In the three months ended March 31, 2024, the Company repaid upon maturity the $ million aggregate principal amount of its % Senior Notes.
% 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 March 31, 2024 and December 31, 2023, 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 working capital and general corporate purposes. As of March 31, 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 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 March 31, 2024 and December 31, 2023, the Company was in compliance with all related covenants.
Subsequent to March 31, 2024, the Company entered into a , $ billion unsecured revolving credit facility (the “New Revolving Credit Agreement”), which terminated and replaced the Revolving Credit Agreement. Refer to Note 12, Subsequent Event, for additional details.
7.
| | $ | | | | Derivatives not designated as hedging instruments:
| | | |
| Foreign exchange contracts | | | | | |
Total | $ | | | | $ | | |
Fair Value of Derivative Contracts
| | $ | | | | $ | | | | $ | | | | Derivatives not designated as hedging instruments: | | | | | | | |
| Foreign exchange contracts | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2023 |
| Derivative Assets | | Derivative Liabilities |
| | Other current assets | | Other non-current assets | | Accrued expenses and other liabilities | | Other non-current liabilities |
| | (in thousands) |
| Derivatives designated as hedging instruments: | | | | | | | |
| Foreign exchange contracts | $ | | | | $ | | | | $ | | | | $ | | |
| 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 March 31, 2024, the pre-tax net accumulated gain 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 March 31, 2024 and December 31, 2023.
| | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| Derivative liabilities | | | | | | | | | | () | | | | | | | |
| | | |
| | | |
| | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
| 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 March 31, 2024 | | | | $ | | |
Stock-based Compensation
Total stock-based compensation expense was $ million and $ million for the three months ended March 31, 2024 and 2023, respectively.
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 months ended March 31, 2024, the Company repurchased shares for an aggregate amount of $ billion. As of March 31, 2024, $ billion remains available for repurchases. Shares repurchased by the Company are accounted for when the transaction is settled. As of March 31, 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 March 31, 2024 | $ | () | | | $ | | | | $ | () | | | $ | () | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation
Adjustments | | Change in Unrealized Gains (Losses) on Cash Flow Hedges | | Tax (expense) benefit | | Total |
| (in thousands) |
| Balances as of December 31, 2022 | $ | () | | | $ | | | | $ | | | | $ | () | |
Other comprehensive income (loss) before reclassifications | | | | | | | | | | | |
|
|
|
|
|
|
|
|
| |
| |
|
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 for the three months ended March 31, 2024 and 2023, respectively. See Note 2 Revenue Recognition for additional information about streaming revenue by region.
| | $ | | |
| International | | | | | |
12.
revolving credit agreement that provides for a $ billion unsecured revolving credit facility, subject to certain terms and conditions as set forth therein. Revolving loans will bear interest, at the Company’s option, at 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. As of April 22, 2024, there were borrowings outstanding under the credit agreement.
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 over 269 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 |
| March 31,
2024 | | March 31,
2023 | | Q1'24 vs. Q1'23 |
| (in thousands, except revenue per membership and percentages) |
Financial Results: | | | | | | | |
Streaming revenues | $ | 9,370,440 | | | $ | 8,130,001 | | | $ | 1,240,439 | | | 15 | % |
| DVD revenues (1) | — | | | 31,502 | | | (31,502) | | | (100) | % |
| Total revenues | $ | 9,370,440 | | | $ | 8,161,503 | | | $ | 1,208,937 | | | 15 | % |
| | | | | | | |
| Operating income | $ | 2,632,534 | | | $ | 1,714,317 | | | $ | 918,217 | | | 54 | % |
| Operating margin | 28 | % | | 21 | % | | 7 | % | | |
| | | | | | | |
Global Streaming Memberships: | | | | | | | |
| Paid net membership additions | 9,326 | | | 1,751 | | | 7,575 | | | 433 | % |
| Paid memberships at end of period | 269,602 | | | 232,498 | | | 37,104 | | | 16 | % |
Average paying memberships | 264,939 | | | 231,623 | | | 33,316 | | | 14 | % |
Average monthly revenue per paying membership | $ | 11.79 | | | $ | 11.70 | | | $ | 0.09 | | | 1 | % |
| Constant currency change (2) | | | 4 | % |
(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 months ended March 31, 2024, our revenues would have been approximately $271 million higher excluding the impact of hedging and had foreign currency exchange rates remained constant with those for the three months ended March 31, 2023.
Operating margin for the three months ended March 31, 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, general and administrative expenses, and technology and development expenses, partially offset by higher growth in marketing expenses as compared to the growth in revenues.
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 March 31, 2024, pricing on our paid plans ranged from the U.S. dollar equivalent of $1 to $28 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 and various other sources. Revenues earned from sources other than monthly membership fees were not material for the three months ended March 31, 2024 and March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change |
| | | March 31,
2024 | | March 31,
2023 | | Q1'24 vs. Q1'23 |
| | | (in thousands, except percentages) |
Streaming revenues | | $ | 9,370,440 | | | $ | 8,130,001 | | | $ | 1,240,439 | | | 15 | % |
|
|
Streaming revenues for the three months ended March 31, 2024 increased 15% as compared to the three months ended March 31, 2023, 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 months ended March 31, 2024 and 2023. Hedging gains and losses are included in “Streaming revenues” for the three months ended March 31, 2024. No hedging gains and losses were recognized as “Streaming revenues” in the comparative prior year period.
United States and Canada (UCAN) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | Change |
| | | March 31,
2024 | | March 31,
2023 | | Q1'24 vs. Q1'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 4,224,315 | | | $ | 3,608,645 | | | $ | 615,670 | | | 17 | % |
| Paid net membership additions | | 2,530 | | | 102 | | | 2,428 | | | 2,380 | % |
| Paid memberships at end of period | | 82,658 | | | 74,398 | | | 8,260 | | | 11 | % |
| Average paying memberships | | 81,393 | | | 74,347 | | | 7,046 | | | 9 | % |
| Average monthly revenue per paying membership | | $ | 17.30 | | | $ | 16.18 | | | $ | 1.12 | | | 7 | % |
| Constant currency change | | | | | | | | 7 | % |
|
|
Europe, Middle East, and Africa (EMEA) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | Change |
| | | March 31,
2024 | | March 31,
2023 | | Q1'24 vs. Q1'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 2,958,193 | | | $ | 2,517,641 | | | $ | 440,552 | | | 17 | % |
| Paid net membership additions | | 2,916 | | | 644 | | | 2,272 | | | 353 | % |
| Paid memberships at end of period | | 91,729 | | | 77,373 | | | 14,356 | | | 19 | % |
| Average paying memberships | | 90,271 | | | 77,051 | | | 13,220 | | | 17 | % |
| Average monthly revenue per paying membership | | $ | 10.92 | | | $ | 10.89 | | | $ | 0.03 | | | — | % |
| Constant currency change | | | | | | | | — | % |
|
|
Latin America (LATAM)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | Change |
| | | March 31,
2024 | | March 31,
2023 | | Q1'24 vs. Q1'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 1,165,008 | | | $ | 1,070,192 | | | $ | 94,816 | | | 9 | % |
| Paid net membership additions (losses) | | 1,723 | | | (450) | | | 2,173 | | | 483 | % |
| Paid memberships at end of period | | 47,720 | | | 41,249 | | | 6,471 | | | 16 | % |
| Average paying memberships | | 46,859 | | | 41,474 | | | 5,385 | | | 13 | % |
| Average monthly revenue per paying membership | | $ | 8.29 | | | $ | 8.60 | | | $ | (0.31) | | | (4) | % |
| Constant currency change | | | | | | | | 16 | % |
|
|
Asia-Pacific (APAC)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of/Three Months Ended | | Change |
| | | March 31,
2024 | | March 31,
2023 | | Q1'24 vs. Q1'23 |
| | | (in thousands, except revenue per membership and percentages) |
| Streaming revenues | | $ | 1,022,924 | | | $ | 933,523 | | | $ | 89,401 | | | 10 | % |
| Paid net membership additions | | 2,157 | | | 1,455 | | | 702 | | | 48 | % |
| Paid memberships at end of period | | 47,495 | | | 39,478 | | | 8,017 | | | 20 | % |
| Average paying memberships | | 46,417 | | | 38,751 | | | 7,666 | | | 20 | % |
| Average monthly revenue per paying membership | | $ | 7.35 | | | $ | 8.03 | | | $ | (0.68) | | | (8) | % |
| Constant currency change | | | | | | | | (4) | % |
|
|
Total | | $ | 44,343,888 | | | $ | 13,042,782 | | | $ | 31,301,106 | |
(1)As of March 31, 2024, content obligations were comprised of $4.4 billion included in “Current content liabilities” and $2.4 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and $17.4 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 table summarizes our cash flows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Change |
| March 31,
2024 | | March 31,
2023 | | Q1'24 vs. Q1'23 |
| (in thousands, except percentages) |
Net cash provided by operating activities | $ | 2,212,522 | | | $ | 2,178,740 | | | $ | 33,782 | | | 2 | % |
Net cash used in investing activities | (75,714) | | | (263,653) | | | (187,939) | | | (71) | % |
Net cash used in financing activities | (2,132,944) | | | (374,073) | | | 1,758,871 | | | 470 | % |
Net cash provided by operating activities increased $34 million from the three months ended March 31, 2023 to $2,213 million for the three months ended March 31, 2024. The increase in net cash provided by operating activities was primarily driven by a $1,027 million or 79% increase in net income and favorable changes in working capital, partially offset by an increase in payments for content assets. The payments for content assets increased $1,105 million, from $2,813 million to $3,918 million, or 39%.
Net cash used in investing activities decreased $188 million from the three months ended March 31, 2023 to $76 million for the three months ended March 31, 2024. The decrease in net cash used in investing activities is primarily due to there being no purchases of short-term investments in the three months ended March 31, 2024, as compared to purchases of short-term investments for an aggregate amount of $202 million in the three months ended March 31, 2023, partially offset by an increase in purchases of property and equipment.
Net cash used in financing activities increased $1,759 million from the three months ended March 31, 2023 to $2,133 million for the three months ended March 31, 2024. The increase in net cash used in financing activities is primarily due to repurchases of common stock for an aggregate amount of $2.0 billion in the three months ended March 31, 2024 as compared to repurchases of common stock for an aggregate amount of $400 million in the three months ended March 31, 2023, coupled with the repayment upon maturity of the $400 million aggregate principal amount of our 5.750% Senior Notes in the three months ended March 31, 2024 as compared to no repayments of debt in the corresponding period in 2023. The increase in net cash used in financing activities was partially offset by the $243 million increase in proceeds from the issuance of common stock in the three months ended March 31, 2024 as compared to the corresponding period in 2023, due to an increase in employee stock options exercised.
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
At March 31, 2024, 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 March 31, 2024, we had $14.1 billion of debt, consisting of fixed rate unsecured debt in thirteen tranches due between 2025 and 2030. 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 31% of operating expenses for the three months ended March 31, 2024. We therefore have foreign currency risk related to these currencies, which are primarily the euro, the British pound, the Brazilian real, the 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 three months ended March 31, 2024 would have been approximately $271 million higher had foreign currency exchange rates remained constant with those for the three months ended March 31, 2023. 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 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 March 31, 2024 and December 31, 2023, the amounts recorded in AOCI related to our foreign exchange contracts, before taxes, would have been approximately $1 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 March 31, 2024 and December 31, 2023, the amounts recorded in AOCI related to our foreign exchange contracts, before taxes, would have been approximately $82 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 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 three months ended March 31, 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 derivative instruments are not designated as hedging instruments and may reduce, but do not entirely eliminate, the effect of foreign currency exchange movements. The gain or loss on derivative instruments not designated as hedging instruments are recorded in “Interest and other income (expense)” in the Consolidated Statements of Operations. 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 March 31, 2024 and December 31, 2023, income before income taxes would have been approximately $437 million and $516 million lower, respectively, after considering the offsetting impact of the foreign currency exchange contracts. The hypothetical adverse change in income before taxes is primarily driven by foreign exchange losses on our Senior Notes denominated in euros.
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 March 31, 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 March 31, 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) |
January 1 - 31, 2024 | | 1,149,260 | | | $ | 496.02 | | | 1,149,260 | | | $ | 7,784,803 | |
February 1 - 29, 2024 | | 1,245,058 | | | $ | 571.66 | | | 1,245,058 | | | $ | 7,073,047 | |
March 1 - 31, 2024 | | 1,172,647 | | | $ | 612.45 | | | 1,172,647 | | | $ | 6,354,858 | |
Total | | 3,566,965 | | | | | 3,566,965 | | | |
| | |
(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) | | | | | | | 4/23/2025 | | | (2) | | | | | | | | 4/25/2025 | | |
| | |
(1) Leslie Kilgore, a member of the Board of Directors, entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1 on January 29, 2024. Ms. Kilgore'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 April 23, 2025, or upon the earlier completion of all authorized transactions under the plan. |
(2) Anne Sweeney, a member of the Board of Directors, entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1 on January 30, 2024. Ms. Sweeney'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 April 25, 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 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| | | | | | | | | | | | X |
| | | | | | | |
| 101 | | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 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 March 31, 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: | April 22, 2024 | By: | /s/ Ted Sarandos |
| | | Ted Sarandos
Co-Chief Executive Officer
(Principal executive officer) |
| | | |
| Dated: | April 22, 2024 | By: | /s/ Greg Peters |
| | | Greg Peters
Co-Chief Executive Officer
(Principal executive officer) |
| | | |
| Dated: | April 22, 2024 | By: | /s/ Jeffrey Karbowski |
| | | Jeffrey Karbowski
Chief Accounting Officer
(Principal accounting officer) |
Similar companies
See also iQIYI, Inc.
See also Cineverse Corp. -
Annual report 2023 (10-K 2023-03-31)
Annual report 2023 (10-Q 2023-09-30)
See also FrankSpeech Network, Inc. -
Annual report 2017 (10-K 2017-12-31)
Annual report 2017 (10-Q 2017-09-30)
Open main menu