10-QPeriod: Q3 FY2016

NETFLIX INC Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 20, 2016For Securities:NFLX

Summary

Netflix's Q3 2016 report showcases robust growth, driven by a significant increase in global streaming memberships, which climbed 25% year-over-year. The company's strategic focus on expanding its content library, particularly original series, is paying off, leading to higher revenues and improved profitability. While the domestic segment continues to demonstrate strong performance with a rising contribution margin, the international segment is showing accelerated revenue growth and a narrowing contribution loss, signaling progress in global market penetration. Despite a substantial increase in content spending and technology investments to support this expansion, the company maintained its focus on long-term growth within its financial targets.

Financial Highlights

47 data points
Beta

Revenue

$2.29B

33.1% Gross Margin

Net Income

$51.52M

2.2% Net Margin

EPS (Diluted)

$0.01

Total Assets

$12.35B

Cash & Equivalents

$969.16M

Free Cash Flow

-$489.31M

Financial Statements
Beta
Revenue$2.29B
Cost of Revenue$1.59B
Gross Profit$757.34M
R&D Expenses$216.10M
Operating Income$106.04M
Interest Expense$35.54M
Net Income$51.52M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)4.29B
Shares Outstanding (Diluted)4.38B

Key Highlights

  • 1Global streaming memberships grew by 25% to 86.7 million, indicating strong user acquisition.
  • 2Total revenues increased by 32% to $2.29 billion year-over-year, highlighting expanding market reach.
  • 3Net income saw a substantial 75% increase to $51.5 million, demonstrating improved profitability.
  • 4International segment revenue surged by 65% year-over-year, underscoring successful global expansion efforts.
  • 5Domestic streaming contribution margin improved to 36% from 32% in the prior year's quarter.
  • 6Significant investments were made in content acquisition and production, with streaming content obligations totaling $14.4 billion.
  • 7Technology and development expenses increased by 26% to support service improvements and international growth.

Frequently Asked Questions

Revenue growth was primarily driven by a substantial increase in global streaming paying memberships, particularly in international markets, and a rise in the average monthly revenue per paying membership due to price adjustments and a shift in plan mix.

Netflix continues to invest heavily in content acquisition, licensing, and production, including a strong focus on original series. While this increases content expenses and cash outflows for content assets, the company aims to recoup these costs through membership growth and increased average revenue per member.

International expansion remains a key strategic priority. The company reported significant growth in international memberships and revenues, though the international segment still operates at a contribution loss. This loss was relatively flat year-over-year for the quarter, indicating progress in scaling the service globally.

The company is phasing out grandfathered pricing, particularly in the U.S., which is expected to increase average monthly revenue per paying membership and overall revenue. While there's a risk of higher-than-expected cancellations or shifts to lower-priced plans, the company believes the net impact will be revenue positive.