10-QPeriod: Q1 FY2019

NETFLIX INC Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 18, 2019For Securities:NFLX

Summary

Netflix reported strong Q1 2019 results, with consolidated revenues increasing by 22% year-over-year to $4.52 billion. This growth was primarily driven by a significant expansion in global paid streaming memberships, which grew by 25% to 148.86 million. The international segment continues to be a key growth engine, with revenues up 33% and paid memberships surging by 39%. Despite the impressive revenue and subscriber growth, operating margin saw a slight decline from 12.1% to 10.2%, attributed to higher content and headcount costs. The company continues to heavily invest in content acquisition and production, leading to an increase in content amortization expenses. While this investment impacts short-term profitability metrics like operating margin and free cash flow, management emphasizes its strategic importance for long-term membership growth. Free cash flow remained negative, reflecting substantial upfront content spending.

Financial Highlights

45 data points
Beta

Revenue

$4.52B

36.5% Gross Margin

Net Income

$344.05M

7.6% Net Margin

EPS (Diluted)

$0.08

Total Assets

$27.22B

Cash & Equivalents

$3.37B

Free Cash Flow

-$440.18M

Financial Statements
Beta
Revenue$4.52B
Cost of Revenue$2.87B
Gross Profit$1.65B
R&D Expenses$372.76M
Operating Income$459.08M
Interest Expense$135.53M
Net Income$344.05M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)4.37B
Shares Outstanding (Diluted)4.52B

Key Highlights

  • 1Global paid streaming memberships grew 25% year-over-year to 148.86 million as of March 31, 2019.
  • 2Consolidated revenues increased 22% to $4.52 billion in Q1 2019 compared to Q1 2018.
  • 3International segment revenue grew significantly by 33%, now accounting for 53% of total streaming revenue, up from 49% in the prior year period.
  • 4Operating income increased by 3% to $459 million, but operating margin decreased to 10.2% from 12.1% due to higher content and operational costs.
  • 5Net income rose 19% to $344 million.
  • 6Free cash flow was negative at $(459.9) million for Q1 2019, a deterioration from $(286.5) million in Q1 2018, driven by increased content investments.
  • 7Total streaming content obligations (contractual commitments) stood at a substantial $18.92 billion as of March 31, 2019.

Frequently Asked Questions

Revenue growth of 22% to $4.52 billion was primarily driven by a 25% increase in global paid streaming memberships, reaching 148.86 million. The international segment was a particularly strong contributor, with a 33% revenue increase and a 39% rise in paid memberships.

The operating margin decreased from 12.1% to 10.2% primarily due to increased content expenses (amortization of licensed and produced content) and higher headcount costs to support international expansion and content production activities. These costs grew at a faster rate than revenues.

Netflix expects to continue generating negative free cash flow for 'many years' due to significant and increasing investments in global streaming content, particularly original content. While cash flows from operations, available funds, and financing sources are expected to be sufficient for at least the next twelve months, substantial upfront payments for content will impact free cash flow.

Foreign currency fluctuations negatively impacted average revenue per paying membership, contributing to a 2% decrease in global average monthly revenue per paying member and a 5% decrease in international average monthly revenue per paying member. The company estimates that international revenues would have been approximately $228 million higher in Q1 2019 if exchange rates had remained consistent with Q1 2018. However, foreign exchange gains of $62 million were recognized in 'Interest and Other Income (Expense)' primarily due to the remeasurement of euro-denominated debt.