10-QPeriod: Q1 FY2022

NETFLIX INC Quarterly Report for Q1 Ended Mar 31, 2022

Filed April 21, 2022For Securities:NFLX

Summary

Netflix's Q1 2022 10-Q filing reveals a mixed financial performance for the period ending March 31, 2022. Total revenues saw a 10% increase year-over-year, reaching $7.87 billion, driven by a 10% growth in streaming revenues. However, this top-line growth was accompanied by a decrease in operating income by 1% and a decline in operating margin from 27% to 25%. This margin compression is attributed to revenues growing at a slower pace than the 16% increase in content amortization, exacerbated by pandemic-related content release delays impacting the prior year's comparable period. A significant concern for investors is the reported loss of 203,000 paid net memberships in Q1 2022, a stark contrast to the 3.98 million additions in Q1 2021. While total paid memberships still grew to 221.6 million, the net loss indicates a slowdown in subscriber growth momentum. The company's financial outlook is further impacted by a strengthening U.S. dollar, which negatively affected average monthly revenue per paying membership in constant currency terms, particularly in the APAC region.

Financial Highlights

50 data points
Beta

Revenue

$7.87B

45.5% Gross Margin

Net Income

$1.60B

20.3% Net Margin

EPS (Diluted)

$0.35

Total Assets

$45.33B

Cash & Equivalents

$6.03B

Free Cash Flow

$801.68M

Financial Statements
Beta
Revenue$7.87B
Cost of Revenue$4.28B
Gross Profit$3.58B
R&D Expenses$657.53M
Operating Income$1.97B
Interest Expense$187.58M
Net Income$1.60B
EPS (Basic)$0.36
EPS (Diluted)$0.35
Shares Outstanding (Basic)4.44B
Shares Outstanding (Diluted)4.53B

Key Highlights

  • 1Total revenues increased by 10% to $7.87 billion, driven by a 10% rise in streaming revenues, while DVD revenues declined by 20%.
  • 2Operating income slightly increased by 1% to $1.97 billion, but operating margin contracted by 2 percentage points to 25% due to content amortization growing faster than revenue.
  • 3Significant deceleration in subscriber growth, reporting a net loss of 203,000 paid memberships, a sharp reversal from 3.98 million additions in the prior year quarter.
  • 4Global paid memberships reached 221.6 million, a 7% increase year-over-year.
  • 5Average monthly revenue per paying membership increased by 2% to $11.77, benefiting from price changes but partially offset by foreign currency fluctuations.
  • 6Content amortization expenses increased by 11% year-over-year, a key driver of the compressed operating margin.
  • 7Free cash flow increased by 16% to $801.7 million, primarily due to an increase in net cash from operations.

Frequently Asked Questions

The operating margin declined from 27% to 25% primarily because revenue growth (10%) lagged behind the increase in content amortization costs (16%). Delays in content releases due to the COVID-19 pandemic in the prior year's comparable period also contributed to this unfavorable comparison.

The company reported a net loss of 203,000 paid memberships in Q1 2022, which is a significant concern. While total paid memberships still grew to 221.6 million, this negative net addition signals a slowdown in growth momentum that investors will be watching closely in future quarters.

A strengthening U.S. dollar negatively affects Netflix's reported revenues and operating income when translated from foreign currencies. In Q1 2022, the company stated that revenues would have been approximately $280 million higher had foreign currency exchange rates remained constant compared to the prior year period. It also partially offset the increase in average monthly revenue per paying membership.

Netflix's core strategy remains to grow its streaming membership business globally. This involves continuously improving the member experience by expanding content offerings, focusing on a mix that delights existing members and attracts new ones, enhancing the user interface, and extending the service to more connected screens. They also offer offline viewing capabilities and have added mobile games.