10-QPeriod: Q1 FY2021

NETFLIX INC Quarterly Report for Q1 Ended Mar 31, 2021

Filed April 22, 2021For Securities:NFLX

Summary

Netflix Inc. (NFLX) reported strong top-line growth in its first quarter of 2021, with total revenues increasing by 24% year-over-year to $7.16 billion. This growth was driven by an 18% increase in average paying memberships and a 6% rise in average monthly revenue per paying membership, attributed to price adjustments and favorable foreign exchange rates. However, the company experienced a significant slowdown in net membership additions, which decreased by 75% compared to the strong performance in Q1 2020, largely impacted by the COVID-19 pandemic's prior-year boost. Despite this, operating income surged by 105% to $1.96 billion, leading to a substantial improvement in operating margin to 27.4% from 16.6% in the prior year. This margin expansion was influenced by content amortization growing at a slower rate than revenue due to pandemic-related content release delays. Free cash flow demonstrated remarkable growth, increasing by 328% to $691.7 million, reflecting improved operational cash generation. The company also announced a significant $5 billion stock repurchase program, indicating confidence in its financial position and commitment to shareholder returns, though no repurchases had been made as of the quarter's end.

Financial Highlights

48 data points
Beta

Revenue

$7.16B

46.0% Gross Margin

Net Income

$1.71B

23.8% Net Margin

EPS (Diluted)

$0.38

Total Assets

$40.12B

Cash & Equivalents

$8.44B

Free Cash Flow

$696.26M

Financial Statements
Beta
Revenue$7.16B
Cost of Revenue$3.87B
Gross Profit$3.29B
R&D Expenses$525.21M
Operating Income$1.96B
Interest Expense$194.44M
Net Income$1.71B
EPS (Basic)$0.39
EPS (Diluted)$0.38
Shares Outstanding (Basic)4.43B
Shares Outstanding (Diluted)4.56B

Key Highlights

  • 1Total revenues grew 24% to $7.16 billion, driven by higher membership and revenue per member.
  • 2Operating income more than doubled, increasing 105% to $1.96 billion.
  • 3Operating margin significantly improved to 27.4% from 16.6% in the prior year's quarter.
  • 4Paid net membership additions declined sharply by 75% compared to Q1 2020, with management citing pandemic-related pull-forward effects.
  • 5Free cash flow surged by 328% to $691.7 million, showcasing strong cash generation.
  • 6A new $5 billion stock repurchase program was authorized by the Board of Directors.
  • 7Foreign exchange gains of $258 million significantly boosted 'Interest and other income'.

Frequently Asked Questions

The substantial increase in operating income and margin is primarily attributed to content amortization growing at a slower rate relative to revenue growth. This was a consequence of COVID-19 related delays in content releases, coupled with marketing, technology, and administrative expenses growing at a slower pace than revenue.

The company attributes the 75% decrease in paid net membership additions compared to Q1 2020 to the extraordinary surge in additions during the first quarter of 2020, which was heavily influenced by the COVID-19 pandemic. Management anticipates slower membership growth in the first half of 2021 compared to the prior year due to this normalization.

Netflix has substantial content obligations totaling over $20.7 billion as of March 31, 2021, with over $9.4 billion due within the next year. The company plans to continue significantly increasing investments in global content, particularly original content, which requires upfront cash payments. They anticipate that cash flows from operations, existing funds, and access to financing will be sufficient to meet these needs.

The significant foreign exchange gain of $258 million was primarily a non-cash gain resulting from the remeasurement of the company's euro-denominated Senior Notes. It also included gains from the remeasurement of cash and content liabilities in currencies other than their functional currencies, which positively impacted 'Interest and other income' for the quarter.