10-QPeriod: Q3 FY2022

NETFLIX INC Quarterly Report for Q3 Ended Sep 30, 2022

Filed October 20, 2022For Securities:NFLX

Summary

Netflix Inc. (NFLX) reported its Q3 2022 results, showing a 6% increase in total revenues to $7.93 billion, driven by a 5% growth in average paying memberships and a 1% increase in average monthly revenue per paying membership. Despite revenue growth, operating income decreased by 13% to $1.53 billion, resulting in a lower operating margin of 19% compared to 23% in the prior year's quarter. This margin compression is attributed to revenues growing at a slower rate than the 23% increase in content amortization, partly due to foreign exchange rate fluctuations and delayed content releases. Despite the operating margin pressure, the company saw a significant positive shift in cash flow, with free cash flow reaching $471.85 million in Q3 2022, a substantial improvement from a negative $106.25 million in the same quarter last year. This turnaround was driven by strong operating cash flow and a decrease in content payments relative to amortization. The company also maintained a robust liquidity position, with cash, cash equivalents, and restricted cash at $6.14 billion, and debt decreasing by $1.5 billion year-over-year. Netflix also noted that $4.4 billion remains available for stock repurchases under its previously authorized program.

Financial Highlights

50 data points
Beta

Revenue

$7.93B

39.6% Gross Margin

Net Income

$1.40B

17.6% Net Margin

EPS (Diluted)

$0.31

Total Assets

$47.56B

Cash & Equivalents

$6.14B

Free Cash Flow

$471.85M

Financial Statements
Beta
Revenue$7.93B
Cost of Revenue$4.79B
Gross Profit$3.14B
R&D Expenses$662.74M
Operating Income$1.53B
Interest Expense$172.57M
Net Income$1.40B
EPS (Basic)$0.31
EPS (Diluted)$0.31
Shares Outstanding (Basic)4.45B
Shares Outstanding (Diluted)4.50B

Key Highlights

  • 1Total revenues increased by 6% year-over-year to $7.93 billion in Q3 2022.
  • 2Paid memberships at the end of the period grew by 4% to 223.085 million.
  • 3Average monthly revenue per paying membership increased by 1% to $11.85.
  • 4Operating income decreased by 13% to $1.53 billion, and operating margin contracted to 19% from 23% year-over-year.
  • 5Free cash flow turned positive, reaching $471.85 million in Q3 2022, a significant improvement from negative $106.25 million in Q3 2021.
  • 6Cash, cash equivalents, and restricted cash stood at $6.14 billion as of September 30, 2022.
  • 7Debt decreased by $1.5 billion year-over-year to $13.89 billion.

Frequently Asked Questions

The decrease in operating margin from 23% to 19% was primarily due to revenues growing at a slower rate compared to the significant 23% increase in content amortization. This was influenced by foreign exchange rate fluctuations and a shift in content release timing impacting the comparable prior year period.

Netflix experienced a substantial improvement in its cash flow. Free cash flow was $471.85 million in Q3 2022, a significant turnaround from a negative $106.25 million in Q3 2021. This was driven by an increase in net cash provided by operating activities and a decrease in cash payments for content assets relative to amortization.

As of September 30, 2022, Netflix held $6.14 billion in cash, cash equivalents, and restricted cash. Total debt decreased by $1.5 billion year-over-year to $13.89 billion, indicating a strong liquidity position.

The company's debt obligations include principal and interest payments. The amount of interest on outstanding notes due in the next twelve months is $664 million. Debt decreased by $1.5 billion primarily due to the remeasurement of euro-denominated notes and the repayment of $700 million in Senior Notes in February 2022.