10-QPeriod: Q3 FY2019

NETFLIX INC Quarterly Report for Q3 Ended Sep 30, 2019

Filed October 18, 2019For Securities:NFLX

Summary

Netflix reported robust growth in Q3 2019, with consolidated revenues increasing by 31% year-over-year to $5.24 billion. This growth was primarily driven by a significant expansion in its global streaming subscriber base, which grew by 21% to over 158 million paid memberships. The international segment continues to be the primary growth engine, with revenues up 40% and paid memberships increasing by 33%. The company also demonstrated improved profitability, with operating income surging by 104% and operating margin expanding to 18.7% from 12.0% in the prior year's quarter, largely due to revenue growth outpacing cost increases. While content expenses continue to rise, reflecting Netflix's ongoing investment in original and licensed content, the company's strategic focus on growing its global subscriber base within its operating margin targets appears to be yielding positive financial results. The increase in average revenue per paying member, driven by price adjustments and a shift towards higher-tier plans, also contributed positively to the top line. Investors should note the continued substantial investment in content, which impacts free cash flow, but the company maintains sufficient liquidity through its operating cash flows, existing funds, and access to financing.

Financial Highlights

46 data points
Beta

Revenue

$5.24B

40.9% Gross Margin

Net Income

$665.24M

12.7% Net Margin

EPS (Diluted)

$0.15

Total Assets

$30.94B

Cash & Equivalents

$4.46B

Free Cash Flow

-$547.13M

Financial Statements
Beta
Revenue$5.24B
Cost of Revenue$3.10B
Gross Profit$2.15B
R&D Expenses$379.78M
Operating Income$980.24M
Interest Expense$160.66M
Net Income$665.24M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)4.38B
Shares Outstanding (Diluted)4.52B

Key Highlights

  • 1Total consolidated revenues grew by 31% to $5.24 billion in Q3 2019 compared to Q3 2018.
  • 2Global paid streaming memberships increased by 21% year-over-year, reaching 158.3 million.
  • 3International segment revenue surged by 40%, highlighting its critical role in overall growth, with paid memberships up 33%.
  • 4Operating income more than doubled, increasing by 104% to $980.2 million, and operating margin improved significantly from 12.0% to 18.7%.
  • 5Average monthly revenue per paying member increased by 9% globally, driven by price changes and a favorable plan mix shift.
  • 6Despite strong revenue growth, the company continues to generate negative free cash flow, primarily due to significant upfront investments in streaming content assets.
  • 7The legacy DVD-by-mail business continues its decline, with memberships down 20% year-over-year.

Frequently Asked Questions

The primary driver of Netflix's revenue growth in Q3 2019 was the substantial increase in its global paid streaming memberships, which grew by 21% year-over-year. The international segment, in particular, showed strong performance with a 40% revenue increase and a 33% rise in paid memberships.

Netflix demonstrated a significant improvement in profitability. Operating income surged by 104% to $980.2 million, and the operating margin expanded by 6.7 percentage points to 18.7% compared to 12.0% in the same period last year. This was largely attributed to revenue growth outpacing expense increases.

Netflix continues to heavily invest in content, which leads to significant upfront cash payments for content assets. This, combined with operating expenses, results in negative free cash flow. The company anticipates continuing to significantly increase its investments in global streaming content, particularly original content, and expects negative free cash flow for 'many years'.

Foreign currency fluctuations had a mixed impact. While international revenues were negatively affected, as estimated $137 million would have been higher without unfavorable exchange rates, the company also recognized significant foreign exchange gains, particularly from the remeasurement of its euro-denominated senior notes. These gains positively impacted 'Interest and other income (expense)'.