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Exhibit


Exhibit 99.1
October 16, 2017

Fellow shareholders,

We are growing nicely across the world and are on track to exceed $11 billion in revenue in 2017. Internet entertainment is delighting consumers, and we are staying at the forefront of this once-in-a-generation opportunity.

 (in millions except per share data and Streaming Content Obligations)
Q3 '16
Q4'16
Q1'17
Q2'17
Q3'17
Q4'17 Forecast
Total (Including DVD):
 
 
 
 
 
 
Revenue
$
2,290

$
2,478

$
2,637

$
2,785

$
2,985

$
3,274

Y/Y % Growth
31.7
 %
35.9
 %
34.7
%
32.3
 %
30.3
%
32.1
%
Operating Income
$
106

$
154

$
257

$
128

$
209

$
238

Operating Margin
4.6
 %
6.2
 %
9.7
%
4.6
 %
7.0
%
7.3
%
Net Income
$
52

$
67

$
178

$
66

$
130

$
183

Diluted EPS
$
0.12

$
0.15

$
0.40

$
0.15

$
0.29

$
0.41

 
 
 
 
 
 
 
Total Streaming:
 
 
 
 
 
 
Revenue
$
2,158

$
2,351

$
2,516

$
2,671

$
2,875

$
3,169

Y/Y % Growth
36.5
 %
40.6
 %
38.8
%
35.8
 %
33.2
%
34.8
%
Paid Memberships
83.28

89.09

94.36

99.04

104.02

109.07

Total Memberships
86.74

93.80

98.75

103.95

109.25

115.55

Net Additions
3.57

7.05

4.95

5.20

5.30

6.30

 
 
 
 
 
 
 
US Streaming:
 
 
 
 
 
 
Revenue
$
1,304

$
1,403

$
1,470

$
1,505

$
1,547

$
1,616

Contribution Profit
$
475

$
536

$
606

$
560

$
554

$
556

Contribution Margin
36.4
 %
38.2
 %
41.2
%
37.2
 %
35.8
%
34.4
%
Paid Memberships
46.48

47.91

49.38

50.32

51.35

52.05

Total Memberships
47.50

49.43

50.85

51.92

52.77

54.02

Net Additions
0.37

1.93

1.42

1.07

0.85

1.25

 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
853

$
948

$
1,046

$
1,165

$
1,327

$
1,553

Contribution Profit (Loss)
$
(69
)
$
(67
)
$
43

$
(13
)
$
62

$
115

Contribution Margin
(8.0
)%
(7.0
)%
4.1
%
(1.1
)%
4.7
%
7.4
%
Paid Memberships
36.80

41.19

44.99

48.71

52.68

57.03

Total Memberships
39.25

44.37

47.89

52.03

56.48

61.53

Net Additions
3.20

5.12

3.53

4.14

4.45

5.05

 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
Net cash (used in) operating activities
$
(462
)
$
(557
)
$
(344
)
$
(535
)
$
(420
)
 
Free Cash Flow
$
(506
)
$
(639
)
$
(423
)
$
(608
)
$
(465
)
 
EBITDA
$
164

$
212

$
317

$
190

$
273

 
Shares (FD)
438.4

440.1

445.5

446.3

447.4

 
Streaming Content Obligations* ($B)
14.4

14.5

15.3

15.7

17.0

 
*Corresponds to our total known streaming content obligations as defined in our financial statements and related notes in our most recently filed SEC Form 10-K
 


nflxlogo2015a11.jpg
1


Q3 Results and Q4 Forecast

Global streaming revenue in Q3 rose 33% year over year, driven by a 24% increase in average paid memberships and 7% growth in ASP. Operating income nearly doubled year-over-year to $209 million with our Q3 global operating margin of 7.0% putting us right on track to achieve our full year target of 7%. EPS of $0.29 included a pre-tax $51 million non-cash loss from F/X remeasurement on our Euro bond (or $39 million after tax based on a 24% tax rate). Higher than expected excess tax benefit from stock based compensation benefited our tax rate by $5 million vs. our forecast. As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report.
We added a Q3-record 5.3 million memberships globally (up 49% year-over-year) as we continued to benefit from strong appetite for our original series and films, as well as the adoption of internet entertainment across the world. Relative to our guidance of 4.4 million net adds, we under-forecasted both US and international acquisition. Year to date net adds of 15.5 million are up 29% versus last year.
Domestic contribution margin in Q3 of 35.8% vs. 36.4% last year was below our forecast of 37.1% due primarily to the earlier-than-anticipated close of certain content deals. The foreign currency impact in the quarter was +$13 million and Q3 international revenue grew 54% year over year, excluding currency. F/X-neutral ASP increased 7.4% year over year. International contribution profit margin of 4.7% exceeded our 2.3% guidance, also due to the timing of content deals.
For Q4, we forecast global net adds of 6.30m (1.25m in the US and 5.05m internationally) vs. 7.05m in the year ago quarter (which was our all-time high for quarterly net adds). We recently announced price adjustments in many markets to our HD and 4K video plans while keeping our SD plan mostly unchanged (still $7.99 in the US, for instance). Existing members will be notified and their prices will be adjusted on a rolling basis over the next few months. Increased revenue over time will help us grow our content offering and continue our global operating margin growth.
We’ve been focused on growing global operating margin as our primary profitability metric since hitting our 2020 US contribution margin goal of 40% this past Q1. This allows us to avoid near term optimization for specific domestic or international contribution margin targets which could impede our long term growth. For instance, we anticipate our Q4’17 US contribution margin will be 34.4% (a decline both year-on-year and sequentially) as we boost our marketing investment against a growing content slate. We spend disproportionately in the US to generate media and influencer awareness for our programming which we believe, in turn, is an effective way to facilitate word of mouth globally. In our international segment, we are on track to generate positive contribution profit for the full year. As we move into 2018, we aim to achieve steady improvement in international profitability and a growing operating margin as our success in many large markets helps fund investments throughout Asia and the rest of the world.
Content

Five years ago, we embarked on our original programming strategy and we’re very pleased with our progress in transforming Netflix from a service with not just second run content but also must-see new releases, like Stranger Things, Orange is the New Black, House of Cards, Fuller House, Making a Murderer, Narcos, The Crown and 13 Reasons Why, among many others.
This quarter, we launched several new series such as the gritty drama Ozark and comedy Friends from College by Nick Stoller as well as Marvel’s The Defenders and returning seasons of fan favorites like Narcos and Fuller House. We’re also making good strides on original films (as measured by member

nflxlogo2015a11.jpg
2


viewing relative to our investment) with the debut of Death Note (based on the popular Japanese IP), Naked (a romantic comedy featuring Marlon Wayans) and To the Bone (an intense drama starring Lily Collins).
Investors often ask us about continued access to content from diversified media companies. While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear. Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes. Our investment in Netflix originals is over a quarter of our total P&L content budget in 2017 and will continue to grow. With $17 billion in content commitments over the next several years and a growing library of owned content ($2.5 billion net book value at the end of the quarter), we remain quite comfortable with our ability to please our members around the world. We’ll spend $7-8 billion on content (on a P&L basis) in 2018.
Just as we moved from second-run content to licensed originals and then to Netflix-produced originals, we are progressing even further up the value chain to work directly with talented content creators. In August, we announced an overall deal with Shonda Rhimes1, the creator of global smash hits like Grey’s Anatomy, How to Get Away with Murder, Scandal, and others. We also acquired Millarworld2, our one M&A transaction in our 20 year history, the home of legendary comic book writer Mark Millar. Our goal is to work with the best creators in the world and own the underlying intellectual property so that we can continue to deliver amazing content to our members across the globe.
In working with the best talent, we strive hard for awards recognition. At this year’s Primetime Emmys, we scored 20 wins out of 92 nominations, second only to HBO, spread across eight different titles.
Competition

Since 2013, we’ve taken the Long Term View3 that we’re in the early stages of the worldwide, multi-decade transition from linear TV to internet entertainment. Recently, it’s been unfolding right before our eyes: Disney4 announced plans to launch direct-to-consumer services for ESPN and its other brands, cable network owners are licensing their channels to virtual MVPDs like Hulu, YouTube, Sling TV, and DirecTV Now, CBS’ All Access is expanding internationally5, Apple is reportedly planning on spending $1 billion on original content and Amazon is streaming NFL games while its Prime Video service has gone global. Facebook launched its Watch tab6 for original videos.
At the same time, linear TV networks like MTV7, A&E8 and WGN9 are cutting down on scripted series. Last year, the number of original scripted series on linear TV (across broadcast, premium and basic cable) began to decrease as online services ramped up activity.
It’s an exciting period and both media and technology companies see the same big opportunity as we do. We have a good head start but our job is to improve Netflix as rapidly as possible to please our members by earning their viewing time and to stay ahead of the competition in the decades to come.
___________________________________
1 https://media.netflix.com/en/press-releases/shonda-rhimes-and-shondland-come-to-netflix
2 https://media.netflix.com/en/press-releases/netflix-acquires-millarworld-1
3https://ir.netflix.com/long-term-view.cfm
4https://www.nytimes.com/2017/09/07/business/media/disney-streaming-services.html
5 http://deadline.com/2017/09/les-moonves-cbs-all-access-launch-australia-company-boosts-digital-international-1202169571/
6 https://techcrunch.com/2017/08/09/facebook-watch/
7http://variety.com/2017/tv/news/mtv-turnaround-viacom-chris-mccarthy-mary-and-jane-cancel-1201983349/
8http://tvline.com/2017/04/27/ae-no-scripted-shows-reality-tv/
9http://deadline.com/2017/05/wgn-america-focus-cost-effective-originals-reruns-sinclair-ceo-1202086763/


nflxlogo2015a11.jpg
3


Product and Partnerships

Ironically, as linear networks move outside of the traditional bundle and into direct-to-consumer applications, we are working more closely than ever with MVPDs/ISPs and other distributors. Building on our Q2 partnership with SFR/Altice in France, where Netflix is sold in a package with high speed Internet and TV services, and an earlier, comparable partnership with Proximus of Belgium, this past quarter we announced the bundling of Netflix into T-Mobile’s ONE family plan10. Our partners are enthusiastic about the response to these bundles as the excitement around our big content enhances their offerings.
Our goal with all of our partnerships is to make it easy for members to sign up, pay and enjoy Netflix. We are pleased with the early results and we will continue pursuing these bundling opportunities as a complement to our core direct-to-consumer approach.
Free Cashflow and Capital Structure

Free cash flow in Q3 totaled -$465 million vs. -$506 million last year and -$608 million in Q2’17. There is no change to our expectation for FCF of -$2.0 to -$2.5 billion for the full year 2017. Negative FCF, despite growing operating income, is due to growth of our content spend, original content in particular, where we pay for the titles before consumers enjoy the content, and the asset is amortized by estimated viewing over time. We anticipate financing our capital needs in the debt market as our after-tax cost of debt is lower than our cost of equity.
Summary

This quarter, among other new offerings, we are releasing the second Netflix original series from David Fincher (Mindhunter), new seasons of our globally acclaimed franchises Stranger Things and The Crown, our first Italian and German original shows (Suburra and Dark) and our most ambitious film yet, Bright, starring Will Smith and directed by David Ayer.
We feel privileged to be working with great artists all over the world and to be able to bring their creations to a big, and growing, global audience. We’re delighted that consumers are embracing internet entertainment and are finding value and pleasure in the incredible stories offered by Netflix.
For quick reference, our eight most recent investor letters are: July 201711, April 201712, January 2017,13 October 201614, July 201615, April 201616, January, 201617, October 201518.


___________________________________
10 https://newsroom.t-mobile.com/news-and-blogs/tmobile-uncarrier-netflix.htm
11http://files.shareholder.com/downloads/NFLX/3639218336x0x949716/CFB029CB-65E5-43D3-A87D-998FEFAA64C0/Q2_17_Shareholder_Letter.pdf
12http://files.shareholder.com/downloads/NFLX/3639218336x0x937576/7DAD8A22-F8FE-4339-A534-4A851A5C68E5/Q117ShareholderLetterV2FINAL.pdf
13http://files.shareholder.com/downloads/NFLX/3639218336x0x924415/A5ACACF9-9C17-44E6-B74A-628CE049C1B0/Q416ShareholderLetter.pdf
14http://files.shareholder.com/downloads/NFLX/2457496703x0x912075/700E14FD-12BE-4C3A-9283-9A975C7FE549/FINAL_Q3_Letter.pdf
15http://files.shareholder.com/downloads/NFLX/2457496703x0x900152/4D4F0167-4BE2-4DC1-ACC7-759F1561CD59/Q216LettertoShareholders_FINAL_w_Tables.pdf
16http://files.shareholder.com/downloads/NFLX/1662264494x0x886428/5FB5A3DF-F23A-4BB1-AC37-583BAEF2A1EE/Q116LettertoShareholders_W_TABLES_.pdf
17http://files.shareholder.com/downloads/NFLX/1481171463x0x870685/C6213FF9-5498-4084-A0FF-74363CEE35A1/Q4_15_Letter_to_Shareholders_-_COMBINED.pdf
18http://files.shareholder.com/downloads/NFLX/4124769775x7871834x854558/9B28F30F-BF2F-4C5D-AAFF-AA9AA8F4779D/FINAL_Q3_15_Letter_to_Shareholders_With_Tables_.pdf

nflxlogo2015a11.jpg
4


Earnings Interview, 3pm PST October 16th, 2017
Our video interview with Doug Mitchelson of UBS will be on youtube/netflixir at 3pm PST today. Questions that investors would like to see asked should be sent to doug.mitchelson@ubs.com. Reed Hastings, CEO, David Wells, CFO, Ted Sarandos, Chief Content Officer, Greg Peters, Chief Product Officer and Spencer Wang, VP of Investor Relations will all be on the video to answer Doug’s questions.
 
IR Contact: 
PR Contact: 
Spencer Wang
Jonathan Friedland
Vice President, Finance & Investor Relations
Chief Communications Officer
408 809-5360
310 734-2958






















nflxlogo2015a11.jpg
5



Use of Non-GAAP Measures

This shareholder letter and its attachments include reference to the non-GAAP financial measure of free cash flow and EBITDA. Management believes that free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of these non-GAAP measures are contained in tabular form on the attached unaudited financial statements.

Forward-Looking Statements

This shareholder letter contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding growing revenues and our position within internet entertainment; price changes, increasing revenues, content spend and growing margin; marketing spend; investment in Asia and Rest of World markets; our original programming strategy; access to content, competition, and partnerships, including bundles; free cash flow and financing; domestic and international net, total and paid members; revenue; contribution profit (loss) and contribution margin for both domestic international operations, as well as consolidated operating income, operating margin; net income, earnings per share and free cash flow. The forward-looking statements in this letter are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms and partnerships for streaming our service; fluctuations in consumer usage of our service; service disruptions; production risks; actions of Internet Service Providers; and, competition, including consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 27, 2017. The Company provides internal forecast numbers. Investors should anticipate that actual performance will vary from these forecast numbers based on risks and uncertainties discussed above and in our Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.



nflxlogo2015a11.jpg
6



Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2017
 
June 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
Revenues
$
2,984,859

 
$
2,785,464

 
$
2,290,188

 
$
8,406,958

 
$
6,353,128

Cost of revenues
1,992,980

 
1,902,308

 
1,532,844

 
5,552,312

 
4,375,482

Marketing
312,490

 
274,323

 
282,043

 
858,083

 
706,082

Technology and development
255,236

 
267,083

 
216,099

 
779,427

 
626,907

General and administrative
215,526

 
213,943

 
153,166

 
623,760

 
418,798

Operating income
208,627

 
127,807

 
106,036

 
593,376

 
225,859

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(60,688
)
 
(55,482
)
 
(35,536
)
 
(162,912
)
 
(106,528
)
Interest and other income (expense)
(31,702
)
 
(58,363
)
 
8,627

 
(76,473
)
 
50,907

Income before income taxes
116,237

 
13,962

 
79,127

 
353,991

 
170,238

Provision for (benefit from) income taxes
(13,353
)
 
(51,638
)
 
27,610

 
(19,421
)
 
50,308

Net income
$
129,590

 
$
65,600

 
$
51,517

 
$
373,412

 
$
119,930

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.30

 
$
0.15

 
$
0.12

 
$
0.87

 
$
0.28

Diluted
$
0.29

 
$
0.15

 
$
0.12

 
$
0.84

 
$
0.27

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
432,404

 
431,396

 
428,937

 
431,473

 
428,514

Diluted
447,362

 
446,262

 
438,389

 
446,367

 
438,180




nflxlogo2015a11.jpg
7



Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
 
 
As of
 
September 30,
2017
 
December 31,
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,746,469

 
$
1,467,576

Short-term investments

 
266,206

Current content assets, net
4,223,387

 
3,726,307

Other current assets
415,492

 
260,202

Total current assets
6,385,348

 
5,720,291

Non-current content assets, net
9,739,704

 
7,274,501

Property and equipment, net
322,421

 
250,395

Other non-current assets
504,067

 
341,423

Total assets
$
16,951,540

 
$
13,586,610

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
4,142,086

 
$
3,632,711

Accounts payable
301,443

 
312,842

Accrued expenses
331,723

 
197,632

Deferred revenue
535,425

 
443,472

Total current liabilities
5,310,677

 
4,586,657

Non-current content liabilities
3,296,504

 
2,894,654

Long-term debt
4,888,783

 
3,364,311

Other non-current liabilities
128,215

 
61,188

Total liabilities
13,624,179

 
10,906,810

Stockholders' equity:
 
 
 
Common stock
1,807,123

 
1,599,762

Accumulated other comprehensive loss
(25,362
)
 
(48,565
)
Retained earnings
1,545,600

 
1,128,603

Total stockholders' equity
3,327,361

 
2,679,800

Total liabilities and stockholders' equity
$
16,951,540

 
$
13,586,610

 


nflxlogo2015a11.jpg
8



Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2017

June 30,
2017

September 30,
2016

September 30,
2017
 
September 30,
2016
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
129,590

 
$
65,600

 
$
51,517

 
$
373,412

 
$
119,930

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content assets
(2,315,017
)
 
(2,664,421
)
 
(2,442,080
)
 
(7,328,104
)
 
(6,550,445
)
Change in streaming content liabilities
(34,587
)
 
514,890

 
529,885

 
846,560

 
1,674,125

Amortization of streaming content assets
1,627,477

 
1,550,794

 
1,224,108

 
4,483,954

 
3,457,990

Amortization of DVD content assets
13,259

 
16,511

 
19,284

 
48,368

 
59,746

Depreciation and amortization of property, equipment and intangibles
19,238

 
18,551

 
14,410

 
52,838

 
43,339

Stock-based compensation expense
44,763

 
44,028

 
43,495

 
133,679

 
130,029

Excess tax benefits from stock-based compensation

 

 
(12,762
)
 

 
(37,401
)
Other non-cash items
9,896

 
11,519

 
9,682

 
43,081

 
31,479

Foreign currency remeasurement loss on long-term debt
50,830

 
64,220

 

 
115,050

 

Deferred taxes
(57,090
)
 
(20,702
)
 
14,338

 
(104,556
)
 
(20,141
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Other current assets
(41,399
)
 
(80,199
)
 
10,250

 
(147,000
)
 
48,649

Accounts payable
34,029

 
(12,439
)
 
27,810

 
10,590

 
16,707

Accrued expenses
74,006

 
(48,042
)
 
28,957

 
119,506

 
72,288

Deferred revenue
32,947

 
46,609

 
30,230

 
94,777

 
80,485

Other non-current assets and liabilities
(7,549
)
 
(41,447
)
 
(11,065
)
 
(40,146
)
 
(43,604
)
Net cash used in operating activities
(419,607
)
 
(534,528
)
 
(461,941
)
 
(1,297,991
)
 
(916,824
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisitions of DVD content assets
(10,217
)
 
(7,624
)
 
(17,249
)
 
(43,213
)
 
(58,380
)
Purchases of property and equipment
(33,963
)
 
(65,231
)
 
(27,366
)
 
(151,717
)
 
(46,605
)
Change in other assets
(1,107
)
 
(1,064
)
 
125

 
(2,940
)
 
676

Purchases of short-term investments
(2,799
)
 
(14,246
)
 
(128,136
)
 
(74,819
)
 
(181,590
)
Proceeds from sale of short-term investments
250,278

 
14,128

 
171,747

 
320,154

 
198,687

Proceeds from maturities of short-term investments

 
17,605

 
24,855

 
22,705

 
112,555

Net cash provided by investing activities
202,192

 
(56,432
)
 
23,976

 
70,170

 
25,343

Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of debt

 
1,420,510

 

 
1,420,510

 

Issuance costs
(312
)
 
(15,013
)
 

 
(15,325
)
 

Proceeds from issuance of common stock
34,669

 
14,826

 
3,819

 
73,673

 
11,587

Excess tax benefits from stock-based compensation

 

 
12,762

 

 
37,401

Other financing activities
65

 
63

 
58

 
189

 
170

Net cash provided by financing activities
34,422

 
1,420,386

 
16,639

 
1,479,047

 
49,158

Effect of exchange rate changes on cash and cash equivalents
10,685

 
11,527

 
(441
)
 
27,667

 
2,151

Net increase (decrease) in cash and cash equivalents
(172,308
)
 
840,953

 
(421,767
)
 
278,893

 
(840,172
)
Cash and cash equivalents, beginning of period
1,918,777

 
1,077,824

 
1,390,925

 
1,467,576

 
1,809,330

Cash and cash equivalents, end of period
$
1,746,469

 
$
1,918,777

 
$
969,158

 
$
1,746,469

 
$
969,158

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2017
 
June 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
$
(419,607
)
 
$
(534,528
)
 
$
(461,941
)
 
$
(1,297,991
)
 
$
(916,824
)
Acquisitions of DVD content assets
(10,217
)
 
(7,624
)
 
(17,249
)
 
(43,213
)
 
(58,380
)
Purchases of property and equipment
(33,963
)
 
(65,231
)
 
(27,366
)
 
(151,717
)
 
(46,605
)
Change in other assets
(1,107
)
 
(1,064
)
 
125

 
(2,940
)
 
676

Non-GAAP free cash flow
$
(464,894
)
 
$
(608,447
)
 
$
(506,431
)
 
$
(1,495,861
)
 
$
(1,021,133
)

nflxlogo2015a11.jpg
9



Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Nine Months Ended
 
September 30,
2017
 
June 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
Domestic Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
52,772

 
51,921

 
47,497

 
52,772

 
47,497

Paid memberships at end of period
51,345

 
50,323

 
46,479

 
51,345

 
46,479

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,547,210

 
$
1,505,499

 
$
1,304,333

 
$
4,522,751

 
$
3,673,845

Cost of revenues
864,408

 
831,962

 
720,658

 
2,445,858

 
2,094,310

Marketing
128,901

 
113,608

 
108,495

 
357,547

 
277,243

Contribution profit
553,901

 
559,929

 
475,180

 
1,719,346

 
1,302,292

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
56,476

 
52,031

 
39,246

 
56,476

 
39,246

Paid memberships at end of period
52,678

 
48,713

 
36,799

 
52,678

 
36,799

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,327,435

 
$
1,165,228

 
$
853,480

 
$
3,538,862

 
$
2,263,429

Cost of revenues
1,081,485

 
1,017,612

 
748,515

 
2,946,414

 
2,076,576

Marketing
183,589

 
160,715

 
173,548

 
500,536

 
428,839

Contribution profit (loss)
62,361

 
(13,099
)
 
(68,583
)
 
91,912

 
(241,986
)
 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Total memberships at end of period
3,569

 
3,758

 
4,273

 
3,569

 
4,273

Paid memberships at end of period
3,520

 
3,692

 
4,194

 
3,520

 
4,194

 
 
 
 
 
 
 
 
 
 
Revenues
$
110,214

 
$
114,737

 
$
132,375

 
$
345,345

 
$
415,854

Cost of revenues
47,087

 
52,734

 
63,671

 
160,040

 
204,596

Contribution profit
63,127

 
62,003

 
68,704

 
185,305

 
211,258

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
2,984,859

 
$
2,785,464

 
$
2,290,188

 
$
8,406,958

 
$
6,353,128

Cost of revenues
1,992,980

 
1,902,308

 
1,532,844

 
5,552,312

 
4,375,482

Marketing
312,490

 
274,323

 
282,043

 
858,083

 
706,082

Contribution profit
679,389

 
608,833

 
475,301

 
1,996,563

 
1,271,564

Other operating expenses
470,762

 
481,026

 
369,265

 
1,403,187

 
1,045,705

Operating income
208,627

 
127,807

 
106,036

 
593,376

 
225,859

Other expense
(92,390
)
 
(113,845
)
 
(26,909
)
 
(239,385
)
 
(55,621
)
Provision for (benefit from) income taxes
(13,353
)
 
(51,638
)
 
27,610

 
(19,421
)
 
50,308

Net income
$
129,590

 
$
65,600

 
$
51,517

 
$
373,412

 
$
119,930







nflxlogo2015a11.jpg
10


Netflix, Inc.
Non-GAAP Information
(unaudited)
(in thousands, except per share data)

 
Three Months Ended
 
September 30,
2016
 
December 31,
2016
 
March 31,
2017
 
June 30,
2017
 
September 30,
2017
Non-GAAP Adjusted EBITDA reconciliation:
 
 
 
 
 
 
 
 
 
GAAP net income
$
51,517

 
$
66,748

 
$
178,222

 
$
65,600

 
$
129,590

Add:
 
 
 
 
 
 
 
 
 
Interest and other (income) expense
26,909

 
63,665

 
33,150

 
113,845

 
92,390

Provision for (benefit from) income taxes
27,610

 
23,521

 
45,570

 
(51,638
)
 
(13,353
)
Depreciation and amortization of property, equipment and intangibles
14,410

 
14,189

 
15,049

 
18,551

 
19,238

Stock-based compensation expense
43,495

 
43,646

 
44,888

 
44,028

 
44,763

Adjusted EBITDA
$
163,941

 
$
211,769

 
$
316,879

 
$
190,386

 
$
272,628










nflxlogo2015a11.jpg
11
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