Summary
Netflix reported robust growth in the first quarter of 2018, with total streaming memberships reaching nearly 125 million globally, a 27% year-over-year increase. This strong subscriber growth, particularly in the international segment, fueled a significant 40% surge in consolidated revenues to $3.7 billion. The company also demonstrated improved profitability, with global operating income jumping 74% and net income rising 63%, driven by higher revenues and a growing international contribution. However, the company continues to invest heavily in content, with streaming content obligations exceeding $17.9 billion, indicating a substantial ongoing commitment to original and licensed programming to sustain membership growth.
Financial Highlights
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Financial Statements
Beta
| Revenue | $3.70B |
| Cost of Revenue | $2.30B |
| Gross Profit | $1.40B |
| R&D Expenses | $282.31M |
| Operating Income | $446.58M |
| Interest Expense | $81.22M |
| Net Income | $290.12M |
| EPS (Basic) | $0.07 |
| EPS (Diluted) | $0.06 |
| Shares Outstanding (Basic) | 4.34B |
| Shares Outstanding (Diluted) | 4.50B |
Key Highlights
- 1Global streaming memberships grew by 27% year-over-year to 124.995 million as of March 31, 2018.
- 2Consolidated revenues increased by 40% to $3.70 billion for the three months ended March 31, 2018, compared to the prior year.
- 3Net income saw a substantial increase of 63%, reaching $290.1 million for the quarter.
- 4International streaming revenues grew by an impressive 70%, now accounting for 48% of total consolidated revenue.
- 5Average monthly revenue per paying membership increased by 14% to $10.46 globally.
- 6Despite revenue and profit growth, the company reported a non-GAAP free cash flow of $(286.5) million for the quarter, reflecting significant investment in content.
- 7Total streaming content obligations stood at $17.9 billion, highlighting substantial future content spending commitments.
Frequently Asked Questions
The 40% increase in consolidated revenues to $3.70 billion was primarily driven by a substantial growth in the global paid streaming memberships, which rose by 27% year-over-year. Additionally, the average monthly revenue per paying membership increased by 14% due to price adjustments and changes in the mix of membership plans.
The international segment is showing exceptional growth, with revenues increasing by 70% year-over-year. International memberships grew by 43%, and international revenues now represent 48% of consolidated revenue, up from 40% in the prior year. This indicates a successful global expansion strategy, with international markets becoming increasingly crucial to Netflix's overall performance.
Netflix continues to make significant investments in content acquisition, licensing, and production, particularly original programming. This strategy is essential for driving membership growth. As a result, the company incurred a negative non-GAAP free cash flow of $286.5 million in the quarter, driven by substantial upfront cash payments for content that exceed the current amortization expenses. The company anticipates significant future investments in global streaming content, which will lead to sustained negative free cash flows for several years.
Netflix has substantial international operations, with 48% of revenues and 57% of costs in foreign currencies. Fluctuations in exchange rates can impact reported results. For instance, in Q1 2018, the company estimated that international revenues would have been $114.2 million lower if exchange rates had remained consistent with Q1 2017. They also incurred a $71.6 million foreign exchange loss, primarily due to the remeasurement of Euro-denominated debt and other foreign currency balances.