10-QPeriod: Q1 FY2023

NETFLIX INC Quarterly Report for Q1 Ended Mar 31, 2023

Filed April 21, 2023For Securities:NFLX

Summary

Netflix reported a 4% increase in total revenues to $8.16 billion for the first quarter of 2023, driven by a 4% rise in global paid memberships to 232.5 million. However, operating income saw a 13% decline to $1.71 billion, and operating margin contracted to 21% from 25% in the prior year, primarily due to a 12% increase in cost of revenues, largely from higher content amortization and other content expenses. Despite revenue growth, increased costs impacted profitability metrics compared to Q1 2022. Cash flow generation remained robust, with net cash provided by operating activities increasing significantly by 136% to $2.18 billion. Free cash flow saw an even more substantial surge of 164% to $2.12 billion, benefiting from a decrease in content asset payments relative to amortization. The company repurchased $400 million of its stock and has $4.0 billion remaining under its authorized repurchase program. Management anticipates continued investment in global content, particularly original content, but expects current cash flows and financing sources to be sufficient for ongoing operations and investments.

Financial Highlights

50 data points
Beta

Revenue

$8.16B

41.1% Gross Margin

Net Income

$1.31B

16.0% Net Margin

EPS (Diluted)

$0.29

Total Assets

$49.49B

Cash & Equivalents

$6.74B

Free Cash Flow

$2.12B

Financial Statements
Beta
Revenue$8.16B
Cost of Revenue$4.80B
Gross Profit$3.36B
R&D Expenses$687.27M
Operating Income$1.71B
Interest Expense$174.24M
Net Income$1.31B
EPS (Basic)$0.29
EPS (Diluted)$0.29
Shares Outstanding (Basic)4.45B
Shares Outstanding (Diluted)4.52B

Key Highlights

  • 1Total revenues grew 4% year-over-year to $8.16 billion, driven by membership growth.
  • 2Global paid memberships increased 5% to 232.5 million, with strong net additions of 1.75 million in Q1 2023.
  • 3Operating income decreased 13% to $1.71 billion, and operating margin declined to 21% from 25% due to higher cost of revenues.
  • 4Cost of revenues increased 12% to $4.80 billion, primarily due to a 10% increase in content amortization.
  • 5Free cash flow significantly increased by 164% to $2.12 billion, bolstered by lower content payments.
  • 6The company repurchased $400 million of common stock in the quarter, with $4.0 billion remaining under its authorized program.
  • 7Average revenue per paying member (ARM) slightly decreased by 1% to $11.70, impacted by foreign currency fluctuations and plan mix changes.

Frequently Asked Questions

The primary driver for the 4% revenue increase to $8.16 billion was the 4% growth in global average paying memberships, which reached 231.6 million. This membership growth more than offset a slight decrease in average monthly revenue per paying membership.

Operating income decreased by 13% to $1.71 billion, and the operating margin fell to 21% from 25% year-over-year, primarily because the cost of revenues increased at a faster rate than revenue. This was mainly due to a 12% rise in content amortization and other content-related expenses.

Netflix demonstrated strong cash flow generation, with free cash flow increasing 164% to $2.12 billion. The company repurchased $400 million of its stock and has $4.0 billion remaining under its share repurchase program. Management anticipates its operating cash flow, available funds, and credit facility will be sufficient to meet future cash needs, including significant investments in content.

Foreign currency fluctuations have a notable impact. For the quarter, a strengthening U.S. dollar led to a 1% decrease in average monthly revenue per paying membership globally. The company estimates that revenues would have been approximately $346 million higher had foreign exchange rates remained constant compared to the prior year. Additionally, the company recorded a $107 million foreign exchange loss in the quarter, primarily from remeasuring euro-denominated debt.