10-QPeriod: Q3 FY2021

NETFLIX INC Quarterly Report for Q3 Ended Sep 30, 2021

Filed October 21, 2021For Securities:NFLX

Summary

Netflix's (NFLX) Q3 2021 filing shows robust revenue growth, primarily driven by an increase in both paid memberships and average revenue per member. Total revenues rose 16% year-over-year, reaching $7.48 billion, with global streaming memberships expanding by 9% to over 213 million. The company demonstrated improved operational efficiency, with operating income increasing by 33% and operating margin expanding to 23.5%. This was partly attributed to content amortization growing at a slower rate than revenue, influenced by pandemic-related content release delays. Despite strong top-line performance and improved profitability, the company's free cash flow experienced a significant decline in the quarter and year-to-date, largely due to increased upfront cash payments for content production and licensing. Netflix continues to invest heavily in content, with content obligations reaching over $22 billion. The company authorized a $5 billion stock repurchase program, having completed $600 million in repurchases by the end of the quarter, and anticipates continued significant investments in global content, particularly original productions.

Financial Highlights

51 data points
Beta

Revenue

$7.48B

43.8% Gross Margin

Net Income

$1.45B

19.4% Net Margin

EPS (Diluted)

$0.32

Total Assets

$42.74B

Cash & Equivalents

$7.55B

Free Cash Flow

-$84.95M

Financial Statements
Beta
Revenue$7.48B
Cost of Revenue$4.21B
Gross Profit$3.28B
R&D Expenses$563.89M
Operating Income$1.76B
Interest Expense$190.43M
Net Income$1.45B
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)4.43B
Shares Outstanding (Diluted)4.55B

Key Highlights

  • 1Total revenues increased by 16% to $7.48 billion in Q3 2021 compared to Q3 2020.
  • 2Global paid streaming memberships grew by 9% to 213.56 million by the end of Q3 2021.
  • 3Average monthly revenue per paying membership increased by 7% to $11.73, driven by price changes and foreign exchange rates.
  • 4Operating income surged by 33% to $1.76 billion, expanding operating margin to 23.5% from 20.4% year-over-year.
  • 5Cost of revenues as a percentage of total revenues decreased from 60% to 56%, primarily due to content amortization growing slower than revenue due to pandemic-related content release delays.
  • 6Free cash flow declined significantly by 109% in Q3 2021 to a negative $106 million, compared to $1.15 billion in Q3 2020, primarily due to increased upfront content payments.
  • 7Netflix repurchased $600 million of its stock under a $5 billion authorization and has $4.4 billion remaining available for future repurchases.

Frequently Asked Questions

Revenue growth was driven by a combination of a 9% increase in global paid streaming memberships and a 7% increase in average monthly revenue per paying membership. The latter was influenced by price adjustments and favorable foreign exchange rate fluctuations.

The substantial decrease in free cash flow was primarily due to a significant increase in upfront cash payments for content assets, which rose by $1.66 billion year-over-year. This increase outpaced the growth in content amortization, reflecting a shift in payment timing for productions affected by pandemic-related delays.

Netflix has substantial content obligations totaling over $22 billion, with a significant portion due within the next three years. The company is funding these through a combination of operating cash flow, existing cash reserves, and access to financing sources. They are also continuing to invest heavily in original content production.

Netflix generates 57% of its revenue in currencies other than the US dollar. Fluctuations in exchange rates can impact reported revenues and operating income. In Q3 2021, foreign exchange rates contributed to a $301 million gain, largely from the remeasurement of euro-denominated debt, though this is a non-cash item. Overall, changes in exchange rates can significantly affect reported results.