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October 16, 2019 4:39 PM EDT


Exhibit 99.1
October 16, 2019

Fellow shareholders,

In Q3, we grew to $5.2 billion in revenue, up 31% over the prior year, and operating income doubled to $1.0 billion. Paid net adds totaled 6.8m compared to our 7.0m forecast and prior year Q3 of 6.1m. As we’ve improved the variety, diversity and quality of our content slate, member engagement has grown, revenue has increased, and we’re able to further fund our content investment.
(in millions except per share data and Streaming Content Obligations)
Q3'18
Q4'18
Q1'19
Q2'19
Q3'19
Q4'19 Forecast
Revenue
$
3,999

$
4,187

$
4,521

$
4,923

$
5,245

$
5,442

Y/Y % Growth
34.0
%
27.4
%
22.2
%
26.0
%
31.1
%
30.0
%
Operating Income
$
481

$
216

$
459

$
706

$
980

$
475

Operating Margin
12.0
%
5.2
%
10.2
%
14.3
%
18.7
%
8.7
%
Net Income
$
403

$
134

$
344

$
271

$
665

$
232

Diluted EPS
$
0.89

$
0.30

$
0.76

$
0.60

$
1.47

$
0.51

 
 
 
 
 
 
 
Global Streaming Paid Memberships
130.42

139.26

148.86

151.56

158.33

165.93

Y/Y % Growth
25.4
%
25.9
%
25.2
%
21.9
%
21.4
%
19.2
%
Global Streaming Paid Net Additions
6.07

8.84

9.60

2.70

6.77

7.60

 
 
 
 
 
 
 
Net cash (used in) operating activities
$
(690
)
$
(1,235
)
$
(380
)
$
(544
)
$
(502
)
 
Free Cash Flow*
$
(859
)
$
(1,315
)
$
(460
)
$
(594
)
$
(551
)
 
Adjusted EBITDA**
$
584

$
328

$
584

$
836

$
1,107

 
Shares (FD)
451.9

451.1

451.9

452.2

451.6

 
Streaming Content Obligations*** ($B)
18.6

19.3

18.9

18.5

19.1

 
Note: Figures are consolidated, including DVD.
 
 
 
 
 
 
* Free cash flow represents Net Cash (used in) operating activities adjusted for acquisition of DVD content assets, purchases of property and equipment and change in other assets
** Adjusted EBITDA represents net income before interest expense and other income/expense, income taxes, depreciation and amortization of property and equipment and further adjusted to exclude other non-cash charges or non-recurring items
*** 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

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1

Q3 Results and Q4 Forecast
In Q3’19, average streaming paid memberships and ARPU grew 22% and 9% year over year, respectively. Excluding a -$137m year over year impact from F/X, consolidated revenue growth was 35%, while streaming ARPU growth was 12%. Operating margin of 18.7% (up 670 bps year over year) was above our guidance due to timing of content and marketing spend, which will be more weighted to Q4’19. EPS amounted to $1.47 vs. $0.89 and included a $171 million non-cash unrealized gain from F/X remeasurement on our Euro denominated debt. Our Euro bonds provide us with a small natural hedge for our growing European revenues.

Total paid net adds of 6.8m increased 12% year over year and was an all-time Q3 record. As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy. In Q3, our guidance forecast was our most accurate in recent history.

globalpaidnetaddsq319a04.jpg

In the US, paid net adds totaled 0.5m in Q3 vs. our 0.8m forecast, and year to date paid net adds are 2.1m vs. 4.1m in the first nine months of 2018. Since our US price increase earlier this year, retention has not yet fully returned on a sustained basis to pre-price-change levels, which has led to slower US membership growth. On a member base of more than 60m, very small movements in churn can have a meaningful impact on paid net adds. However, revenue growth has been accelerating as US ARPU increased 16.5% year over year in Q3. With more revenue, we’ll continue to invest to improve our service to further strengthen our value proposition.
International paid net additions totaled 6.3m in Q3, a 23% increase vs. 5.1m in the year ago quarter, and slightly above our 6.2m guidance forecast. The US dollar strengthened vs. several key currencies over the course of the quarter, which resulted in the variance between our forecasted vs. actual international revenue. International ARPU, excluding the impact of F/X, rose 10% year over year. We’re making strides in our key markets and, while we have much more work to do in Asia in the coming years, we are seeing encouraging signs of progress.
 

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2

For Q4, we’re expecting consolidated revenue to increase 30% year over year with 9% streaming ARPU growth. We’re forecasting 7.6m global paid net adds (vs. 8.8m last Q4), with 0.6m in the US and 7.0m for the international segment. This implies full year 2019 paid net adds of 26.7m, down from 28.6m last year. While we had previously expected 2019 paid net adds to be up year over year, our current forecast reflects several factors including less precision in our ability to forecast the impact of our Q4 content slate, which consists of several new big IP launches (as opposed to returning seasons), the minor elevated churn in response to some price changes, and new forthcoming competition. As we outline in more detail below, our long term outlook on our business is unchanged.

weeklypaidnetaddsytd.jpg
We’re on track to achieve our full year 2019 operating margin goal of 13%. In 2020, we’ll be targeting another 300 basis points in operating margin expansion, consistent with the annual margin improvement we’ve delivered each year since 2017. As we’ve said previously, large swings in F/X could lead to some variations from our steady annual margin progression, partially because we don’t buy derivatives to hedge our F/X exposure and about half of our revenue is not in US dollars.

Content
We strive to program Netflix with the best variety of high quality content across many genres (scripted series, films, docs, comedy specials, unscripted TV, kids & family, anime, etc.). Our ambitious approach reflects our goal to satisfy the entertainment desires of our 158m-plus members and to attract as many of the hundreds of millions of non-members as we can. To accomplish this, we need great breadth of quality content because people have very diverse tastes.

If you think about your own habits, you’ll recognize that what you want to watch on a Friday night may differ from what you want to watch on Tuesday after a long day of work or what you want to watch with your family on Saturday morning or what you want to watch with your friends on Sunday afternoon. Now, multiply that by the billions of people on the planet and all the other factors that affect viewing preferences and you will have a sense of the breadth of programming necessary to be as successful as we desire.


nflxlogo2015a21.jpg
3

We have been moving increasingly to original content both because of the anticipated pullback of second run content from some studios and because our original content is working in the form of member viewing and engagement. We started first with English scripted TV series more than six years ago to great success. We continued in Q3 with Stranger Things1 Season 3 (the most watched season to date with 64m member households in its first four weeks). We also introduced new limited series like Unbelievable2, one of our most thought provoking and highly viewed dramas (watched by 32m member households in its first 28 days).

We’re expanding our non-English language original offerings because they continue to help grow our penetration in international markets. In Q3, Season 3 of La Casa de Papel3 (aka Money Heist) became the most watched show on Netflix across our non-English language territories with 44m households watching the new season in the first four weeks of release. Sintonia4, our latest Brazilian original, was the second most watched inaugural season in Brazil. The Naked Director5 broke out as the biggest title launch for us in Japan and was also highly successful throughout Asia. Similarly, in India, we debuted the second season of Sacred Games6, our most watched show in India. To date, we have globally released 100 seasons of local language, original scripted series from 17 countries and have plans for over 130 more in 2020. We also plan to expand our investment in local language original films and unscripted series.

We’re also investing aggressively in original films and making great progress with improving results. Our original film slate in Q3 featured several solid hits like Secret Obsession7 (starring Brenda Song) and Otherhood8 (directed by Cindy Chupack in her feature directorial debut), which were watched by 40 million and 29 million households in their first four weeks, respectively. Tall Girl9, a new family film starring Ava Michelle, was also a success with 41m households watching in the first 28 days. We expect that our Q4 film releases will continue to build and strengthen our film effort. Q4 film releases include Martin Scorsese’s The Irishman10 (with Robert De Niro, Al Pacino, and Joe Pesci), Marriage Story11 (starring Scarlett Johansson and Adam Driver) and The Two Popes12 (featuring Anthony Hopkins and Jonathan Pryce), all of which have emerged as early Oscar frontrunners. We also have several big releases such as Dolemite is My Name13 (starring Eddie Murphy and featuring a breakout performance from Da'Vine Joy Randolph), 6 Underground14 (directed by Michael Bay and starring Ryan Reynolds), The Laundromat15, from director Steven Soderbergh and starring Meryl Streep and Gary Oldman and The King16 (starring Timothée Chalamet, Lily-Rose Depp and Joel Edgerton) as well as animated features Klaus17 and I Lost My Body18.



___________________________________
1 https://www.forbes.com/sites/lisettevoytko/2019/07/09/netflix-stranger-things-3-smashes-its-record/#7c52af0967c9
2 https://www.theatlantic.com/entertainment/archive/2019/09/netflix-unbelievable-sexual-assault-revolutionary-competence/598411/
3 https://variety.com/2019/digital/news/netflix-la-casa-de-papel-part-3-wows-madrid-world-premiere-1203265758/
4 https://variety.com/2019/tv/global/netflix-kond-losbragas-sintonia-synch-with-brazils-youtube-crowd-1203289251/
5 https://www.japantimes.co.jp/culture/2019/09/12/films/naked-director-japan-scores-global-netflix-hit/#.XaUbiOdKjOS
6 https://www.express.co.uk/showbiz/tv-radio/1185969/Sacred-Games-Netflix-Emmy-nomination-series-India-Lust-Stories
7 https://www.popsugar.com/entertainment/Netflix-Secret-Obsession-Review-Spoilers-46437478
8 https://www.glamour.com/story/otherhood-on-netflix
9 https://www.teenvogue.com/story/netflix-tall-girl-star-ava-michelle-learned-to-embrace-height
10 https://www.cnn.com/2019/07/31/entertainment/the-irishman-trailer/index.html
11 https://www.vanityfair.com/hollywood/2019/08/marriage-story-movie-review-adam-driver-scarlett-johansson
12 https://www.hollywoodreporter.com/review/two-popes-review-1235993
13 https://www.youtube.com/watch?v=Ws1YIKsuTjQ
14 https://www.youtube.com/watch?v=YLE85olJjp8
15 https://www.youtube.com/watch?v=wuBRcfe4bSo&feature=youtu.be
16 https://www.youtube.com/watch?v=yMJnsTx-TBg
17 https://deadline.com/video/klaus-director-sergio-pablos-netflix-featurette-news/
18 https://youtu.be/7EotTxCNtsA

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4


Our goal is to have the quality of our slate rival the ambition of its scope. An example is Orange is the New Black, which wrapped its final new season in Q3. The show was celebrated by fans and the media for the groundbreaking role it played for Netflix and the culture at large; Time Magazine said “...’Orange is the New Black’ is the most important TV show of the decade.”19 Our very popular Ozark, Our Planet, Queer Eye, Black Mirror: Bandersnatch and When They See Us led 40 Netflix original series and films to a record 117 Emmy Nominations and 27 wins in 2019.

With so many firms now looking to provide premium video content to consumers, it’s a great time to be a creator of content. Amazing content can be expensive. We don’t shy away from taking bold swings if we think the business impact will also be amazing. We don’t close every deal we chase and we don’t chase every deal on the table. And while not all projects that we do pursue will work out, our large and growing subscription base helps enable us to try many approaches, while the size of our content budget (~$10 billion on P&L spend and ~$15 billion in cash content spend in 2019) insulates us from dependency on any single title. We’ll continue to learn as we go, while staying disciplined by assessing each opportunity individually, steadily marching up our operating margin and improving free cash flow.

Product and Partnerships
We seek to make it easier for future members to sign up and enjoy Netflix. To that end, we rolled out a lower priced mobile plan in India in July and we’re pleased with the results. Our approach with pricing is to grow revenue and so far, uptake and retention on our mobile plan in India has been better than our initial testing suggested. This will allow us to invest more in Indian content to further satisfy our members. While still only a very small percentage of our total subscriber base, we’re continuing to test mobile-only plans in other markets.

We continued to expand our partner-based bundle offerings, adding bundles with Sky Italia, Canal+ in France, KDDI in Japan and Izzi in Mexico this quarter. We just localized our service in Vietnamese, Hungarian and Czech so that more entertainment fans can enjoy thousands of hours of TV shows and films in their preferred language. We’ll continue to expand language coverage and accessibility.

Competition
We compete broadly for entertainment time. This means there are many competitive activities to Netflix (from watching linear TV to playing video games, for example). But there is also a very large market opportunity; today we believe we’re less than 10% of TV screen time in the US (our most mature market) and much less than that in mobile screen time. Many are focused on the “streaming wars,” but we’ve been competing with streamers (Amazon, YouTube, Hulu) as well as linear TV for over a decade. The upcoming arrival of services like Disney+, Apple TV+, HBO Max, and Peacock is increased competition, but we are all small compared to linear TV. While the new competitors have some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world.





___________________________________
19 https://time.com/5631804/orange-is-the-new-black-season-7-legacy/

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5

The launch of these new services will be noisy. There may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance. In the long-term, though, we expect we’ll continue to grow nicely given the strength of our service and the large market opportunity. By way of example, our growth in Canada, where Hulu does not exist, is nearly identical to our growth in the US (where Hulu is very successful at about 30 million paid memberships). Our penetration in both markets below:

paidmembershipofbbh.jpg

We believe this is due to the big factor of streaming growing into linear TV plus the fact that streaming video services have mostly exclusive content libraries that make them highly differentiated from one another. In our view, the likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on demand consumption of entertainment. Just like the evolution from broadcast TV to cable, these once-in-a-generation changes are very large and open up big, new opportunities for many players. For example, for the first few decades of cable, networks like TBS, USA, ESPN, MTV and Discovery didn’t take much audience share from each other, but instead, they collectively took audience share from broadcast viewing.

Content creation is booming around the world and everyone is vying for consumer attention. Over the next 10 years, many streaming services will grow viewing as streaming replaces linear TV. Our focus will continue to be on pleasing our members and growing engagement because that approach has served us well since 1997. Total viewing, as measured by various 3rd parties, is the best indicator of our relative success since it’s a signal of customer satisfaction, and few of the services will disclose streaming video revenue, and subscriber figures are hard to interpret (given bundles, discounts and other promotions). Our focused approach to date has driven meaningful growth in our membership base and engagement.

We did well during the first decade of streaming. We’ve been preparing for this new wave of competition for a long time. It’s why we started investing in originals in 2012 and expanded aggressively ever since - across programming categories and countries with an ambition to share stories from the world to the world. In Q4, with The Crown, The Witcher, Klaus, The Irishman, The Two Popes, 6 Underground, and many other amazing titles launching, we’re ready to compete to earn consumers’ attention and viewing.


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6

Cash Flow and Capital Structure
Net cash used in operating activities in Q3’19 was -$502 million vs. -$690 million in the prior year period. Free cash flow20 in Q3 totaled -$551 million vs. -$859 million in Q3’18. For the full year 2019, we’re still expecting FCF of approximately -$3.5 billion. With our quickly growing revenue base and expanding operating margins, we will be able to fund more of our content spending internally. As a result, we’re expecting free cash flow to improve in 2020 vs. 2019 and we expect to continue to improve annually beyond 2020. As we move slowly toward FCF positive, our plan is to continue to use the high yield market in the interim to finance our investment needs.

Next Year Reporting
Starting with our Q4’19 earnings report in January 2020, we plan to disclose revenue and membership by region, which is how we think about our business. Our four regions are Asia Pacific (APAC), Europe, Middle East & Africa (EMEA), Latin America (LATAM), and the US and Canada (UCAN). UCAN is roughly 90% US and 10% Canada. Under this new reporting format, we’ll only provide membership guidance for global paid memberships for the next quarter with each earnings report.

As we self-produce and license more original content that has global rights, we are finding US vs. international segment contribution margin reporting is becoming less useful internally. We’ll stop reporting on it in January 2020 and continue to focus on global operating margin as our primary profitability metric. As a reminder, we’ll no longer report free trial members beginning in 2020 as we informed you in our Q3’18 investor letter21.

















___________________________________
20 For a reconciliation of free cash flow to net cash (used in) operating activities, please refer to the reconciliation in tabular form on the
attached unaudited financial statements and the footnotes thereto.
21 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q3/FINAL-Q3-18-Shareholder-Letter.pdf

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7

(in millions)
Q3'18
Q4'18
Q1'19
Q2'19
Q3'19
Q4'19 Forecast
US Streaming:
 
 
 
 
 
 
Revenue
$
1,937

$
1,996

$
2,074

$
2,299

$
2,413

$
2,455

Contribution Profit*
$
688

$
590

$
713

$
852

$
991

$
777

Contribution Margin*
35.5
%
29.6
%
34.4
%
37.1
%
41.1
%
31.6
%
Paid Memberships
56.96

58.49

60.23

60.10

60.62

61.22

Paid Net Additions
1.00

1.53

1.74

(0.13
)
0.52

0.60

Free Trials
1.51

2.07

1.56

1.58

1.38

 
 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
1,973

$
2,106

$
2,367

$
2,548

$
2,760

$
2,918

Contribution Profit*
$
218

$
82

$
274

$
416

$
558

$
309

Contribution Margin*
11.0
%
3.9
%
11.6
%
16.3
%
20.2
%
10.6
%
Paid Memberships
73.46

80.77

88.63

91.46

97.71

104.71

Paid Net Additions
5.07

7.31

7.86

2.83

6.26

7.00

Free Trials
5.17

7.13

5.00

4.48

4.22

 
 
 
 
 
 
 
 
*Certain prior period amounts have been reclassified from G&A to Cost of revenues and Marketing and from Tech & Dev to Cost of revenues to conform to current period presentation
Note: As announced in our Q3'18 investor letter, we will cease reporting end-of-quarter free trial count in January of 2020.
Reference
For quick reference, our eight most recent investor letters are: July 2019,22 April 2019,23 January 2019,24 October 2018,25 July 2018,26 April 2018,27 January 2018,28 October 2017.29 








___________________________________
22 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2019/q2/Q2-19-Shareholder-Letter-FINAL.pdf
23 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2019/q1/FINAL-Q1-19-Shareholder-Letter.pdf
24 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q4/01/FINAL-Q4-18-Shareholder-Letter.pdf
25 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q3/FINAL-Q3-18-Shareholder-Letter.pdf
26 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q2/FINAL-Q2-18-Shareholder-Letter.pdf
27 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q1/FINAL-Q1-18-Shareholder-Letter.pdf
28 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q4/COMBINED-Q4-17-Shareholder-Letter-FINAL.pdf
29 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q3/Q3_17_Shareholder_Letter_COMBINED.pdf

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8

October 16, 2019 Earnings Interview, 3pm PST
Our video interview with Michael Morris of Guggenheim Securities will be on youtube/netflixir at 3pm PST today. Questions that investors would like to see asked should be sent to [email protected]. Reed Hastings, CEO, Spence Neumann, CFO, Ted Sarandos, Chief Content Officer, Greg Peters, Chief Product Officer and Spencer Wang, VP of IR/Corporate Development will all be on the video to answer Michael’s questions.

 
IR Contact: 
PR Contact: 
Spencer Wang
Richard Siklos
VP, Finance/IR & Corporate Development
VP, Corporate Communications
408 809-5360
408 540-2629


























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9


Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measure of free cash flow and adjusted EBITDA. Management believes that free cash flow and adjusted 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 pricing; investments in our service; future content offerings and approach to accessing content; investment in local language original films and unscripted series; evolution of streaming video services; product tests and changes; impact of and reaction to competition; future capital raises; U.S. and international streaming paid memberships, paid net additions, revenue, contribution profit (loss) and contribution margin; consolidated revenue, revenue growth, operating income, operating margin, net income, and earnings per share; free cash flow; and changes to earnings reports. 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 (“SEC”) on January 29, 2019, as amended by Form 10-K/A, filed with the SEC on February 8, 2019. 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, as amended by Form 10-K/A. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.














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10


Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Revenues
$
5,244,905

 
$
4,923,116

 
$
3,999,374

 
$
14,689,013

 
$
11,607,500

Cost of revenues
3,097,919

 
3,005,657

 
2,531,128

 
8,974,190

 
7,234,138

Marketing
553,797

 
603,150

 
510,330

 
1,773,525

 
1,639,114

Technology and development
379,776

 
383,233

 
308,620

 
1,135,773

 
890,025

General and administrative
233,174

 
224,657

 
168,628

 
659,783

 
454,764

Operating income
980,239

 
706,419

 
480,668

 
2,145,742

 
1,389,459

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(160,660
)
 
(152,033
)
 
(108,862
)
 
(448,222
)
 
(291,686
)
Interest and other income (expense)
192,744

 
(53,470
)
 
7,004

 
215,378

 
9,289

Income before income taxes
1,012,323

 
500,916

 
378,810

 
1,912,898

 
1,107,062

Provision for (benefit from) income taxes
347,079

 
230,266

 
(24,025
)
 
632,952

 
29,754

Net income
$
665,244

 
$
270,650

 
$
402,835

 
$
1,279,946

 
$
1,077,308

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
1.52

 
$
0.62

 
$
0.92

 
$
2.93

 
$
2.48

Diluted
$
1.47

 
$
0.60

 
$
0.89

 
$
2.83

 
$
2.39

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
438,090

 
437,587

 
435,809

 
437,547

 
435,033

Diluted
451,552

 
452,195

 
451,919

 
451,896

 
451,283




nflxlogo2015a21.jpg
11


Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands)
 
 
As of
 
September 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
4,435,018

 
$
3,794,483

Current content assets, net
—

 
5,151,186

Other current assets
892,740

 
748,466

Total current assets
5,327,758

 
9,694,135

Non-current content assets, net
23,234,994

 
14,960,954

Property and equipment, net
481,992

 
418,281

Other non-current assets
1,896,967

 
901,030

Total assets
$
30,941,711

 
$
25,974,400

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
4,860,542

 
$
4,686,019

Accounts payable
444,129

 
562,985

Accrued expenses and other liabilities
1,037,723

 
477,417

Deferred revenue
915,506

 
760,899

Total current liabilities
7,257,900

 
6,487,320

Non-current content liabilities
3,419,552

 
3,759,026

Long-term debt
12,425,746

 
10,360,058

Other non-current liabilities
977,008

 
129,231

Total liabilities
24,080,206

 
20,735,635

Stockholders' equity:
 
 
 
Common stock
2,677,972

 
2,315,988

Accumulated other comprehensive loss
(41,246
)
 
(19,582
)
Retained earnings
4,224,779

 
2,942,359

Total stockholders' equity
6,861,505

 
5,238,765

Total liabilities and stockholders' equity
$
30,941,711

 
$
25,974,400

 


nflxlogo2015a21.jpg
12


Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019

June 30,
2019

September 30,
2018

September 30,
2019
 
September 30,
2018
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
665,244

 
$
270,650

 
$
402,835

 
$
1,279,946

 
$
1,077,308

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content assets
(3,648,292
)
 
(3,325,103
)
 
(3,238,717
)
 
(9,971,141
)
 
(9,259,185
)
Change in streaming content liabilities
(95,548
)
 
(12,414
)
 
65,868

 
(122,660
)
 
733,227

Amortization of streaming content assets
2,279,977

 
2,231,915

 
1,911,767

 
6,636,578

 
5,478,428

Amortization of DVD content assets
6,654

 
7,656

 
9,959

 
22,819

 
32,247

Depreciation and amortization of property, equipment and intangibles
26,704

 
25,496

 
21,161

 
75,761

 
59,938

Stock-based compensation expense
100,262

 
103,848

 
82,316

 
305,310

 
231,943

Other non-cash items
51,280

 
53,039

 
8,962

 
141,518

 
31,092

Foreign currency remeasurement loss (gain) on long-term debt
(171,360
)
 
61,284

 
(7,670
)
 
(167,676
)
 
(52,000
)
Deferred taxes
52,105

 
35,519

 
(39,453
)
 
94,251

 
(71,041
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Other current assets
145

 
(24,231
)
 
(30,364
)
 
(56,162
)
 
(111,833
)
Accounts payable
(7,643
)
 
(2,674
)
 
(4,449
)
 
(134,784
)
 
77,367

Accrued expenses and other liabilities
260,872

 
(26,705
)
 
134,000

 
391,814

 
200,198

Deferred revenue
22,729

 
84,085

 
18,983

 
154,607

 
98,101

Other non-current assets and liabilities
(44,923
)
 
(26,119
)
 
(25,609
)
 
(75,528
)
 
28,803

Net cash used in operating activities
(501,794
)
 
(543,754
)
 
(690,411
)
 
(1,425,347
)
 
(1,445,407
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of DVD content assets
(4,634
)
 
(7,798
)
 
(7,731
)
 
(21,602
)
 
(31,079
)
Purchases of property and equipment
(45,333
)
 
(39,584
)
 
(39,333
)
 
(145,298
)
 
(103,826
)
Change in other assets
613

 
(2,654
)
 
(121,630
)
 
(12,593
)
 
(123,857
)
Net cash used in investing activities
(49,354
)
 
(50,036
)
 
(168,694
)
 
(179,493
)
 
(258,762
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of debt
—

 
2,243,196

 
—

 
2,243,196

 
1,900,000

Debt issuance costs
—

 
(18,192
)
 
—

 
(18,192
)
 
(16,992
)
Proceeds from issuance of common stock
11,989

 
21,896

 
29,781

 
56,857

 
113,052

Other financing activities
—

 
—

 
(544
)
 
—

 
(1,397
)
Net cash provided by financing activities
11,989

 
2,246,900

 
29,237

 
2,281,861

 
1,994,663

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(29,325
)
 
4,998

 
(5,562
)
 
(29,341
)
 
(34,725
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(568,484
)
 
1,658,108

 
(835,430
)
 
647,680

 
255,769

Cash, cash equivalents and restricted cash at beginning of period
5,028,205

 
3,370,097

 
3,913,994

 
3,812,041

 
2,822,795

Cash, cash equivalents and restricted cash at end of period
$
4,459,721

 
$
5,028,205

 
$
3,078,564

 
$
4,459,721

 
$
3,078,564

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
$
(501,794
)
 
$
(543,754
)
 
$
(690,411
)
 
$
(1,425,347
)
 
$
(1,445,407
)
Acquisition of DVD content assets
(4,634
)
 
(7,798
)
 
(7,731
)
 
(21,602
)
 
(31,079
)
Purchases of property and equipment
(45,333
)
 
(39,584
)
 
(39,333
)
 
(145,298
)
 
(103,826
)
Change in other assets
613

 
(2,654
)
 
(121,630
)
 
(12,593
)
 
(123,857
)
Non-GAAP free cash flow
$
(551,148
)
 
$
(593,790
)
 
$
(859,105
)
 
$
(1,604,840
)
 
$
(1,704,169
)

nflxlogo2015a21.jpg
13


Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Nine Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Domestic Streaming
 
 
 
 
 
 
 
 
 
Paid memberships at end of period
60,620

 
60,103

 
56,957

 
60,620

 
56,957

Paid net membership additions (losses)
517

 
(126
)
 
998

 
2,134

 
4,147

Free trials
1,375

 
1,575

 
1,507

 
1,375

 
1,507

 
 
 
 
 
 
 
 
 
 
Revenues
$
2,412,598

 
$
2,299,189

 
$
1,937,314

 
$
6,785,342

 
$
5,650,555

Cost of revenues
1,210,105

 
1,196,420

 
1,038,473

 
3,546,060

 
2,944,948

Marketing
211,793

 
250,606

 
210,595

 
683,445

 
712,612

Contribution profit
990,700

 
852,163

 
688,246

 
2,555,837

 
1,992,995

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Paid memberships at end of period
97,714

 
91,459

 
73,465

 
97,714

 
73,465

Paid net membership additions
6,255

 
2,825

 
5,070

 
16,941

 
15,631

Free trials
4,215

 
4,481

 
5,170

 
4,215

 
5,170

 
 
 
 
 
 
 
 
 
 
Revenues
$
2,760,430

 
$
2,547,727

 
$
1,973,283

 
$
7,674,906

 
$
5,676,513

Cost of revenues
1,860,021

 
1,778,890

 
1,455,554

 
5,336,032

 
4,169,772

Marketing
342,004

 
352,544

 
299,735

 
1,090,080

 
926,502

Contribution profit
558,405

 
416,293

 
217,994

 
1,248,794

 
580,239

 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Paid memberships at end of period
2,276

 
2,411

 
2,828

 
2,276

 
2,828

Free trials
16

 
17

 
24

 
16

 
24

 
 
 
 
 
 
 
 
 
 
Revenues
$
71,877

 
$
76,200

 
$
88,777

 
$
228,765

 
$
280,432

Cost of revenues
27,793

 
30,347

 
37,101

 
92,098

 
119,418

Contribution profit
44,084

 
45,853

 
51,676

 
136,667

 
161,014

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
5,244,905

 
$
4,923,116

 
$
3,999,374

 
$
14,689,013

 
$
11,607,500

Cost of revenues
3,097,919

 
3,005,657

 
2,531,128

 
8,974,190

 
7,234,138

Marketing
553,797

 
603,150

 
510,330

 
1,773,525

 
1,639,114

Contribution profit
1,593,189

 
1,314,309

 
957,916

 
3,941,298

 
2,734,248

Other operating expenses
612,950

 
607,890

 
477,248

 
1,795,556

 
1,344,789

Operating income
980,239

 
706,419

 
480,668

 
2,145,742

 
1,389,459

Other income (expense)
32,084

 
(205,503
)
 
(101,858
)
 
(232,844
)
 
(282,397
)
Provision for (benefit from) income taxes
347,079

 
230,266

 
(24,025
)
 
632,952

 
29,754

Net income
$
665,244

 
$
270,650

 
$
402,835

 
$
1,279,946

 
$
1,077,308






nflxlogo2015a21.jpg
14

Netflix, Inc.
Non-GAAP Information
(unaudited)
(in thousands)

 
 
 
September 30,
2018
 
December 31,
2018
 
March 31,
2019
 
June 30,
2019
 
September 30,
2019
Non-GAAP Adjusted EBITDA reconciliation:
 
 
 
 
 
 
 
 
 
GAAP net income
$
402,835

 
$
133,934

 
$
344,052

 
$
270,650

 
$
665,244

Add:
 
 
 
 
 
 
 
 
 
Other expense (income)
101,858

 
96,371

 
59,425

 
205,503

 
(32,084
)
Provision for (benefit from) income taxes
(24,025
)
 
(14,538
)
 
55,607

 
230,266

 
347,079

Depreciation and amortization of property, equipment and intangibles
21,161

 
23,219

 
23,561

 
25,496

 
26,704

Stock-based compensation expense
82,316

 
88,714

 
101,200

 
103,848

 
100,262

Adjusted EBITDA
$
584,145

 
$
327,700

 
$
583,845

 
$
835,763

 
$
1,107,205


nflxlogo2015a21.jpg
15

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