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Exhibit


Exhibit 99.1
January 19, 2016

Fellow shareholders,

On January 1st, just a few hours after the quarter closed, we crossed 75 million members. Our quarter-end 74.76 million members put us at over 17 million net additions for the year, showing how much the world is embracing Internet TV. We think we’ll grow by over 6 million members in Q1 given our expansion of Netflix to virtually everywhere but China. We bring great stories from all over the world to people all over the world. Our summary results and Q1 forecast are below.
 (in millions except per share data and Streaming Content Obligations)
Q4 '14
Q1 '15
Q2 '15
Q3 '15
Q4 '15
Q1 '16 Forecast
Total Streaming:
 
 
 
 
 
 
Revenue
$
1,305

$
1,400

$
1,481

$
1,581

$
1,672

$
1,813

Contribution Profit
$
178

$
247

$
248

$
277

$
270

$
302

Contribution Margin
13.6
 %
17.7
 %
16.7
 %
17.5
 %
16.2
 %
16.7
 %
Paid Memberships
54.48

59.62

62.71

66.02

70.84

77.19

Total Memberships
57.39

62.27

65.55

69.17

74.76

80.86

Net Additions
4.33

4.88

3.28

3.62

5.59

6.10

 
 
 
 
 
 
 
US Streaming:
 
 
 
 
 
 
Revenue
$
917

$
985

$
1,026

$
1,064

$
1,106

$
1,160

Contribution Profit
$
257

$
312

$
340

$
344

$
379

$
416

Contribution Margin
28.0
 %
31.7
 %
33.1
 %
32.4
 %
34.3
 %
35.9
 %
Paid Memberships
37.70

40.32

41.06

42.07

43.40

45.40

Total Memberships
39.11

41.40

42.30

43.18

44.74

46.49

Net Additions
1.90

2.28

0.90

0.88

1.56

1.75

 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
388

$
415

$
455

$
517

$
566

$
653

Contribution Profit (Loss)
$
(79
)
$
(65
)
$
(92
)
$
(68
)
$
(109
)
$
(114
)
Contribution Margin
-20.3
 %
-15.6
 %
-20.2
 %
-13.1
 %
-19.2
 %
-17.5
 %
Paid Memberships
16.78

19.30

21.65

23.95

27.44

31.79

Total Memberships
18.28

20.88

23.25

25.99

30.02

34.37

Net Additions
2.43

2.60

2.37

2.74

4.04

4.35

 
 
 
 
 
 
 
Total (including DVD):
 
 
 
 
 
 
Operating Income
$
65

$
97

$
75

$
74

$
60

$
50

Net Income*
$
83

$
24

$
26

$
29

$
43

$
11

EPS*
$
0.19

$
0.05

$
0.06

$
0.07

$
0.10

$
0.03

 
 
 
 
 
 
 
Free Cash Flow
$
(78
)
$
(163
)
$
(229
)
$
(252
)
$
(276
)
 
EBITDA
$
110

$
140

$
119

$
123

$
111

 
Shares (FD)*
432.5

433.8

436.1

437.6

438.3

 
Streaming Content Obligations** ($B)
9.5

9.8

10.1

10.4

10.9

 
*EPS and shares adjusted for 7-for-1 stock split. Q4'14 Net Income/EPS includes a $39m / $0.10 benefit from a tax accrual release related to resolution of tax audit. Q4'15 Net Income/EPS includes a $13m / $0.03 benefit from a tax accrual release related to resolution of tax audits.
**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
                                                                                                                                                    1

Q4 Results and Q1 Forecast

In the fourth quarter, we added a record 5.59 million members as our big shows such as Narcos and Marvel’s Jessica Jones helped us grow membership to 74.76 million. This 5.59 million compares to a forecast of 5.15 million and to prior year net additions of 4.33 million. For Q1, we are forecasting 6.10 million net additions vs. prior year of 4.88 million. On earnings, we stayed profitable in Q4 despite foreign exchange headwinds, and delivered operating income of $60m and net income of $43m. We expect similar modest operating income results for Q1, assuming current foreign exchange, as we invest in our international expansion. As a reminder, the guidance we provide is our actual internal forecast at the time we report, and we strive for accuracy in our guidance.

In September, we launched in Japan, followed by Spain, Portugal and Italy in October. We are very pleased with the first few months of membership growth in these markets. Our international contribution loss of $109 million in Q4 increased sequentially due to these launches. We anticipate Q1 international losses of about $114 million.

In early January at CES, we announced the availability of Netflix everywhere in the world except China. Pricing is comparable to our existing plans and we have added support for Korean, Arabic, and Simplified & Traditional Chinese languages. Our move into 130 additional countries broadens our addressable market by 190 million broadband homes, on top of the 360 million we counted at the end of 20151. While the opportunity is large, our growth in these new markets will unfold over many years as we improve our service. We are starting by primarily targeting outward-looking, affluent consumers with international credit cards and smartphones. As with every market we’ve launched, our approach is to listen, learn and improve rapidly, adding more content, additional languages and a better Netflix experience over time. Our global availability sets us up for continued growth for many years and we continue to expect material global profits beginning in 2017.

In Q4, average subscriber price grew 4-5% y/y around the world, excluding the impact of foreign currency (-$106 million y/y impact on revenue). In the US it was 4.3%, leading to 21% year over year growth in streaming revenue. We are seeing increased adoption of our Ultra-HD plan ($11.99) as more UHD TVs are purchased and as we are a leading source of UHD content for consumers.

In the US, we ended 2015 with nearly 45 million members, although our Q4 US net adds were down year over year, as expected (1.56m actual versus 1.90m prior year). Our high penetration in the US seems to be making net additions harder than in the past. Our forecast for Q1 US net additions is 1.75m, against a prior year actual of 2.28m. New credit/debit card rollover continues to be a background issue. In Q2 and Q3, we’ll be releasing a substantial number of our US members from price grandfathering on the HD plan and they will have the option of continuing at $7.99 but now on the SD plan, or continuing on HD at $9.99 a month. Given these members have been with us at least 2 years, we expect only slightly elevated churn. Our 2020 US contribution target remains at 40% and we are already at 34%.

In the last remaining major market, China, we have work and uncertainty ahead. We are building relationships, understanding the market, and seeking the conditions we require to provide our service to entertainment lovers there. Our expectations are modest and long-term. We may be able to get started this year and thus deliver on “whole world by end of 2016” or it may take longer. Most of our focus is on the 130 countries we launched on January 6, which are now embracing Netflix as a new entertainment option.
_______________________
1 Source: SNL Kagan and Euromonitor.


                                                                                                                                                    2

Content

In Q4 ‘15, we launched an unprecedented number of original series and films, while maintaining a high bar on quality. We unveiled five new original series in Q4, including Marvel’s Jessica Jones and Master of None, starring Aziz Ansari. Both combined with Narcos, Sense8, Marvel’s Daredevil and Bloodline to claim six of the Top 10 new TV shows of 20152 according to IMDB. In late December, we debuted a ten-part documentary series Making a Murderer, which has enthralled audiences and critics3 alike and triggered a national conversation4 on fairness of the American criminal justice system.

Our first original feature films also premiered in Q4. Beasts of No Nation, a gripping journey into the world of African child soldiers from writer and director Cary Fukunaga and starring Idris Elba, was a favorite of critics and has picked up several major awards nominations. Adam Sandler’s first Netflix original film The Ridiculous Six, which debuted globally on December 11, was the most viewed movie on Netflix in every territory the week of its debut and the most-viewed movie ever on Netflix in the first 30 days on service. Two of our original documentaries, What Happened, Miss Simone? and Winter on Fire, are both nominated for Academy Awards, our third and fourth nominations in three years for best documentary feature.

In 2016, we plan to launch over 600 hours of original programming, up from about 450 hours in 2015. Beyond the sheer volume of content, the breadth of our original programming will continue to expand with current plans for new seasons of 30 or so original series (including The Crown5 and The Get Down6), eight original feature films, 35 new seasons of original series for kids, a dozen documentaries, and nine stand up comedy specials.

We are now in our fourth year of original programming and we are putting special emphasis on shows that families can enjoy together, including the upcoming Fuller House, new seasons of Unbreakable Kimmy Schmidt, and Stranger Things. We are also stepping up our non-English language original productions, including Marseille, a French political drama starring Gerard Depardieu, and then, shows from Italy, Japan, Mexico and Brazil. We expect some of these series to gain fans well beyond the markets in which they were made.

Increasingly, our goal is to own more of our original programming to allow for greater creative and business control and to ensure global access to content. We are currently actively managing productions spanning the globe from Cambodia to Venice Beach.

The growth of Netflix has created some anxiety among TV networks and calls to be fearful7. Or, at the other extreme, an NBC executive recently said8 Internet TV is overblown and that linear TV is “TV like God intended.” Our investors are not as sure of God’s intentions for TV, and instead think that Internet TV is a fundamentally better entertainment experience that will gain share for many years. The challenge for traditional media companies, most of whom see the future pretty clearly, is to use the revenue from Netflix and other SVOD services to fund both great content and their own evolution into Internet TV networks. Seeso, BBC iPlayer, Hulu, CanalPlay, HBO Now, and CBS All Access are the beginnings of these efforts.

_______________________
2 http://www.huffingtonpost.com/entry/top-new-shows-2015-imdb_us_5668a505e4b009377b23b326
3http://www.rottentomatoes.com/tv/making-a-murderer/
4http://www.people.com/article/making-a-murderer-who-killed-teresa
5https://www.youtube.com/watch?v=n8Q0bJ_zO7w&feature=youtu.be
6https://www.youtube.com/watch?v=zejyzr5vW3A&feature=youtu.be
7http://www.nytimes.com/2016/01/14/technology/why-media-titans-need-to-worry-about-netflix.html?ref=topics&_r=1
8http://deadline.com/2016/01/netflix-viewers-jessica-jones-master-of-none-orange-is-the-new-black-broadcast-erosion-1201682311/

                                                                                                                                                    3

Our titles are watched on the go and at home on a wide range of devices, making measurement of the viewing of any given title difficult for third parties. We don’t release title-level ratings as our business model is not dependent on advertising or affiliate fees. Instead, we release “ratings “ for Netflix as a whole every quarter with our membership growth report (75 million and counting!). It is member viewing and satisfaction that propels our growth.

Product

We have been innovating in support of our global launch, focusing on adding new languages, new payment options and fine-tuning our algorithms for our growing number of content catalogs. Additionally, this involves expanding and deepening our partnerships with device makers and mobile and TV operators to reach and serve our members around the world.

We recognize that in some parts of the world, mobile is the primary way many people access the Internet. We are improving our mobile experience, including sign up, credentials & authentication, the user interface, and streaming efficiency for cellular networks.

In Q4, we began rolling out complexity based encoding9. By encoding videos based on the type of content (a visually complex action movie vs. a simpler kids animated title, for example) rather than just based on the amount of bandwidth available to a member, we can deliver higher resolution streams at lower bit rates, resulting in bandwidth savings.

We have long used a blacklist to prevent cross-border content viewing via proxies and “unblockers.” Recently, we have begun to use a new blacklist and other techniques, as are other SVOD services, as desired by content licensors. Ultimately, our goal is to let members around the world enjoy all the content we have through global licensing.

Marketing

Promoting high quality, exclusive titles continues to be the best driver of consumer demand for Netflix. Our recent new market launches reflect this philosophy, and our all-digital, content-led marketing approach is working. Our brand strength is rising in many studies10, including a #2 ranking reported in AdWeek11 for the USA. Around the world, our all digital approach makes us efficient and relevant to active Internet users everywhere.

Competition

Our focus on “winning moments of truth” means that we compete with all of the activities that consumers can engage in during their leisure time, such as reading a book, playing videogames, watching linear TV, movie theatre-going, etc. Given the broad array of options, we are privileged that our members around the world continue to devote more time to Netflix, streaming 42.5 billion hours in 2015, up from 29 billion hours in 2014.


______________________
9http://variety.com/2015/digital/news/netflix-better-streaming-quality-1201661116/
10https://www.prophet.com/about/news/658-apple-samsung-and-microsoft-named-most-relevant-brands-by-prophets-new-brand-relevance-index
11http://www.adweek.com/news-gallery/advertising-branding/who-are-years-best-loved-brands-hint-half-are-probably-younger-you-168930

                                                                                                                                                    4

In addition, looking at just the online segment, the most recent Sandvine data illustrates that our share of peak North American downstream Internet traffic continues to grow. Please note that the deployment of complexity based encoding, as described above, will result in what appears to be slower growth in Netflix traffic in future third-party reports such as Sandvine (which measures peak megabits, not peak viewing hours).




As we have said previously, Internet TV will likely have multiple winners as the various services are not direct substitutes for each other given differing sets of content. A closer look at the Sandvine data shows that the entire Over-the-Top category is growing as consumers increasingly embrace Internet TV and on demand viewing and, even better, this growth is coming at the expense of piracy.




                                                                                                                                                    5


Free Cash Flow and Capital Structure

Free cash flow amounted to -$276 million in Q4 and -$921 million for the full year 2015. As a reminder, our investment in originals, particularly owned content, requires more cash upfront relative to licensed content, which will continue to dampen free cash flow. We finished Q4 with debt of $2.4 billion, unchanged from the prior quarter, and with cash & equivalents and short-term investments of $2.3 billion.

Given our expected cash needs, we are likely to raise additional debt in late 2016 or early 2017. We are managing our balance sheet to lower our blended cost of capital over time, while maintaining financial flexibility. Despite being FCF negative as we grow our original content and invest in international, our bonds trade like a BB credit (vs. their single B rating) due, in part, to the long-term growth of Internet TV globally and our low debt to market cap ratio, which provides bond investors with a very thick cushion of protection.

DVD

Our DVD-by-mail business in the US continues to serve more than 4.9 million members. We are pleased that our DVD business is managing the decline well, despite increasing postal costs, generating $80 million in contribution profit in Q4.
                                                                                                                                                    6

Reference
For quick reference, our eight most recent investor letters are: October 201512, July 201513, April 201514, January 201515, October 201416, July 201417, April 201418, January 201419. 

Summary
We are thrilled to be available worldwide ex-China. What fun we are having making our service popular in Thailand, Poland, Australia, Chile, France and over 180 other countries.



Sincerely,
Reed Hastings, CEO
David Wells, CFO

________________________
12http://files.shareholder.com/downloads/NFLX/4124769775x7871834x854558/9B28F30F-BF2F-4C5D-AAFF-AA9AA8F4779D/FINAL_Q3_15_Letter_to_Shareholders_With_Tables_.pdf
13http://files.shareholder.com/downloads/NFLX/4124769775x7871834x839404/C3CE9EE2-C8F3-40A1-AC9A-FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf
14http://files.shareholder.com/downloads/NFLX/4124769775x7871834x821407/DB785B50-90FE-44DA-9F5B-37DBF0DCD0E1/Q1_15_Earnings_Letter_final_tables.pdf
15http://files.shareholder.com/downloads/NFLX/4124769775x7871834x804108/043a3015-36ec-49b9-907c-27960f1a7e57/Q4_14_Letter_to_shareholders.pdf
16http://files.shareholder.com/downloads/NFLX/3754169286x0x786677/6974d8e9-5cb3-4009-97b1-9d4a5953a6a5/Q3_14_Letter_to_shareholders.pdf
17http://files.shareholder.com/downloads/NFLX/3527949458x0x769748/9b21df7f-743c-4f0f-94da-9f13e384a3d2/July2014EarningsLetter_7.21.14_final.pdf
18http://files.shareholder.com/downloads/NFLX/3337146746x0x745654/fb5aaae0-b991-4e76-863c-3b859c8dece8/Q114%20Earnings%20Letter%204.21.14%20final.pdf
19http://files.shareholder.com/downloads/NFLX/3337146746x0x720306/119321bc-89c3-4306-93ac-93c02da2354f/Q4%2013%20Letter%20to%20shareholders.pdf


                                                                                                                                                    7

January 19th, 2016 Earnings Interview
Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview today at 2:00 p.m. Pacific Time at youtube.com/netflixir. The discussion will be moderated by Ben Swinburne, Morgan Stanley and and Peter Kafka, Re/code. Questions that investors would like to see asked should be sent to benjamin.swinburne@morganstanley.com or peter@recode.net.

IR Contact:
PR Contact:
Spencer Wang
Jonathan Friedland
Vice President, Finance & Investor Relations
Chief Communications Officer
408 809-5360
310 734-2958


                                                                                                                                                    8


Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measure of net income on a pro forma basis excluding the release of tax reserves, and to free cash flow and EBITDA. Management believes that the non-GAAP measure of net income on a pro forma basis excluding the release of tax reserves provides useful information as this measure excludes effects that are not indicative of our core operating results. 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. 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 growth of international markets; expansion to China; churn related to price changes; volume and titles of future content offerings; original content strategy; growth of internet TV; raising capital; member growth domestically and internationally, including net, total and paid; revenue; contribution profit (loss) and contribution margin for both domestic (streaming and DVD) and international operations, as well as consolidated operating income, 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 for streaming; 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 29, 2015. 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.
                                                                                                                                                    9


Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Year Ended
 
December 31,
2015
 
September 30,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
Revenues
$
1,823,333

 
$
1,738,355

 
$
1,484,728

 
$
6,779,511

 
$
5,504,656

Cost of revenues
1,249,365

 
1,173,958

 
1,014,332

 
4,591,476

 
3,752,760

Marketing
224,173

 
208,102

 
203,671

 
824,092

 
607,186

Technology and development
180,859

 
171,762

 
125,876

 
650,788

 
472,321

General and administrative
109,042

 
110,892

 
75,803

 
407,329

 
269,741

Operating income
59,894

 
73,641

 
65,046

 
305,826

 
402,648

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(35,429
)
 
(35,333
)
 
(13,353
)
 
(132,716
)
 
(50,219
)
Interest and other income (expense)
(3,734
)
 
3,930

 
(6,177
)
 
(31,225
)
 
(3,060
)
Income before income taxes
20,731

 
42,238

 
45,516

 
141,885

 
349,369

(Benefit) provision for income taxes
(22,447
)
 
12,806

 
(37,855
)
 
19,244

 
82,570

Net income
$
43,178

 
$
29,432

 
$
83,371

 
$
122,641

 
$
266,799

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.07

 
$
0.20

 
$
0.29

 
$
0.63

Diluted
$
0.10

 
$
0.07

 
$
0.19

 
$
0.28

 
$
0.62

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
427,668

 
426,869

 
422,244

 
425,889

 
420,544

Diluted
438,257

 
437,606

 
432,514

 
436,456

 
431,894




                                                                                                                                                    10



Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
 
 
As of
 
December 31,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,809,330

 
$
1,113,608

Short-term investments
501,385

 
494,888

Current content assets, net
2,905,998

 
2,166,134

Other current assets
215,127

 
152,423

Total current assets
5,431,840

 
3,927,053

Non-current content assets, net
4,312,817

 
2,773,326

Property and equipment, net
173,412

 
149,875

Other non-current assets
284,802

 
192,246

Total assets
$
10,202,871

 
$
7,042,500

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
2,789,023

 
$
2,117,241

Accounts payable
253,491

 
201,581

Accrued expenses
140,389

 
69,746

Deferred revenue
346,721

 
274,586

Total current liabilities
3,529,624

 
2,663,154

Non-current content liabilities
2,026,360

 
1,575,832

Long-term debt
2,371,362

 
885,849

Other non-current liabilities
52,099

 
59,957

Total liabilities
7,979,445

 
5,184,792

Stockholders' equity:
 
 
 
Common stock
1,324,809

 
1,042,870

Accumulated other comprehensive loss
(43,308
)
 
(4,446
)
Retained earnings
941,925

 
819,284

Total stockholders' equity
2,223,426

 
1,857,708

Total liabilities and stockholders' equity
$
10,202,871

 
$
7,042,500

 
NOTE - Certain prior year amounts have been reclassified to conform to the current year presentation.
                                                                                                                                                    11


Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
Year Ended
 
December 31,
2015
 
September 30,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
43,178

 
$
29,432

 
$
83,371

 
$
122,641

 
$
266,799

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content assets
(1,550,326
)
 
(1,304,466
)
 
(1,013,822
)
 
(5,771,652
)
 
(3,773,019
)
Change in streaming content liabilities
240,250

 
104,684

 
125,770

 
1,162,413

 
593,125

Amortization of streaming content assets
961,861

 
871,403

 
730,353

 
3,405,382

 
2,656,279

Amortization of DVD content assets
18,793

 
18,589

 
20,178

 
79,380

 
71,491

Depreciation and amortization of property, equipment and intangibles
15,488

 
16,047

 
14,312

 
62,283

 
54,028

Stock-based compensation expense
35,860

 
32,834

 
30,251

 
124,725

 
115,239

Excess tax benefits from stock-based compensation
25,683

 
(37,726
)
 
(20,921
)
 
(80,471
)
 
(89,341
)
Other non-cash items
7,774

 
10,866

 
6,475

 
31,628

 
15,282

Deferred taxes
12,036

 
(29,417
)
 
7,501

 
(58,655
)
 
(30,063
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Other current assets
(62,755
)
 
66,695

 
(30,539
)
 
18,693

 
(9,198
)
Accounts payable
49,031

 
6,762

 
51,083

 
51,615

 
83,812

Accrued expenses
(39,619
)
 
10,883

 
4,050

 
48,810

 
55,636

Deferred revenue
16,982

 
27,985

 
21,630

 
72,135

 
58,819

Other non-current assets and liabilities
(18,981
)
 
(20,540
)
 
(68,153
)
 
(18,366
)
 
(52,406
)
Net cash (used in) provided by operating activities
(244,745
)
 
(195,969
)
 
(38,461
)
 
(749,439
)
 
16,483

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of DVD content assets
(20,799
)
 
(14,467
)
 
(23,365
)
 
(77,958
)
 
(74,790
)
Purchases of property and equipment
(12,854
)
 
(37,820
)
 
(15,491
)
 
(91,248
)
 
(69,726
)
Other assets
2,262

 
(3,760
)
 
(431
)
 
(1,912
)
 
1,334

Purchases of short-term investments
(146,582
)
 
(66,444
)
 
(71,597
)
 
(371,915
)
 
(426,934
)
Proceeds from sale of short-term investments
114,832

 
43,887

 
45,022

 
259,079

 
385,300

Proceeds from maturities of short-term investments
22,580

 
31,125

 
14,721

 
104,762

 
141,950

Net cash used in investing activities
(40,561
)
 
(47,479
)
 
(51,141
)
 
(179,192
)
 
(42,866
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of common stock
8,171

 
35,089

 
3,750

 
77,980

 
60,544

Proceeds from issuance of debt
—

 
—

 
—

 
1,500,000

 
400,000

Issuance costs
—

 
—

 
—

 
(17,629
)
 
(7,080
)
Excess tax benefits from stock-based compensation
(25,683
)
 
37,726

 
20,921

 
80,471

 
89,341

Principal payments of lease financing obligations
54

 
(61
)
 
(280
)
 
(545
)
 
(1,093
)
Net cash (used in) provided by financing activities
(17,458
)
 
72,754

 
24,391

 
1,640,277

 
541,712

 Effect of exchange rate changes on cash and cash equivalents
(3,343
)
 
(7,741
)
 
(4,398
)
 
(15,924
)
 
(6,686
)
 Net (decrease) increase in cash and cash equivalents
(306,107
)
 
(178,435
)
 
(69,609
)
 
695,722

 
508,643

 Cash and cash equivalents, beginning of period
2,115,437

 
2,293,872

 
1,183,217

 
1,113,608

 
604,965

 Cash and cash equivalents, end of period
$
1,809,330

 
$
2,115,437

 
$
1,113,608

 
$
1,809,330

 
$
1,113,608

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
December 31,
2015
 
September 30,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(244,745
)
 
$
(195,969
)
 
$
(38,461
)
 
$
(749,439
)
 
$
16,483

Acquisition of DVD content assets
(20,799
)
 
(14,467
)
 
(23,365
)
 
(77,958
)
 
(74,790
)
Purchases of property and equipment
(12,854
)
 
(37,820
)
 
(15,491
)
 
(91,248
)
 
(69,726
)
Other assets
2,262

 
(3,760
)
 
(431
)
 
(1,912
)
 
1,334

Non-GAAP free cash flow
$
(276,136
)
 
$
(252,016
)
 
$
(77,748
)
 
$
(920,557
)
 
$
(126,699
)

NOTE - Certain prior year amounts have been reclassified to conform to the current year presentation.
                                                                                                                                                    12


Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Year Ended
 
December 31,
2015
 
September 30,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
Domestic Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
44,738

 
43,181

 
39,114

 
44,738

 
39,114

Paid memberships at end of period
43,401

 
42,068

 
37,698

 
43,401

 
37,698

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,105,933

 
$
1,063,961

 
$
917,442

 
$
4,180,339

 
$
3,431,434

Cost of revenues
647,059

 
644,914

 
573,193

 
2,487,193

 
2,201,761

Marketing
79,833

 
74,835

 
87,423

 
317,646

 
293,453

Contribution profit
379,041

 
344,212

 
256,826

 
1,375,500

 
936,220

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
30,024

 
25,987

 
18,277

 
30,024

 
18,277

Paid memberships at end of period
27,438

 
23,951

 
16,778

 
27,438

 
16,778

 
 
 
 
 
 
 
 
 
 
Revenues
$
566,405

 
$
516,870

 
$
387,797

 
$
1,953,435

 
$
1,308,061

Cost of revenues
530,880

 
451,251

 
350,211

 
1,780,375

 
1,154,117

Marketing
144,340

 
133,267

 
116,248

 
506,446

 
313,733

Contribution profit (loss)
(108,815
)
 
(67,648
)
 
(78,662
)
 
(333,386
)
 
(159,789
)
 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Total memberships at end of period
4,904

 
5,060

 
5,767

 
4,904

 
5,767

Paid memberships at end of period
4,787

 
4,971

 
5,668

 
4,787

 
5,668

 
 
 
 
 
 
 
 
 
 
Revenues
$
150,995

 
$
157,524

 
$
179,489

 
$
645,737

 
$
765,161

Cost of revenues
71,426

 
77,793

 
90,928

 
323,908

 
396,882

Contribution profit
79,569

 
79,731

 
88,561

 
321,829

 
368,279

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
1,823,333

 
$
1,738,355

 
$
1,484,728

 
$
6,779,511

 
$
5,504,656

Cost of revenues
1,249,365

 
1,173,958

 
1,014,332

 
4,591,476

 
3,752,760

Marketing
224,173

 
208,102

 
203,671

 
824,092

 
607,186

Contribution profit
349,795

 
356,295

 
266,725

 
1,363,943

 
1,144,710

Other operating expenses
289,901

 
282,654

 
201,679

 
1,058,117

 
742,062

Operating income
59,894

 
73,641

 
65,046

 
305,826

 
402,648

Other income (expense)
(39,163
)
 
(31,403
)
 
(19,530
)
 
(163,941
)
 
(53,279
)
(Benefit) provision for income taxes
(22,447
)
 
12,806

 
(37,855
)
 
19,244

 
82,570

Net income
$
43,178

 
$
29,432

 
$
83,371

 
$
122,641

 
$
266,799





                                                                                                                                                    13

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

 
Three Months Ended
 
December 31,
2014
 
March 31,
2015
 
June 30,
2015
 
September 30,
2015
 
December 31,
2015
Non-GAAP Adjusted EBITDA reconciliation:
 
 
 
 
 
 
 
 
 
GAAP net income
$
83,371

 
$
23,696

 
$
26,335

 
$
29,432

 
$
43,178

Add:
 
 
 
 
 
 
 
 
 
Interest and other (income) expense
19,530

 
59,030

 
34,345

 
31,403

 
39,163

Provision (benefit) for income taxes
(37,855
)
 
14,730

 
14,155

 
12,806

 
(22,447
)
Depreciation and amortization of property, equipment and intangibles
14,312

 
15,167

 
15,581

 
16,047

 
15,488

Stock-based compensation expense
30,251

 
27,441

 
28,590

 
32,834

 
35,860

Adjusted EBITDA
$
109,609

 
$
140,064

 
$
119,006

 
$
122,522

 
$
111,242



 
 
Three Months Ended
 
 
December 31,
2014
 
December 31,
2015
Non-GAAP net income reconciliation:
 
 
 
 
GAAP net income
 
$
83,371

 
$
43,178

Less: Release of tax accrual
 
(38,612
)
 
(13,438
)
Non-GAAP net income
 
$
44,759

 
$
29,740

Non-GAAP earnings per share:
 
 
 
 
Basic
 
0.11

 
0.07

Diluted
 
0.10

 
0.07

Weighted-average common shares outstanding:
 
 
 
 
Basic
 
422,244

 
427,668

Diluted
 
432,514

 
438,257



                                                                                                                                                    14
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