NETFLIX INC

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include, but are not limited to, statements regarding: our core strategy; our ability to improve our content offerings and service; our future financial performance, including expectations regarding revenues, deferred revenue, operating income and margin, net income, expenses, and profitability; liquidity, including the sufficiency of our capital resources, net cash provided by (used in) operating activities, and access to financing sources; capital allocation strategies, including any stock repurchases or repurchase programs; seasonality; impact of foreign exchange rate fluctuations, including on net income, revenues and average revenues per paying member; expectations regarding hedging activity; impact of interest rate fluctuations; adequacy of existing facilities; future regulatory changes and their impact on our business; intellectual property; price changes and testing; accounting treatment for changes related to content assets; acquisitions; membership growth, including impact of content and pricing changes on membership growth; member viewing patterns; future contractual obligations, including unknown content obligations and timing of payments; our global content and marketing investments, including investments in original programming; content amortization; resolution of tax examinations; tax expense; unrecognized tax benefits; deferred tax assets; and our ability to effectively manage change and growth. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on January 26, 2024, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item 1A.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include, but are not limited to, statements regarding: our core strategy; our ability to improve our content offerings and service; our future financial performance, including expectations regarding revenues, deferred revenue, operating income and margin, net income, expenses, and profitability; liquidity, including the sufficiency of our capital resources, net cash provided by (used in) operating activities, access to financing sources and free cash flows; capital allocation strategies, including any stock repurchases or repurchase programs; seasonality; stock price volatility; impact of foreign exchange rate fluctuations, including on net income, revenues; expectations regarding hedging activity; impact of interest rate fluctuations; adequacy of existing facilities; future regulatory changes and their impact on our business; intellectual property; cybersecurity; price changes and testing; accounting treatment for changes related to content assets; acquisitions; actions by competitors; partnerships; advertising; multi-household usage; reporting of membership-related data; member viewing patterns; dividends; future contractual obligations, including unknown content obligations and timing of payments; our global content and marketing investments, including investments in original programming, consumer products and live experiences; impact of work stoppages; content amortization; resolution of tax examinations; tax expense; unrecognized tax benefits; deferred tax assets; resolution of disputes and other proceedings; our ability to effectively manage change and growth; our company culture; and our ability to attract and retain qualified employees and key personnel. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (“SEC”) on January 27, 2025, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item 1A.

Previous wording

We are one of the world’s leading entertainment services with approximately 283 million paid memberships in over 190 countries enjoying TV series, films and games across a wide variety of genres and languages. Members can play, pause and resume watching as much as they want, anytime, anywhere, and can change their plans at any time.

Current wording

We are one of the world’s leading entertainment services offering TV series, films and games across a wide variety of genres and languages. Members can play, pause and resume watching as much as they want, anytime, anywhere, and can change their plans at any time.

Previous wording

Our core strategy is to grow our business globally within the parameters of our operating margin target. We strive to continuously improve our members’ experience by offering compelling content that delights them and attracts new members. We seek to drive conversation around our content to further enhance member joy, and we are continuously enhancing our user interface to help our members more easily choose content that they will find enjoyable.

Current wording

Our core strategy is to grow our business globally within the parameters of our operating margin target. We strive to continuously improve our members' experience by offering compelling content that delights them and attracts new members. We aim to offer a range of pricing plans, including our ad-supported subscription plan, to meet a variety of consumer needs. We seek to drive conversation around our content to further enhance member joy, and we are continuously enhancing our user interface to help our members more easily choose content that they will find enjoyable.

Previous wording

Operating margin for the three months ended September 30, 2024 increased seven percentage points as compared to the prior comparative period, primarily due to revenues growing at a faster rate as compared to the growth in cost of revenues and lower general and administrative expenses.

Current wording

Operating margin for the three months ended March 31, 2025 increased approximately four percentage points as compared to the prior comparative period, primarily due to revenues growing at a faster rate as compared to the growth in cost of revenues, sales and marketing, and general and administrative expenses.

Previous wording

We primarily derive revenues from monthly membership fees for services related to streaming content to our members. We offer a variety of streaming membership plans, the price of which varies by country and the features of the plan. As of September 30, 2024, pricing on our paid plans ranged from the U.S. dollar equivalent of $1 to $33 per month, and pricing on our extra member sub accounts ranged from the U.S. dollar equivalent of $2 to $8 per month. We expect that from time to time the prices of our membership plans in each country may change and we may test other plan and price variations.

Current wording

We primarily derive revenues from monthly membership fees for services related to streaming content to our members. We offer a variety of streaming membership plans, the price of which varies by country and the features of the plan. As of March 31, 2025, pricing on our plans ranged from the U.S. dollar equivalent of $1 to $31 per month, and pricing on our extra member sub accounts ranged from the U.S. dollar equivalent of $2 to $9 per month. We expect that from time to time the prices of our membership plans in each country may change and we may test other plan and price variations.

Previous wording

We also earn revenue from advertisements presented on our streaming service, consumer products, live events and various other sources. Revenues earned from sources other than monthly membership fees were not material for the three and nine months ended September 30, 2024 and September 30, 2023.

Current wording

We also earn revenues from advertisements presented on our streaming service, consumer products, live experiences and various other sources. Revenues earned from sources other than monthly membership fees were not a material component of revenues for the three months ended March 31, 2025 and March 31, 2024.

Previous wording

Streaming revenues for the three and nine months ended September 30, 2024 increased 15% and 16% as compared to the three and nine months ended September 30, 2023, respectively, primarily due to the growth in average paying memberships and price increases, partially offset by unfavorable changes in foreign exchange rates.

Current wording

Revenues for the three months ended March 31, 2025 increased 13% as compared to the three months ended March 31, 2024, primarily due to the growth in memberships and higher pricing, partially offset by unfavorable changes in foreign exchange rates, net of hedging.

Previous wording

The following tables summarize streaming revenue and other streaming membership information by region for the three and nine months ended September 30, 2024 and 2023. Hedging gains of $48 million and $70 million are included in “Streaming revenues” for the three and nine months ended September 30, 2024, respectively. No hedging gains and losses were recognized as “Streaming revenues” in the comparative prior year period. See Note 7 Derivative Financial Instruments and Hedging Activities to the consolidated financial statements for further information regarding the Company’s derivative and non-derivative financial instruments.

Current wording

The following table summarizes revenue by region for the three months ended March 31, 2025 and 2024. Hedging gains (losses) of $165 million and $(11) million are included in “Revenues” for the three months ended March 31, 2025 and 2024, respectively. See Note 7 Derivative Financial Instruments and Hedging Activities to the consolidated financial statements for further information regarding the Company’s derivative and non-derivative financial instruments.

Previous wording

(2) We believe the non-GAAP financial measure of constant currency revenue is useful in analyzing the underlying trends in average monthly revenue per paying membership (“ARM”) absent foreign currency fluctuations. However, this non-GAAP financial measure should be considered in addition to, not as a substitute for, or superior to other financial measures prepared in accordance with GAAP.

Current wording

We believe the non-GAAP financial measure of constant currency revenue is useful in analyzing period-to-period comparisons in revenues absent foreign currency fluctuations. However, this non-GAAP financial measure should be considered in addition to, not as a substitute for, or superior to other financial measures prepared in accordance with GAAP.

Previous wording

In order to exclude the effect of foreign currency rate fluctuations on ARM, we calculate current period revenue assuming foreign exchange rates had remained constant with foreign exchange rates from each of the corresponding months of the prior-year period and exclude the impact of hedging gains or losses realized as revenues. Constant currency percentage change in ARM is calculated as the percentage change between current period constant currency ARM and the prior comparative period ARM. The impact of hedging gains or losses is excluded from both the current and prior periods. For the three and nine months ended September 30, 2024, our revenues would have been approximately $476 million and $1,177 million higher, respectively, excluding the impact of hedging and had foreign currency exchange rates remained constant with those for the three and nine months ended September 30, 2023. The unfavorable foreign exchange rate impacts in the three and nine months ended September 30, 2024 were primarily driven by the devaluation of the Argentine peso relative to the U.S. dollar.

Current wording

In order to exclude the effect of foreign currency rate fluctuations on revenue, we calculate current period revenue assuming foreign exchange rates had remained constant with foreign exchange rates from each of the corresponding months of the prior-year period and exclude the impact of hedging gains or losses realized as revenues. Constant currency percentage change in revenues is calculated as the percentage change between current period constant currency revenue and the prior comparative period revenue. The impact of hedging gains or losses is excluded from both the current and prior periods.

Previous wording

Amortization of content assets makes up the majority of cost of revenues. Expenses associated with the acquisition, licensing and production of content (such as payroll, stock-based compensation, facilities, and other related personnel expenses, costs associated with obtaining rights to music included in our content, overall deals with talent, miscellaneous production related costs and participations and residuals), streaming delivery costs and other operations costs make up the remainder of cost of revenues. We have built our own global content delivery network (“Open Connect”) to help us efficiently stream a high volume of content to our members over the internet. Delivery expenses, therefore, include equipment costs related to Open Connect, payroll and related personnel expenses and all third-party costs, such as cloud computing costs, associated with delivering content over the internet. Other operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs incurred in making our content available to members.

Current wording

Expenses related to the acquisition, licensing and production of content not included in content amortization may include payroll, stock-based compensation, facilities, and other personnel-related expenses, costs associated with obtaining rights to music included in our content, overall deals with talent, miscellaneous production-related costs and participations and residuals. Streaming delivery costs are primarily related to our global content delivery network (“Open Connect”). We have built our own Open Connect network to help us efficiently stream a high volume of content to our members over the internet. Delivery expenses, therefore, include equipment costs related to Open Connect, payroll and related personnel expenses and all third-party costs, such as cloud computing costs, associated with delivering content over the internet. Other operating costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs directly incurred in making our content available to members.

Previous wording

The increase in cost of revenues was primarily due to a $126 million increase in content amortization relating to our existing and new content.

Current wording

The increase in cost of revenues was primarily due to a $152 million increase in content amortization relating to our existing and new content.

Previous wording

Marketing expenses consist primarily of advertising expenses and certain payments made to our marketing and advertising sales partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators, and internet service providers (“ISPs”). Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll, stock-based compensation, facilities, and other related expenses for personnel that support advertising sales and marketing activities.

Current wording

Sales and marketing expenses consist primarily of expenses for promotional activities such as digital and television advertising, and certain payments made to marketing and advertising sales partners. Our marketing partners include consumer electronics manufacturers, multichannel video programming distributors, mobile operators, and internet service providers. Our advertising sales partners include advertising technology providers and advertising agencies. Sales and marketing expenses also include payroll, stock-based compensation, facilities, and other related expenses for personnel that support advertising sales and marketing activities.

Previous wording

Technology and development expenses consist primarily of payroll, stock-based compensation, facilities, and other related expenses for technology personnel responsible for making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendations, merchandising and infrastructure. Technology and development expenses also include costs associated with general use computer hardware and software.

Current wording

Technology and development expenses consist primarily of payroll, stock-based compensation, facilities, and other related expenses for technology personnel responsible for making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendations and infrastructure. Technology and development expenses also include costs associated with general use computer hardware and software.

Previous wording

The increase in technology and development expenses was primarily due to a $70 million increase in personnel-related costs.

Current wording

The increase in technology and development expenses was primarily due to a $116 million increase in personnel-related costs.

Previous wording

The decrease in general and administrative expenses was primarily due to a $38 million decrease in personnel-related costs and a $24 million decrease in third-party expenses.

Current wording

The increase in general and administrative expenses was primarily due to a $25 million increase in third-party expenses.

Previous wording

Interest expense primarily consists of interest on our Notes of $185 million and $526 million for the three and nine months ended September 30, 2024. The increase in interest expense for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was due to the increase in debt. Interest expense for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 remained relatively flat.

Current wording

Interest expense primarily consists of interest on our Notes of $184 million for the three months ended March 31, 2025. The increase in interest expense for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was due to the increase in debt.

Previous wording

Interest and other income (expense) decreased in the three months ended September 30, 2024 primarily due to foreign exchange losses of $91 million, net of the impacts of derivatives and hedging, compared to gains of $89 million for the corresponding period in 2023. In the three months ended September 30, 2024, the foreign exchange losses were primarily driven by the non-cash loss of $105 million from the remeasurement of our €5,170 million Senior Notes, net of hedging impacts, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies. In the three months ended September 30, 2023, the foreign exchange gains were primarily driven by the non-cash gains from the remeasurement of our €5,170 million Senior Notes of $173 million, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies.

Current wording

Interest and other income (expense) decreased in the three months ended March 31, 2025 primarily due to foreign exchange losses of $36 million, net of the impacts of derivatives and hedging, compared to gains of $94 million for the corresponding period in 2024. In the three months ended March 31, 2025, the foreign exchange losses were primarily driven by the non-cash loss of $29 million from the remeasurement of our €5,170 million Senior Notes, net of hedging impacts, coupled with the remeasurement of cash and content liability positions in currencies other than the functional currencies. In the three months ended March 31, 2024, the foreign exchange gains were primarily driven by the non-cash gains from the remeasurement of our €5,170 million Senior Notes of $131 million, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies.

Previous wording

The increase in the effective tax rate for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to an increase in foreign taxes, partially offset by higher excess tax benefits on stock-based compensation.

Current wording

The decrease in the effective tax rate for the three months ended March 31, 2025, as compared to the same period in 2024, was primarily due to higher excess tax benefits on stock-based compensation.

Previous wording

Cash, cash equivalents, restricted cash and short-term investments increased $2,086 million in the nine months ended September 30, 2024 primarily due to cash provided by operations, issuance of debt, and proceeds from issuance of common stock, partially offset by the repurchase of stock and repayment of debt.

Current wording

Cash, cash equivalents, restricted cash and short-term investments decreased $1,211 million in the three months ended March 31, 2025 primarily due to the repurchase of stock and repayment of debt, partially offset by cash provided by operations and proceeds from issuance of common stock.

Previous wording

Debt, net of debt issuance costs and discounts, increased $1,438 million primarily due to the issuance of debt and remeasurement of our euro-denominated notes, partially offset by the repayment upon maturity of the $400 million aggregate principal amount of our 5.750% Senior Notes in the nine months ended September 30, 2024. The amount of principal and interest on our outstanding notes due in the next twelve months is $2,579 million. As of September 30, 2024, no amounts had been borrowed under the $3 billion Revolving Credit Agreement. See Note 6 Debt in the accompanying notes to our consolidated financial statements.

Current wording

Debt, net of debt issuance costs and discounts, decreased $566 million primarily due to the repayment upon maturity of the $800 million aggregate principal amount of our 5.875% Senior Notes, partially offset by the remeasurement of our euro-denominated notes in the three months ended March 31, 2025. The amount of principal and interest on our outstanding notes due in the next twelve months is $1,697 million. As of March 31, 2025, no amounts had been borrowed under the $3 billion Revolving Credit Agreement. See Note 6 Debt in the accompanying notes to our consolidated financial statements.

Previous wording

Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may discontinue any repurchases of our common stock at any time without prior notice. During the nine months ended September 30, 2024, the Company repurchased 8,696,108 shares of common stock for an aggregate amount of $5.3 billion. As of September 30, 2024, $3.1 billion remains available for repurchases.

Current wording

In September 2023, the Board of Directors authorized the repurchase of up to $10 billion of our common stock, with no expiration date, and in December 2024, the Board of Directors increased the share repurchase authorization by an additional $15 billion, also with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may discontinue any repurchases of our common stock at any time without prior notice. During the three months ended March 31, 2025, the Company repurchased 3,713,828 shares of common stock for an aggregate amount of $3.5 billion. As of March 31, 2025, $13.6 billion remains available for repurchases.

Previous wording

Our primary uses of cash include the acquisition, licensing and production of content, marketing programs, streaming delivery and personnel-related costs, as well as strategic acquisitions and investments. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. For example, production costs are paid as the content is created, well in advance of when the content is available on the service and amortized. We expect to continue to significantly invest in global content, particularly in original content, which will impact our liquidity. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for the next twelve months and beyond.

Current wording

Our primary uses of cash include the acquisition, licensing and production of content, marketing programs, streaming delivery, and personnel-related costs. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. For example, production costs are paid as the content is created, well in advance of when the content is available on the service and amortized. We expect to continue to significantly invest in global content, particularly in original content, which will impact our liquidity. Our other uses of cash include strategic acquisitions and investments, as well as share repurchases. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for the next twelve months and beyond.

Previous wording

(1)As of September 30, 2024, content obligations were comprised of $4.5 billion included in “Current content liabilities” and $1.9 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and $16.3 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.

Current wording

(1)As of March 31, 2025, content obligations were comprised of $4.1 billion included in “Current content liabilities” and $1.7 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and $16.0 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.

Previous wording

Net cash provided by operating activities for the nine months ended September 30, 2024 increased $213 million as compared to the corresponding period in 2023, primarily driven by a $2,373 million or 53% increase in net income, an increase in adjustments for non-cash expenses, and favorable changes in working capital, partially offset by an increase in payments for content assets. The payments for content assets increased $2,774 million, from $9,660 million to $12,434 million, or 29%.

Current wording

Net cash provided by operating activities for the three months ended March 31, 2025 increased $577 million as compared to the corresponding period in 2024, primarily driven by a $558 million or 24% increase in net income, an increase in adjustments for non-cash expenses, partially offset by unfavorable changes in working capital and a $43 million increase in payments for content assets.

Previous wording

Net cash provided by (used in) investing activities for the three months ended September 30, 2024 decreased $2,165 million as compared to the corresponding period in 2023, primarily due to purchases of investments of $1.7 billion, coupled with there being no proceeds from maturities of investments in the three months ended September 30, 2024, as compared to proceeds from maturities of investments of $400 million in the three months ended September 30, 2023.

Current wording

Net cash provided by (used in) investing activities for the three months ended March 31, 2025 increased $561 million as compared to the corresponding period in 2024, primarily due to net cash inflows of $614 million from maturities, sales and purchases of investments in the three months ended March 31, 2025 as compared to no cash flows related to investments in the corresponding period in 2024, partially offset by a $53 million increase in purchases of property and equipment.

Previous wording

Net cash used in financing activities for the nine months ended September 30, 2024 decreased $103 million as compared to the corresponding period in 2023, primarily due to proceeds from the issuance of debt of $1,794 million in the nine months ended September 30, 2024 and a $412 million increase in the proceeds from the issuance of common stock from $119 million in the nine months ended September 30, 2023 to $531 million in the nine months ended September 30, 2024. These cash inflows were partially offset by a $1.8 billion increase in the repurchases of common stock from an aggregate amount of $3.5 billion of repurchases in the nine months ended September 30, 2023 to $5.3 billion in the nine months ended September 30, 2024, coupled with the repayment upon maturity of the $400 million aggregate principal amount of our 5.750% Senior Notes in the nine months ended September 30, 2024 as compared to no repayments of debt in the corresponding period in 2023.

Current wording

Net cash used in financing activities for the three months ended March 31, 2025 increased $1,895 million as compared to the corresponding period in 2024, primarily driven by a $1,536 million increase in repurchases of common stock, coupled with a $400 million increase in repayments of debt due to the repayment upon maturity of the $800 million aggregate principal amount of our 5.875% Senior Notes in the three months ended March 31, 2025 as compared to the repayment upon maturity of the $400 million aggregate principal amount of our 5.750% Senior Notes in the three months ended March 31, 2024.