10-QPeriod: Q2 FY2017

NETFLIX INC Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 19, 2017For Securities:NFLX

Summary

Netflix Inc. (NFLX) reported strong performance in its second quarter ended June 30, 2017, driven by robust global streaming membership growth. The company exceeded expectations with a significant increase in total streaming members, reaching over 104 million. This growth was particularly strong internationally, contributing substantially to the overall revenue increase of 32%. The company also saw an increase in average revenue per paying member, signaling successful pricing strategies and plan adoption. Despite increased content expenses aimed at fueling original programming and international expansion, Netflix demonstrated improved operating income and a healthy increase in net income. Management highlighted continued investment in global streaming and original content as core to its growth strategy. The company acknowledged the growing free cash flow deficit due to these significant content investments but expressed confidence in its ability to fund operations through existing cash and financing sources, anticipating this trend to continue for several years.

Financial Highlights

47 data points
Beta

Revenue

$2.79B

28.5% Gross Margin

Net Income

$65.60M

2.4% Net Margin

EPS (Diluted)

$0.01

Total Assets

$16.52B

Cash & Equivalents

$1.92B

Free Cash Flow

-$599.76M

Financial Statements
Beta
Revenue$2.79B
Cost of Revenue$1.99B
Gross Profit$793.77M
R&D Expenses$267.08M
Operating Income$127.81M
Interest Expense$55.48M
Net Income$65.60M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)4.31B
Shares Outstanding (Diluted)4.46B

Key Highlights

  • 1Global streaming memberships surged by 25% year-over-year, reaching 103.95 million as of Q2 2017.
  • 2Total revenues increased by a substantial 32% to $2.79 billion in Q2 2017 compared to the prior year.
  • 3Global operating income saw an impressive 82% increase, reaching $127.8 million, with the global operating margin improving to 4.6% from 3.3%.
  • 4Net income grew by 61% to $65.6 million, demonstrating improved profitability.
  • 5International streaming memberships experienced a significant 44% year-over-year increase, becoming a larger proportion of the total global member base.
  • 6Average monthly revenue per paying member increased by 11% globally, indicating successful pricing adjustments and plan mix.
  • 7The company significantly increased its long-term debt to fund its aggressive content acquisition and production strategy, reflecting a commitment to future growth.

Frequently Asked Questions

Netflix reported strong global streaming membership growth, up 25% year-over-year to over 103.9 million members. International membership growth was particularly robust, increasing by 44% and accounting for 48% of the global paid memberships in Q2 2017, highlighting successful global expansion.

Revenue growth of 32% was primarily driven by an increase in the number of global paid streaming memberships and a 11% rise in average monthly revenue per paying member, attributed to price adjustments and plan mix. Operating income grew by 82% due to increased revenues outpacing content and operational cost increases, leading to a net income increase of 61%.

Netflix is heavily investing in content, especially original programming, which requires significant upfront cash payments. This has led to an increase in free cash flow deficit, with $534.5 million used in operating activities for Q2 2017. The company is funding these investments through a combination of operating cash flows and increased debt, including a significant €1.3 billion debt issuance in May 2017.

Netflix has substantial streaming content obligations totaling $15.7 billion as of June 30, 2017, with significant future commitments for original programming. The company expects these investments to continue and result in negative free cash flows for many years, but believes its current cash, financing sources, and operational cash flows will be sufficient to meet its needs for at least the next twelve months.