10-QPeriod: Q1 FY2014

NETFLIX INC Quarterly Report for Q1 Ended Mar 31, 2014

Filed April 23, 2014For Securities:NFLX

Summary

Netflix, Inc. reported strong first-quarter 2014 results, demonstrating robust growth across its streaming segments. Total revenues increased by a significant 24% year-over-year, driven by substantial member additions both domestically and internationally. The company has successfully leveraged its expanding subscriber base to achieve a remarkable 207% surge in operating income and a 1,875% jump in net income compared to the same period in the prior year. This financial performance underscores Netflix's continued dominance in the streaming market and its effective strategy of content investment and international expansion. The company's strategic focus on growing its streaming business is yielding positive results, with particular strength observed in the International Streaming segment, which saw an 88% revenue increase and a significant improvement in contribution loss. While the Domestic DVD segment continues its decline, its high contribution margin remains a stable source of profit. Netflix is actively managing its content pipeline and expects to further increase investments in original content and international market penetration, signaling a confident outlook for future growth, albeit with ongoing capital needs for content acquisition and expansion.

Financial Highlights

49 data points
Beta

Revenue

$1.27B

31.6% Gross Margin

Net Income

$53.12M

4.2% Net Margin

EPS (Diluted)

$0.01

Total Assets

$6.05B

Cash & Equivalents

$1.16B

Free Cash Flow

$23.02M

Financial Statements
Beta
Revenue$1.27B
Cost of Revenue$869.19M
Gross Profit$400.90M
R&D Expenses$110.31M
Operating Income$97.59M
Interest Expense$10.05M
Net Income$53.12M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)4.19B
Shares Outstanding (Diluted)4.31B

Key Highlights

  • 1Total revenues surged 24% year-over-year to $1,270 million.
  • 2Operating income dramatically increased by 207% to $97.6 million.
  • 3Net income saw an impressive 1,875% rise to $53.1 million.
  • 4Domestic Streaming segment revenue grew 25% and contribution profit by 53%, with contribution margin improving to 25%.
  • 5International Streaming segment revenue soared 88%, and its contribution loss improved by 55%.
  • 6Free cash flow turned positive at $8.4 million, a significant improvement from a negative $41.5 million in Q1 2013.
  • 7Total streaming members across Domestic and International segments grew significantly, indicating strong subscriber acquisition.

Frequently Asked Questions

Netflix experienced substantial growth in Q1 2014. Total revenues increased by 24% to $1,270 million. Operating income saw a dramatic 207% increase to $97.6 million, and net income rose by an impressive 1,875% to $53.1 million compared to the first quarter of 2013.

The International Streaming segment is a key growth driver, with revenues increasing by 88% and paid memberships growing by 86% year-over-year. While still operating at a contribution loss, this loss significantly narrowed by 55% compared to Q1 2013, indicating improving operational efficiency as the subscriber base grows. The company plans a substantial European expansion in the second half of 2014.

Netflix is funding its growth through a combination of operating cash flow and financing activities. The company issued $400 million in Senior Notes in February 2014. Future investments in content and international expansion are expected to continue impacting liquidity and may necessitate further financing, which could potentially lead to dilution for existing shareholders if equity is issued.

The Domestic DVD segment continues to decline, with revenues decreasing by 16% and paid members down 17% year-over-year. However, it maintains a high contribution margin of 48%. Netflix is shifting resources away from this segment to invest more heavily in its streaming services, indicating a strategic focus on future growth areas.