Exhibit
Exhibit 99.1
July 17, 2017
Fellow shareholders
For Q2, revenue and operating income were right on forecast. Our streaming membership grew more than expected, from 99m to 104m, due to our amazing content. We also crossed the symbolic milestones of 100m members and more international than domestic members. It was a good quarter.
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(in millions except per share data and Streaming Content Obligations) |
Q2 '16 |
Q3 '16 |
Q4'16 |
Q1'17 |
Q2'17 |
Q3'17 Forecast |
Total (Including DVD): |
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Revenue |
$ |
2,105 |
|
$ |
2,290 |
|
$ |
2,478 |
|
$ |
2,637 |
|
$ |
2,785 |
|
$ |
2,969 |
|
Y/Y % Growth |
28.0 |
% |
31.7 |
% |
35.9 |
% |
34.7 |
% |
32.3 |
% |
29.6 |
% |
Operating Income |
$ |
70 |
|
$ |
106 |
|
$ |
154 |
|
$ |
257 |
|
$ |
128 |
|
$ |
204 |
|
Operating Margin |
3.3 |
% |
4.6 |
% |
6.2 |
% |
9.7 |
% |
4.6 |
% |
6.9 |
% |
Net Income |
$ |
41 |
|
$ |
52 |
|
$ |
67 |
|
$ |
178 |
|
$ |
66 |
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$ |
143 |
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Diluted EPS |
$ |
0.09 |
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$ |
0.12 |
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$ |
0.15 |
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$ |
0.40 |
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$ |
0.15 |
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$ |
0.32 |
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Total Streaming: |
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Revenue |
$ |
1,966 |
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$ |
2,158 |
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$ |
2,351 |
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$ |
2,516 |
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$ |
2,671 |
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$ |
2,859 |
|
Y/Y % Growth |
32.8 |
% |
36.5 |
% |
40.6 |
% |
38.8 |
% |
35.8 |
% |
32.5 |
% |
Paid Memberships |
79.90 |
|
83.28 |
|
89.09 |
|
94.36 |
|
99.04 |
|
103.64 |
|
Total Memberships |
83.18 |
|
86.74 |
|
93.80 |
|
98.75 |
|
103.95 |
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108.35 |
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Net Additions |
1.68 |
|
3.57 |
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7.05 |
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4.95 |
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5.20 |
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4.40 |
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US Streaming: |
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Revenue |
$ |
1,208 |
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$ |
1,304 |
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$ |
1,403 |
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$ |
1,470 |
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$ |
1,505 |
|
$ |
1,553 |
|
Contribution Profit |
$ |
414 |
|
$ |
475 |
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$ |
536 |
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$ |
606 |
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$ |
560 |
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$ |
576 |
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Contribution Margin |
34.3 |
% |
36.4 |
% |
38.2 |
% |
41.2 |
% |
37.2 |
% |
37.1 |
% |
Paid Memberships |
46.00 |
|
46.48 |
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47.91 |
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49.38 |
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50.32 |
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51.32 |
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Total Memberships |
47.13 |
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47.50 |
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49.43 |
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50.85 |
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51.92 |
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52.67 |
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Net Additions |
0.16 |
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0.37 |
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1.93 |
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1.42 |
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1.07 |
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0.75 |
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International Streaming: |
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Revenue |
$ |
758 |
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$ |
853 |
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$ |
948 |
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$ |
1,046 |
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$ |
1,165 |
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$ |
1,306 |
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Contribution Profit (Loss) |
$ |
(69 |
) |
$ |
(69 |
) |
$ |
(67 |
) |
$ |
43 |
|
$ |
(13 |
) |
$ |
30 |
|
Contribution Margin |
(9.1 |
)% |
(8.0 |
)% |
(7.0 |
)% |
4.1 |
% |
(1.1 |
)% |
2.3 |
% |
Paid Memberships |
33.89 |
|
36.80 |
|
41.19 |
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44.99 |
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48.71 |
|
52.31 |
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Total Memberships |
36.05 |
|
39.25 |
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44.37 |
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47.89 |
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52.03 |
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55.68 |
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Net Additions |
1.52 |
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3.20 |
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5.12 |
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3.53 |
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4.14 |
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3.65 |
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Consolidated: |
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Net cash (used in) operating activities |
$ |
(226 |
) |
$ |
(462 |
) |
$ |
(557 |
) |
$ |
(344 |
) |
$ |
(535 |
) |
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Free Cash Flow |
$ |
(254 |
) |
$ |
(506 |
) |
$ |
(639 |
) |
$ |
(423 |
) |
$ |
(608 |
) |
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EBITDA |
$ |
129 |
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$ |
164 |
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$ |
212 |
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$ |
317 |
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$ |
190 |
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Shares (FD) |
438.2 |
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438.4 |
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440.1 |
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445.5 |
|
446.3 |
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Streaming Content Obligations* ($B) |
13.2 |
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14.4 |
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14.5 |
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15.3 |
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15.7 |
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*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 |
Q2 Results and Q3 Forecast
Our quarterly guidance is our internal forecast at the time we report and we strive for accuracy. In Q2, we underestimated the popularity of our strong slate of content which led to higher-than-expected acquisition across all major territories. As a result, global net adds totaled a Q2-record 5.2 million (vs. forecast of 3.2m) and increased 5% sequentially, bucking historical seasonal patterns. For the first six months of 2017, net adds are up 21% year-on-year to 10.2m.
Our Q3 guidance assumes much of this momentum will continue but we are cognizant of the lessons of prior quarters when we over-forecasted and there was lumpiness in net adds, likely due to demand being pulled forward (into Q2 in this case).
Domestic net additions of 1.1m represented the highest level of Q2 net adds since the second quarter of 2011. For Q3’17, we project that we will add 0.75m US members, compared with 0.37m in Q3’16, which was impacted by un-grandfathering.
Our international segment now accounts for 50.1% of our total membership base. International revenue rose 57% year over year, excluding a -$23 million impact from foreign exchange, while international ASP grew 10% year over year on a F/X neutral basis. International contribution profit of -$13 million vs. -$69 million was better than our -$28 million forecast due primarily to higher-than-forecasted paid members.
We’re forecasting Q3’17 international net adds of 3.65 million. We are making good progress with our international expansion as improving profitability in our earlier international markets helps fund significant investment in our newer territories. As a result, we expect positive international contribution profit for the full year 2017, at current F/X exchange rates. This would mark the first ever annual contribution profit from our international segment.
For Q2, global streaming revenue was within 1% of our projection. As expected, operating margin dipped 516 basis points sequentially due to the timing of content releases, and came in at $128m on forecast of $120m. Through the first half of 2017, our operating margin was 7.1%, putting us on track for our full year target of 7%, which we plan on growing in 2018 and beyond. Q2 EPS was on target at $0.15, as a greater than expected tax benefit offset a -$64 million non-cash unrealized loss from our euro bond (which was recognized in our P&L in interest and other income/expense).
Content
Last week, the Television Academy nominated 27 Netflix original programs with 91 Emmy nominations, nearly double last year’s tally. With five of the 14 total nominated best series contenders (Stranger Things, The Crown, House of Cards, Master of None and Unbreakable Kimmy Schmidt), Netflix had the most nominated series of any network. We are proud that even as we have increased our volume of originals across several genres, we continue to grow the recognition for the quality of those shows, including brand new series like Stranger Things and The Crown, which will have second season premieres in 2017.
The volume and breadth of our releases in Q2 exemplify our commitment to serve the desires of our diverse and growing audience. We premiered 14 new seasons of global Netflix original series, 13 original comedy specials, 6 original documentaries, 2 original documentary series, 9 original feature films and 7 seasons of original series for kids. You can track the dates of all of our upcoming launches here1.
We strive to be bold in our programming choices and financially disciplined, so we can keep being bold. Every show has passionate fans and committed talent striving for excellence. Sometimes those shows don’t attract as many viewers as we had hoped, compared to our other content. As much as we dislike ending a series early, it consoles us that it frees up investment for another new show, or two. We are programming to please our members and we keep that as our guiding light. We love it when we support a new series that has big impact like Stranger Things, Cable Girls, and 13 Reasons Why.
As a global TV network, we also showcase local productions to a worldwide audience through our investments in non-English language originals. Our Spanish language original Ingobernable, starring Kate del Castillo, has been viewed by millions of members outside of Mexico. Similarly, in Q2, our first original from Spain, Las Chicas del Cable (Cable Girls), attracted significant viewership in the US and throughout the entire Spanish-speaking world.
We understand that our approach to films - debuting movies on Netflix first - is counter to Hollywood’s century-old windowing tradition2. But just as we changed and reinvented the TV business by putting consumers first and making access to content more convenient, we believe internet TV can similarly reinvigorate the film business (as distinct from the theatrical business). This year we will release 40 features that range from big budget popcorn films to grassroots independent cinema. We are proud to produce films like Okja3, War Machine4 and Bright5, with big stars, distinctive directors and compelling stories, as well as to introduce new voices like Macon Blair, whose directorial debut I Don’t Feel at Home in This World Anymore6, produced by Netflix, won the Dramatic Jury competition at the Sundance Film Festival this year. Within a few weeks of the win, it premiered on Netflix everywhere, so that it could be enjoyed by fans, exactly when the world was talking about it.
Product and Partnerships
Since the early days of our streaming service, we have partnered with a wide variety of companies to make it easier for consumers to enjoy Netflix. Our partnerships began with consumer electronic companies and video game consoles and evolved to include smartphone makers, mobile operators and MVPDs and ISPs. In Q2, we announced a partnership with Altice/SFR France, whereby Netflix will be sold in a package with high speed Internet and TV services. These arrangements are mutually beneficial - our partners gain more customers and can upsell existing subscribers to higher ARPU packages, while Netflix gains more reach and awareness with consumers across a market. We are likely to expand this approach as a complement to our direct-to-consumer primary approach.
Competition
The competition for entertainment time is always intense, but the silver lining is that the market is vast and diverse. YouTube is earning over a billion hours a day of consumers’ time with one type of
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1 https://media.netflix.com/en/
2 https://www.nytimes.com/2017/05/19/movies/cannes-okja-netflix.html
3 https://www.youtube.com/watch?v=AjCebKn4iic&feature=youtu.be
4 https://www.youtube.com/watch?v=sIqXRDDdo7c
5 https://www.youtube.com/watch?v=59uAseJFh7M
6 https://www.rottentomatoes.com/m/i_dont_feel_at_home_in_this_world_anymore/
entertainment, while we are earning over a billion hours a week with our type of entertainment. Linear TV is still huge, piracy still substantial, and there are thousands of firms and approaches around the world earning some fraction of consumers’ entertainment time. The entertainment market is so broad that we’ve grown from zero to over 50m streaming households in the US over the last 10 years, and yet HBO continues to increase its US subscriptions. It seems our growth just expands the market. The largely exclusive nature of each service’s content means that we are not direct substitutes for each other, but rather complements.
In addition to the many SVOD players around the world (Blim, Globoplay, FilmStruck, Hooq, iflix, Stan, etc.) the large-cap tech companies, especially Amazon, are investing heavily in original and licensed content around the world. They join all the existing TV networks (BBC, AMC, NHK, etc.) of the world, and us, in bidding for great content. Creating a TV network is now as easy as creating an app, and investment is pouring into content production around the world.
We are all co-pioneers of internet TV and, together, we are replacing linear TV. The shift from linear TV to on-demand viewing is so big and there is so much leisure time, many internet TV services will be successful. The internet may not have been great for the music business due to piracy, but, wow, it is incredible for growing the video entertainment business around the world.
Culture
We recently crafted a major update on our culture description7, to reflect our thinking as we have become more global. Our culture plays a major role in our continued evolution and success.
Free Cashflow and Capital Structure
Q2’17 free cash amounted to -$608 million vs. -$254 million in the year ago quarter and -$423 million in Q1’17. We anticipate free cash flow of -$2.0 to -$2.5 billion for the full year 2017. With our content strategy paying off in strong member, revenue and profit growth, we think it’s wise to continue to invest. In continued success, we will deploy increased capital in content, particularly in owned originals, and, as we have said before, we expect to be FCF negative for many years. Since our FCF is driven by our content investment, particularly in self-produced originals, we wanted to provide some additional context on our content accounting at our investor relations8 website.
We continue to debt finance our capital needs as we believe this reduces our weighted average cost of capital, resulting in a more efficient capital structure. In May, we completed a 1.3 billion euro bond offering. In addition to a small natural hedge to our growing European revenues, we are pleased to have broadened our access to capital markets beyond the US high yield market. Our euro bond may add some volatility to our net income as each quarter we remeasure the liability on our balance sheet based on the quarter end euro-to-dollar exchange rate. As a reminder, quarter-to-quarter remeasurement changes in this liability are reflected as a non-cash unrealized gain (loss) below operating income in “interest and other income/expense” in our P&L (-$64 million impact on net income in Q2’17).
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7 https://jobs.netflix.com/culture
8 https://ir.netflix.com/index.cfm
Summary
It’s been twenty years since Netflix was founded and we still thrive on connecting people with great stories. Someday, we hope to entertain everyone.
For quick reference, our eight most recent investor letters are: April 20179, January 201710, October 201611, July 201612, April 201613, January 201614, October 201515, July 201516.
July 17th, 2017 Earnings Interview, 3pm PST
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.
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IR Contact:
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PR Contact:
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Spencer Wang |
Jonathan Friedland |
Vice President, Finance & Investor Relations |
Chief Communications Officer |
408 809-5360 |
310 734-2958 |
___________________________________
9 http://files.shareholder.com/downloads/NFLX/3639218336x0x937576/7DAD8A22-F8FE-4339-A534-4A851A5C68E5/Q117ShareholderLetterV2FINAL.pdf
10 http://files.shareholder.com/downloads/NFLX/3639218336x0x924415/A5ACACF9-9C17-44E6-B74A-628CE049C1B0/Q416ShareholderLetter.pdf
11 http://files.shareholder.com/downloads/NFLX/2457496703x0x912075/700E14FD-12BE-4C3A-9283-9A975C7FE549/FINAL_Q3_Letter.pdf
12 http://files.shareholder.com/downloads/NFLX/2457496703x0x900152/4D4F0167-4BE2-4DC1-ACC7-759F1561CD59/Q216LettertoShareholders_FINAL_w_Tables.pdf
13 http://files.shareholder.com/downloads/NFLX/1662264494x0x886428/5FB5A3DF-F23A-4BB1-AC37-583BAEF2A1EE/Q116LettertoShareholders_W_TABLES_.pdf
14 http://files.shareholder.com/downloads/NFLX/1481171463x0x870685/C6213FF9-5498-4084-A0FF-74363CEE35A1/Q4_15_Letter_to_Shareholders_-_COMBINED.pdf
15 http://files.shareholder.com/downloads/NFLX/4124769775x7871834x854558/9B28F30F-BF2F-4C5D-AAFF-AA9AA8F4779D/FINAL_Q3_15_Letter_to_Shareholders_With_Tables_.pdf
16 http://files.shareholder.com/downloads/NFLX/4124769775x7871834x839404/C3CE9EE2-C8F3-40A1-AC9A-FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf
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 the acquisition impact of our content slate; growth of internet video; content strategy, including future launches; future capital raises; impact of Euro bond raise on net income; partnership strategies; domestic and international net, total and paid subscribers; 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 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 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.
Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30,
2017 |
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March 31,
2017 |
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June 30,
2016 |
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June 30,
2017 |
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June 30,
2016 |
Revenues |
$ |
2,785,464 |
|
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$ |
2,636,635 |
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$ |
2,105,204 |
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$ |
5,422,099 |
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$ |
4,062,940 |
|
Cost of revenues |
1,902,308 |
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|
1,657,024 |
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|
1,473,098 |
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3,559,332 |
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2,842,638 |
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Marketing |
274,323 |
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|
271,270 |
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|
216,029 |
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|
545,593 |
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|
424,039 |
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Technology and development |
267,083 |
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|
257,108 |
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|
207,300 |
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|
524,191 |
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|
410,808 |
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General and administrative |
213,943 |
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194,291 |
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138,407 |
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408,234 |
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|
265,632 |
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Operating income |
127,807 |
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|
256,942 |
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|
70,370 |
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|
384,749 |
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|
119,823 |
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Other income (expense): |
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Interest expense |
(55,482 |
) |
|
(46,742 |
) |
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(35,455 |
) |
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(102,224 |
) |
|
(70,992 |
) |
Interest and other income (expense) |
(58,363 |
) |
|
13,592 |
|
|
16,317 |
|
|
(44,771 |
) |
|
42,280 |
|
Income before income taxes |
13,962 |
|
|
223,792 |
|
|
51,232 |
|
|
237,754 |
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|
91,111 |
|
Provision for (benefit from) for income taxes |
(51,638 |
) |
|
45,570 |
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|
10,477 |
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|
(6,068 |
) |
|
22,698 |
|
Net income |
$ |
65,600 |
|
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$ |
178,222 |
|
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$ |
40,755 |
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$ |
243,822 |
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$ |
68,413 |
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Earnings per share: |
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Basic |
$ |
0.15 |
|
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$ |
0.41 |
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$ |
0.10 |
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$ |
0.57 |
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$ |
0.16 |
|
Diluted |
$ |
0.15 |
|
|
$ |
0.40 |
|
|
$ |
0.09 |
|
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$ |
0.55 |
|
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$ |
0.16 |
|
Weighted-average common shares outstanding: |
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Basic |
431,396 |
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|
430,600 |
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|
428,483 |
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431,000 |
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|
428,300 |
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Diluted |
446,262 |
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|
445,458 |
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|
438,154 |
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|
445,862 |
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|
438,073 |
|
Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
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As of |
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June 30,
2017 |
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December 31,
2016 |
Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
1,918,777 |
|
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$ |
1,467,576 |
|
Short-term investments |
246,125 |
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|
266,206 |
|
Current content assets, net |
4,149,111 |
|
|
3,726,307 |
|
Other current assets |
386,772 |
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|
260,202 |
|
Total current assets |
6,700,785 |
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|
5,720,291 |
|
Non-current content assets, net |
9,078,474 |
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|
7,274,501 |
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Property and equipment, net |
309,831 |
|
|
250,395 |
|
Other non-current assets |
428,133 |
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|
341,423 |
|
Total assets |
$ |
16,517,223 |
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$ |
13,586,610 |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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|
Current content liabilities |
$ |
4,095,374 |
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$ |
3,632,711 |
|
Accounts payable |
273,398 |
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|
312,842 |
|
Accrued expenses |
248,871 |
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|
197,632 |
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Deferred revenue |
505,302 |
|
|
443,472 |
|
Total current liabilities |
5,122,945 |
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|
4,586,657 |
|
Non-current content liabilities |
3,356,090 |
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|
2,894,654 |
|
Long-term debt |
4,836,502 |
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|
3,364,311 |
|
Other non-current liabilities |
89,186 |
|
|
61,188 |
|
Total liabilities |
13,404,723 |
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|
10,906,810 |
|
Stockholders' equity: |
|
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|
Common stock |
1,727,858 |
|
|
1,599,762 |
|
Accumulated other comprehensive loss |
(31,368 |
) |
|
(48,565 |
) |
Retained earnings |
1,416,010 |
|
|
1,128,603 |
|
Total stockholders' equity |
3,112,500 |
|
|
2,679,800 |
|
Total liabilities and stockholders' equity |
$ |
16,517,223 |
|
|
$ |
13,586,610 |
|
Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
June 30,
2017 |
|
March 31,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
$ |
65,600 |
|
|
$ |
178,222 |
|
|
$ |
40,755 |
|
|
$ |
243,822 |
|
|
$ |
68,413 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Additions to streaming content assets |
(2,664,421 |
) |
|
(2,348,666 |
) |
|
(1,791,766 |
) |
|
(5,013,087 |
) |
|
(4,108,365 |
) |
Change in streaming content liabilities |
514,890 |
|
|
366,257 |
|
|
238,517 |
|
|
881,147 |
|
|
1,144,240 |
|
Amortization of streaming content assets |
1,550,794 |
|
|
1,305,683 |
|
|
1,175,361 |
|
|
2,856,477 |
|
|
2,233,882 |
|
Amortization of DVD content assets |
16,511 |
|
|
18,598 |
|
|
20,021 |
|
|
35,109 |
|
|
40,462 |
|
Depreciation and amortization of property, equipment and intangibles |
18,551 |
|
|
15,049 |
|
|
14,131 |
|
|
33,600 |
|
|
28,929 |
|
Stock-based compensation expense |
44,028 |
|
|
44,888 |
|
|
44,112 |
|
|
88,916 |
|
|
86,534 |
|
Excess tax benefits from stock-based compensation |
— |
|
|
— |
|
|
(13,323 |
) |
|
— |
|
|
(24,639 |
) |
Other non-cash items |
11,519 |
|
|
21,666 |
|
|
9,040 |
|
|
33,185 |
|
|
21,797 |
|
Foreign currency remeasurement loss on long-term debt |
64,220 |
|
|
— |
|
|
— |
|
|
64,220 |
|
|
— |
|
Deferred taxes |
(20,702 |
) |
|
(26,764 |
) |
|
(17,876 |
) |
|
(47,466 |
) |
|
(34,479 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Other current assets |
(80,199 |
) |
|
(25,402 |
) |
|
24,091 |
|
|
(105,601 |
) |
|
38,399 |
|
Accounts payable |
(12,439 |
) |
|
(11,000 |
) |
|
8,795 |
|
|
(23,439 |
) |
|
(11,103 |
) |
Accrued expenses |
(48,042 |
) |
|
93,542 |
|
|
2,099 |
|
|
45,500 |
|
|
43,331 |
|
Deferred revenue |
46,609 |
|
|
15,221 |
|
|
22,753 |
|
|
61,830 |
|
|
50,255 |
|
Other non-current assets and liabilities |
(41,447 |
) |
|
8,850 |
|
|
(3,003 |
) |
|
(32,597 |
) |
|
(32,539 |
) |
Net cash used in operating activities |
(534,528 |
) |
|
(343,856 |
) |
|
(226,293 |
) |
|
(878,384 |
) |
|
(454,883 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Acquisition of DVD content assets |
(7,624 |
) |
|
(25,372 |
) |
|
(17,924 |
) |
|
(32,996 |
) |
|
(41,131 |
) |
Purchases of property and equipment |
(65,231 |
) |
|
(52,523 |
) |
|
(10,814 |
) |
|
(117,754 |
) |
|
(19,239 |
) |
Change in other assets |
(1,064 |
) |
|
(769 |
) |
|
907 |
|
|
(1,833 |
) |
|
551 |
|
Purchases of short-term investments |
(14,246 |
) |
|
(57,774 |
) |
|
(18,492 |
) |
|
(72,020 |
) |
|
(53,454 |
) |
Proceeds from sale of short-term investments |
14,128 |
|
|
55,748 |
|
|
18,752 |
|
|
69,876 |
|
|
26,940 |
|
Proceeds from maturities of short-term investments |
17,605 |
|
|
5,100 |
|
|
24,675 |
|
|
22,705 |
|
|
87,700 |
|
Net cash (used in) provided by investing activities |
(56,432 |
) |
|
(75,590 |
) |
|
(2,896 |
) |
|
(132,022 |
) |
|
1,367 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
1,420,510 |
|
|
— |
|
|
— |
|
|
1,420,510 |
|
|
— |
|
Issuance costs |
(15,013 |
) |
|
— |
|
|
— |
|
|
(15,013 |
) |
|
— |
|
Proceeds from issuance of common stock |
14,826 |
|
|
24,178 |
|
|
4,232 |
|
|
39,004 |
|
|
7,768 |
|
Excess tax benefits from stock-based compensation |
— |
|
|
— |
|
|
13,323 |
|
|
— |
|
|
24,639 |
|
Other financing activities |
63 |
|
|
61 |
|
|
57 |
|
|
124 |
|
|
112 |
|
Net cash provided by financing activities |
1,420,386 |
|
|
24,239 |
|
|
17,612 |
|
|
1,444,625 |
|
|
32,519 |
|
Effect of exchange rate changes on cash and cash equivalents |
11,527 |
|
|
5,455 |
|
|
(2,742 |
) |
|
16,982 |
|
|
2,592 |
|
Net change in cash and cash equivalents |
840,953 |
|
|
(389,752 |
) |
|
(214,319 |
) |
|
451,201 |
|
|
(418,405 |
) |
Cash and cash equivalents, beginning of period |
1,077,824 |
|
|
1,467,576 |
|
|
1,605,244 |
|
|
1,467,576 |
|
|
1,809,330 |
|
Cash and cash equivalents, end of period |
$ |
1,918,777 |
|
|
$ |
1,077,824 |
|
|
$ |
1,390,925 |
|
|
$ |
1,918,777 |
|
|
$ |
1,390,925 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
June 30,
2017 |
|
March 31,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
Non-GAAP free cash flow reconciliation: |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
$ |
(534,528 |
) |
|
$ |
(343,856 |
) |
|
$ |
(226,293 |
) |
|
$ |
(878,384 |
) |
|
$ |
(454,883 |
) |
Acquisition of DVD content assets |
(7,624 |
) |
|
(25,372 |
) |
|
(17,924 |
) |
|
(32,996 |
) |
|
(41,131 |
) |
Purchases of property and equipment |
(65,231 |
) |
|
(52,523 |
) |
|
(10,814 |
) |
|
(117,754 |
) |
|
(19,239 |
) |
Change in other assets |
(1,064 |
) |
|
(769 |
) |
|
907 |
|
|
(1,833 |
) |
|
551 |
|
Non-GAAP free cash flow |
$ |
(608,447 |
) |
|
$ |
(422,520 |
) |
|
$ |
(254,124 |
) |
|
$ |
(1,030,967 |
) |
|
$ |
(514,702 |
) |
Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of / Three Months Ended |
|
As of/ Six Months Ended |
|
June 30,
2017 |
|
March 31,
2017 |
|
June 30,
2016 |
|
June 30,
2017 |
|
June 30,
2016 |
Domestic Streaming |
|
|
|
|
|
|
|
|
|
Total memberships at end of period |
51,921 |
|
|
50,854 |
|
|
47,129 |
|
|
51,921 |
|
|
47,129 |
|
Paid memberships at end of period |
50,323 |
|
|
49,375 |
|
|
46,004 |
|
|
50,323 |
|
|
46,004 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
1,505,499 |
|
|
$ |
1,470,042 |
|
|
$ |
1,208,271 |
|
|
$ |
2,975,541 |
|
|
$ |
2,369,512 |
|
Cost of revenues |
831,962 |
|
|
749,488 |
|
|
707,106 |
|
|
1,581,450 |
|
|
1,373,652 |
|
Marketing |
113,608 |
|
|
115,038 |
|
|
86,806 |
|
|
228,646 |
|
|
168,748 |
|
Contribution profit |
559,929 |
|
|
605,516 |
|
|
414,359 |
|
|
1,165,445 |
|
|
827,112 |
|
|
|
|
|
|
|
|
|
|
|
International Streaming |
|
|
|
|
|
|
|
|
|
Total memberships at end of period |
52,031 |
|
|
47,894 |
|
|
36,048 |
|
|
52,031 |
|
|
36,048 |
|
Paid memberships at end of period |
48,713 |
|
|
44,988 |
|
|
33,892 |
|
|
48,713 |
|
|
33,892 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
1,165,228 |
|
|
$ |
1,046,199 |
|
|
$ |
758,201 |
|
|
$ |
2,211,427 |
|
|
$ |
1,409,949 |
|
Cost of revenues |
1,017,612 |
|
|
847,317 |
|
|
698,162 |
|
|
1,864,929 |
|
|
1,328,061 |
|
Marketing |
160,715 |
|
|
156,232 |
|
|
129,223 |
|
|
316,947 |
|
|
255,291 |
|
Contribution profit (loss) |
(13,099 |
) |
|
42,650 |
|
|
(69,184 |
) |
|
29,551 |
|
|
(173,403 |
) |
|
|
|
|
|
|
|
|
|
|
Domestic DVD |
|
|
|
|
|
|
|
|
|
Total memberships at end of period |
3,758 |
|
|
3,944 |
|
|
4,530 |
|
|
3,758 |
|
|
4,530 |
|
Paid memberships at end of period |
3,692 |
|
|
3,867 |
|
|
4,435 |
|
|
3,692 |
|
|
4,435 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
114,737 |
|
|
$ |
120,394 |
|
|
$ |
138,732 |
|
|
$ |
235,131 |
|
|
$ |
283,479 |
|
Cost of revenues |
52,734 |
|
|
60,219 |
|
|
67,830 |
|
|
112,953 |
|
|
140,925 |
|
Contribution profit |
62,003 |
|
|
60,175 |
|
|
70,902 |
|
|
122,178 |
|
|
142,554 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
2,785,464 |
|
|
$ |
2,636,635 |
|
|
$ |
2,105,204 |
|
|
$ |
5,422,099 |
|
|
$ |
4,062,940 |
|
Cost of revenues |
1,902,308 |
|
|
1,657,024 |
|
|
1,473,098 |
|
|
3,559,332 |
|
|
2,842,638 |
|
Marketing |
274,323 |
|
|
271,270 |
|
|
216,029 |
|
|
545,593 |
|
|
424,039 |
|
Contribution profit |
608,833 |
|
|
708,341 |
|
|
416,077 |
|
|
1,317,174 |
|
|
796,263 |
|
Other operating expenses |
481,026 |
|
|
451,399 |
|
|
345,707 |
|
|
932,425 |
|
|
676,440 |
|
Operating income |
127,807 |
|
|
256,942 |
|
|
70,370 |
|
|
384,749 |
|
|
119,823 |
|
Other expense |
(113,845 |
) |
|
(33,150 |
) |
|
(19,138 |
) |
|
(146,995 |
) |
|
(28,712 |
) |
Provision for (benefit from) income taxes |
(51,638 |
) |
|
45,570 |
|
|
10,477 |
|
|
(6,068 |
) |
|
22,698 |
|
Net income |
$ |
65,600 |
|
|
$ |
178,222 |
|
|
$ |
40,755 |
|
|
$ |
243,822 |
|
|
$ |
68,413 |
|
Netflix, Inc.
Non-GAAP Information
(unaudited)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
June 30,
2016 |
|
September 30,
2016 |
|
December 31,
2016 |
|
March 31,
2017 |
|
June 30,
2017 |
Non-GAAP Adjusted EBITDA reconciliation: |
|
|
|
|
|
|
|
|
|
GAAP net income |
$ |
40,755 |
|
|
$ |
51,517 |
|
|
$ |
66,748 |
|
|
$ |
178,222 |
|
|
$ |
65,600 |
|
Add: |
|
|
|
|
|
|
|
|
|
Interest and other (income) expense |
19,138 |
|
|
26,909 |
|
|
63,665 |
|
|
33,150 |
|
|
113,845 |
|
Provision for (benefit from) income taxes |
10,477 |
|
|
27,610 |
|
|
23,521 |
|
|
45,570 |
|
|
(51,638 |
) |
Depreciation and amortization of property, equipment and intangibles |
14,131 |
|
|
14,410 |
|
|
14,189 |
|
|
15,049 |
|
|
18,551 |
|
Stock-based compensation expense |
44,112 |
|
|
43,495 |
|
|
43,646 |
|
|
44,888 |
|
|
44,028 |
|
Adjusted EBITDA |
$ |
128,613 |
|
|
$ |
163,941 |
|
|
$ |
211,769 |
|
|
$ |
316,879 |
|
|
$ |
190,386 |
|
