EX-99.1 2 nflx-123116xex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
January 18, 2017

Fellow shareholders,

In 2016, we generated $8.3 billion in global streaming revenue (35% y/y growth) and finished the year with 93.8 million members on 19.0 million net additions vs. 17.4 million in 2015. This quarter marks the 10-year anniversary of our launch of streaming1. The next decade will be even more amazing and tumultuous as internet TV supplants linear TV, and as we strive to remain a leader.
 (in millions except per share data and Streaming Content Obligations)
Q4 '15
Q1 '16
Q2 '16
Q3 '16
Q4'16
Q1'17 Forecast
Total Streaming:
 
 
 
 
 
 
Revenue
$
1,672

$
1,813

$
1,966

$
2,158

$
2,351

$
2,516

Contribution Profit
$
270

$
309

$
345

$
407

$
470

$
623

Contribution Margin
16.2
 %
17.0
 %
17.6
 %
18.8
 %
20.0
 %
24.8
%
Paid Memberships
70.84

77.71

79.90

83.28

89.09

95.34

Total Memberships
74.76

81.50

83.18

86.74

93.80

99.00

Net Additions
5.59

6.74

1.68

3.57

7.05

5.20

 
 
 
 
 
 
 
US Streaming:
 
 
 
 
 
 
Revenue
$
1,106

$
1,161

$
1,208

$
1,304

$
1,403

$
1,471

Contribution Profit
$
379

$
413

$
414

$
475

$
536

$
607

Contribution Margin
34.3
 %
35.5
 %
34.3
 %
36.4
 %
38.2
 %
41.3
%
Paid Memberships
43.40

45.71

46.00

46.48

47.91

49.86

Total Memberships
44.74

46.97

47.13

47.50

49.43

50.93

Net Additions
1.56

2.23

0.16

0.37

1.93

1.50

 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
566

$
652

$
758

$
853

$
948

$
1,045

Contribution Profit (Loss)
$
(109
)
$
(104
)
$
(69
)
$
(69
)
$
(67
)
$
16

Contribution Margin
-19.2
 %
-16.0
 %
-9.1
 %
-8.0
 %
-7.0
 %
1.5
%
Paid Memberships
27.44

31.99

33.89

36.80

41.19

45.48

Total Memberships
30.02

34.53

36.05

39.25

44.37

48.07

Net Additions
4.04

4.51

1.52

3.20

5.12

3.70

 
 
 
 
 
 
 
Total (including DVD):
 
 
 
 
 
 
Operating Income
$
60

$
49

$
70

$
106

$
154

$
239

Operating Margin
3.3
 %
2.5
 %
3.3
 %
4.6
 %
6.2
 %
9.1
%
Net Income*
$
43

$
28

$
41

$
52

$
67

$
165

EPS*
$
0.10

$
0.06

$
0.09

$
0.12

$
0.15

$
0.37

 
 
 
 
 
 
 
Net cash (used in) operating activities
$
(245
)
$
(229
)
$
(226
)
$
(462
)
$
(557
)
 
Free Cash Flow
$
(276
)
$
(261
)
$
(254
)
$
(506
)
$
(639
)
 
EBITDA
$
111

$
107

$
129

$
164

$
212

 
Shares (FD)*
438.3

438.0

438.2

438.4

440.1

 
Streaming Content Obligations** ($B)
10.9

12.3

13.2

14.4

14.5

 
* Q4'15 Net Income/EPS includes a $13m / $0.03 benefit from a tax accrual release related to resolution of tax audits.
**Corresponds to our total known streaming content obligations as defined in our financial statements and related notes in our most recently filed SEC Form 10-K
___________________________________
1 http://www.nytimes.com/2007/01/16/technology/16netflix.html

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Q4 Results and Q1 Forecast
In Q4, global streaming revenue grew 41% year over year to $2.4 billion, while contribution profit rose 74% year over year to $470 million (20% margin). Operating profit totaled $154 million (6.2% operating margin) against guidance of $125 million, while net income amounted to $67 million, compared with our forecast of $56 million. Net income included a -$22 million foreign exchange adjustment booked in other expense due to the strength of the US dollar. As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report.
We added 7.05 million net new members globally in the quarter, against our forecast of 5.20 million and last year's Q4 performance of 5.59 million. This was the largest quarter of net additions in our history and was driven by strong acquisition trends in both our US and International segments.
Domestically, we added 1.93 million members in the quarter, exceeding our forecast of 1.45 million and 1.56 million in the year-ago quarter. Combined with 15% ASP growth, revenue increased 27% year-over -year to $1.4 billion. US contribution margin expanded 395 basis points year-over-year to 38.2%. Margin improvement was greater than expected due primarily to higher-than-forecast revenue and the timing of content deals.
International membership grew by 5.12 million in Q4, against a forecast of 3.75 million and 4.04 million in the year-ago quarter. Over 47% of our total members are now outside of the US. This growth was very broad based geographically as our original content continues to be well-received all over the world. ASP for the international segment rose 13% year over year (excluding a -$21 million impact from currency). International contribution loss was -$67 million, compared with our forecast of -$75 million, as content spend was slightly lower than expected owing primarily to timing.
In Q1, we project 5.2 million net adds with 1.5 million in the US and 3.7 million internationally. Our anticipation for a year-over-year decline in domestic net adds reflects a difficult comparison in the year ago quarter where we exceeded our net adds forecast by 27%. Similarly, in our international segment, we will lap our Rest of World launch in January of last year. We also expect a greater membership impact from our content slate in the second half of 2017. On a sequential basis, we believe our strong Q4 results likely pulled forward some net adds from Q1’17 to Q4’16.
Since our global expansion is proceeding well, we intend to grow our global operating margin for many years ahead. We’ve been around a 4% annual operating margin for the past two years, and we are targeting about 7% for the full year 2017 based on current F/X rates. From here, we will seek to steadily increase revenue and operating margin as we balance growth and profitability. We are in no rush to push margins up too quickly, as we want to ensure we are investing aggressively enough to continue to lead internet TV around the world. In Q1, we are forecasting a 9% operating margin, higher than our full year target due to the timing of content spend, including moving House of Cards season 5 from Q1 to Q2.
We anticipate the international segment will be slightly contribution profit positive in Q1. We plan on investing over the remaining quarters of 2017 internationally and, as a result, anticipate an international contribution loss in Q2. On a full year basis, we expect international contribution loss to improve substantially year on year.





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2


Content
We are learning rapidly how best to match content with audience tastes around the world. It is clear to us that high quality content travels well across borders. For instance, our global originals like Marvel’s Luke Cage, The Crown2 and season 3 of Black Mirror3 continue to generate excitement and excellent viewing all across the world. Similarly, Gilmore Girls: A Year in the Life4 debuted in the top 10 in every territory. Guillermo Del Toro’s Trollhunters5, launched in December, is tracking to be our most-watched kids original and is performing particularly well in our newer territories. We closed the quarter with the release of The OA6, a mind-bending, multi-layered supernatural drama that is a great example of the bold, creative storytelling we’ve aimed to support.
Gratifyingly, our first Brazilian original series 3%7, a sci-fi, post-apocalyptic thriller, premiered as one of the most watched originals in Brazil and played well throughout Latin America. Moreover, bucking conventional wisdom, millions of US members have watched the show dubbed and subtitled into English, making 3% the first Portuguese language television show to travel meaningfully beyond Latin America and Portugal.
We continue to invest in local programming to complement our content offering and as a means to introduce new members to our global library. We are focusing on local content that travels pan-regionally or across multiple territories, such as Japanese anime and Turkish dramas. In this vein, we announced a long-term deal with Red Chillies Entertainment, the film production company of Shah Rukh Khan, who is considered by many to be the biggest movie star8 on the planet. Netflix is now the exclusive global home for Khan’s new films and members will enjoy exclusive SVOD access to dozens of popular Red Chillies films from the past several years.
It’s amazing to think that we launched original programming on Netflix in 2013 and in just four years, our original series accounted for five of the top 10 most searched TV shows of 2016 globally, including Stranger Things at #1, according to Google trends9. On January 8, we were honored that The Crown received the Golden Globe Award for Best TV Series (Drama), while Claire Foy won the award for Best Performance by an Actress in a TV Series (Drama) for her portrayal of Queen Elizabeth II. Later this month, The Screen Actors Guild Awards10, the most widely voted-on major awards for TV and films, will feature eight individual Netflix original series with 17 nominations, the most of any network.
We are incredibly excited about all the projects we have underway for our global members, no matter their age, taste or cultural background; in 2017, we plan to invest over $6 billion on content on a P&L basis (up from $5 billion in 2016).






___________________________________
2 https://www.rottentomatoes.com/tv/the_crown/s01/
3 https://www.rottentomatoes.com/tv/black_mirror/s03/
4 https://www.rottentomatoes.com/tv/gilmore-girls/s08/
5 https://www.rottentomatoes.com/tv/trollhunters/s01/
6 http://www.vanityfair.com/hollywood/2016/12/netflix-the-oa-review-brit-marling-stranger-things?mbid=social_twitter
7 https://www.youtube.com/watch?v=8yyzNQfaQR8&feature=youtu.be
8 https://www.youtube.com/watch?v=vBvHtxaCB8I
9 https://www.google.com/trends/yis/2016/GLOBAL
10 http://www.hollywoodreporter.com/lists/sag-award-nominations-2017-full-list-956034/item/outstanding-performance-by-a-male-actor-a-television-movie-miniseries-sag-nominees-2017-956068

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Product and Partnerships
In Q4, we launched offline viewing, which allows members to download content to iOS and Android devices. Our goal is to make Netflix as accessible as possible to members in countries and locations (such as subways and airplanes) with limited and/or expensive bandwidth. We are pleased with the initial results and, as expected, enjoyment of offline viewing is greatest in emerging markets, where the broadband infrastructure is less robust. In Q4 we also launched on Comcast’s X1 set-top boxes, and the integration has pleased our members who now can use their X1 remote control and user interface to access Netflix as they do their other TV networks.
Net Neutrality
Weakening of US net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality because we are now popular enough with consumers to keep our relationships with ISPs stable.
On a public policy basis, however, strong net neutrality is important to support innovation and smaller firms. No one wants ISPs to decide what new and potentially disruptive services can operate over their networks, or to favor one service over another. We hope the new US administration and Congress will recognize that keeping the network neutral drives job growth and innovation.
Competition
Internet video is a global phenomenon. Amazon Prime Video expanded recently to match our territory footprint, while YouTube remains far larger than either of us in terms of global video enjoyment minutes. Video consumption is growing on Facebook, and Apple is rumored to be adding video to its music service. Satellite TV operators are moving to become internet MVPDs, such as ViaSat to ViaPlay in the Nordics, DISH to Sling, and DirecTV to DirecTV Now. Insurgent firms such as Molotov.tv in France and Hulu are building native-internet interfaces for TV network bundles. CBS is releasing a major original series (Star Trek) exclusively on its domestic SVOD service (with us as international partner). Finally, the BBC has become11 the first major linear network to announce plans to go binge-first with new seasons, favoring internet over linear viewers. We presume HBO is not far behind the BBC. In short, it’s becoming an internet TV world, which presents both challenges and opportunities for Netflix as we strive to earn screen time.
Free Cash Flow and Capital Structure
Q4 free cash flow totaled -$639 million vs. -$276 million last Q4 and -$506 million in Q3’16. The sequential increase was largely due to the timing of content payments, including our growing slate of self-produced originals. Producing more owned content creates some lumpiness in our working capital needs. We expect our FCF to be around -$2 billion in 2017 vs. -$1.7 billion in 2016, with FCF loss improving sequentially in Q1’17.
We are funding our working capital needs through the debt market. In October, we raised $1 billion of senior notes with a coupon of 4.375%, which will reduce our weighted average cost of capital. We will continue to be a regular issuer of debt to finance our investment in original content as we balance our cash needs with the carrying cost of interest expense.


________________________________________
11 http://www.telegraph.co.uk/news/2017/01/10/bbc-reinvent-iplayer-new-generation-sunday-night-dramas-available/

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4


Reference
For quick reference, our eight most recent investor letters are: October 201612, July 201613, April 201614, January 201615, October 201516, July 201517, April 201518, January 201519.
 
Summary
In 2016, we launched globally (excluding China) and made good progress. But there remains a lot to learn to make Netflix as popular abroad as it is in the US.
January 18th, 2017 Earnings Interview
Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview today at 2:00 p.m. Pacific Time at youtube.com/netflixir. The discussion will be moderated by Doug Mitchelson, UBS and and Scott Devitt, Stifel. Questions that investors would like to see asked should be sent to doug.mitchelson@ubs.com or swdevitt@stifel.com.

    
 
IR Contact: 
PR Contact: 
Spencer Wang
Jonathan Friedland
Vice President, Finance & Investor Relations
Chief Communications Officer
408 809-5360
310 734-2958













________________________________________
12 http://files.shareholder.com/downloads/NFLX/2457496703x0x912075/700E14FD-12BE-4C3A-9283-9A975C7FE549/FINAL_Q3_Letter.pdf
13 http://files.shareholder.com/downloads/NFLX/2457496703x0x900152/4D4F0167-4BE2-4DC1-ACC7-759F1561CD59/Q216LettertoShareholders_FINAL_w_Tables.pdf
14 http://files.shareholder.com/downloads/NFLX/1662264494x0x886428/5FB5A3DF-F23A-4BB1-AC37-583BAEF2A1EE/Q116LettertoShareholders_W_TABLES_.pdf
15 http://files.shareholder.com/downloads/NFLX/1481171463x0x870685/C6213FF9-5498-4084-A0FF-74363CEE35A1/Q4_15_Letter_to_Shareholders_-_COMBINED.pdf
16 http://files.shareholder.com/downloads/NFLX/4124769775x7871834x854558/9B28F30F-BF2F-4C5D-AAFF-AA9AA8F4779D/FINAL_Q3_15_Letter_to_Shareholders_With_Tables_.pdf
17 http://files.shareholder.com/downloads/NFLX/4124769775x7871834x839404/C3CE9EE2-C8F3-40A1-AC9A-FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf
18 http://files.shareholder.com/downloads/NFLX/4124769775x7871834x821407/DB785B50-90FE-44DA-9F5B-37DBF0DCD0E1/Q1_15_Earnings_Letter_final_tables.pdf
19 http://files.shareholder.com/downloads/NFLX/4124769775x7871834x804108/043a3015-36ec-49b9-907c-27960f1a7e57/Q4_14_Letter_to_shareholders.pdf


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5



Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-­GAAP financial measure of net income on a pro forma basis excluding the release of tax reserves, and to free cash flow and EBITDA. Management believes that the non­-GAAP measure of net income on a pro forma basis excluding the release of tax reserves provides useful information as this measure excludes effects that are not indicative of our core operating results. Management believes that free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of these non-­GAAP measures are contained in tabular form on the attached unaudited financial statements.

Forward-Looking Statements
This shareholder letter contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding the acquisition impact of our content slate; growth of internet TV; impacts on our business from competition; localization efforts; content strategy, including local content, original and licensed content investments; impacts of changes to net neutrality laws; ratio of cash spending on content to P&L spend; future capital raises; domestic and international net, total and paid subscribers; revenue; contribution profit (loss) and contribution margin for both domestic (streaming and DVD) and international operations, as well as consolidated operating income, operating margin; net income, earnings per share and free cash flow. The forward-looking statements in this letter are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms for streaming; fluctuations in consumer usage of our service; service disruptions; production risks; actions of Internet Service Providers; and, competition, including consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 28, 2016. The Company provides internal forecast numbers. Investors should anticipate that actual performance will vary from these forecast numbers based on risks and uncertainties discussed above and in our Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.




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6



Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Year Ended
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
December 31,
2016
 
December 31,
2015
Revenues
$
2,477,541

 
$
2,290,188

 
$
1,823,333

 
$
8,830,669

 
$
6,779,511

Cost of revenues
1,654,419

 
1,532,844

 
1,249,365

 
6,029,901

 
4,591,476

Marketing
284,996

 
282,043

 
224,173

 
991,078

 
824,092

Technology and development
225,191

 
216,099

 
180,859

 
852,098

 
650,788

General and administrative
159,001

 
153,166

 
109,042

 
577,799

 
407,329

Operating income
153,934

 
106,036

 
59,894

 
379,793

 
305,826

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(43,586
)
 
(35,536
)
 
(35,429
)
 
(150,114
)
 
(132,716
)
Interest and other income (expense)
(20,079
)
 
8,627

 
(3,734
)
 
30,828

 
(31,225
)
Income before income taxes
90,269

 
79,127

 
20,731

 
260,507

 
141,885

 Provision (benefit) for income taxes
23,521

 
27,610

 
(22,447
)
 
73,829

 
19,244

Net income
$
66,748

 
$
51,517

 
$
43,178

 
$
186,678

 
$
122,641

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.16

 
$
0.12

 
$
0.10

 
$
0.44

 
$
0.29

Diluted
$
0.15

 
$
0.12

 
$
0.10

 
$
0.43

 
$
0.28

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
429,738

 
428,937

 
427,668

 
428,822

 
425,889

Diluted
440,063

 
438,389

 
438,257

 
438,652

 
436,456




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7




Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
 
 
As of
 
December 31,
2016
 
December 31,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,467,576

 
$
1,809,330

Short-term investments
266,206

 
501,385

Current content assets, net
3,726,307

 
2,905,998

Other current assets
260,202

 
215,127

Total current assets
5,720,291

 
5,431,840

Non-current content assets, net
7,274,501

 
4,312,817

Property and equipment, net
250,395

 
173,412

Other non-current assets
341,423

 
284,802

Total assets
$
13,586,610

 
$
10,202,871

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
3,632,711

 
$
2,789,023

Accounts payable
312,842

 
253,491

Accrued expenses
197,632

 
140,389

Deferred revenue
443,472

 
346,721

Total current liabilities
4,586,657

 
3,529,624

Non-current content liabilities
2,894,654

 
2,026,360

Long-term debt
3,364,311

 
2,371,362

Other non-current liabilities
61,188

 
52,099

Total liabilities
10,906,810

 
7,979,445

Stockholders' equity:
 
 
 
Common stock
1,599,762

 
1,324,809

Accumulated other comprehensive loss
(48,565
)
 
(43,308
)
Retained earnings
1,128,603

 
941,925

Total stockholders' equity
2,679,800

 
2,223,426

Total liabilities and stockholders' equity
$
13,586,610

 
$
10,202,871

 


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8



Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
Year Ended
 
December 31,
2016

September 30,
2016

December 31,
2015

December 31,
2016

December 31,
2015
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
66,748

 
$
51,517

 
$
43,178

 
$
186,678

 
$
122,641

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content assets
(2,102,841
)
 
(2,442,080
)
 
(1,550,326
)
 
(8,653,286
)
 
(5,771,652
)
Change in streaming content liabilities
98,525

 
529,885

 
240,250

 
1,772,650

 
1,162,413

Amortization of streaming content assets
1,330,508

 
1,224,108

 
961,861

 
4,788,498

 
3,405,382

Amortization of DVD content assets
19,206

 
19,284

 
18,793

 
78,952

 
79,380

Depreciation and amortization of property, equipment and intangibles
14,189

 
14,410

 
15,488

 
57,528

 
62,283

Stock-based compensation expense
43,646

 
43,495

 
35,860

 
173,675

 
124,725

Excess tax benefits from stock-based compensation
(27,720
)
 
(12,762
)
 
25,683

 
(65,121
)
 
(80,471
)
Other non-cash items
9,430

 
9,682

 
7,774

 
40,909

 
31,628

Deferred taxes
(26,706
)
 
14,338

 
12,036

 
(46,847
)
 
(58,655
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Other current assets
(1,679
)
 
10,250

 
(62,755
)
 
46,970

 
18,693

Accounts payable
15,540

 
27,810

 
49,031

 
32,247

 
51,615

Accrued expenses
(3,582
)
 
28,957

 
(39,619
)
 
68,706

 
48,810

Deferred revenue
16,266

 
30,230

 
16,982

 
96,751

 
72,135

Other non-current assets and liabilities
(8,690
)
 
(11,065
)
 
(18,981
)
 
(52,294
)
 
(18,366
)
Net cash used in operating activities
(557,160
)
 
(461,941
)
 
(244,745
)
 
(1,473,984
)
 
(749,439
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of DVD content assets
(18,797
)
 
(17,249
)
 
(20,799
)
 
(77,177
)
 
(77,958
)
Purchases of property and equipment
(61,048
)
 
(27,366
)
 
(12,854
)
 
(107,653
)
 
(91,248
)
Change in other assets
(1,617
)
 
125

 
2,262

 
(941
)
 
(1,912
)
Purchases of short-term investments
(5,603
)
 
(128,136
)
 
(146,582
)
 
(187,193
)
 
(371,915
)
Proceeds from sale of short-term investments
83,797

 
171,747

 
114,832

 
282,484

 
259,079

Proceeds from maturities of short-term investments
27,690

 
24,855

 
22,580

 
140,245

 
104,762

Net cash provided by (used in) investing activities
24,422

 
23,976

 
(40,561
)
 
49,765

 
(179,192
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of debt
1,000,000

 

 

 
1,000,000

 
1,500,000

Issuance costs
(10,700
)
 

 

 
(10,700
)
 
(17,629
)
Proceeds from issuance of common stock
25,392

 
3,819

 
8,171

 
36,979

 
77,980

Excess tax benefits from stock-based compensation
27,720

 
12,762

 
(25,683
)
 
65,121

 
80,471

Other financing activities
60

 
58

 
54

 
230

 
(545
)
Net cash provided by (used in) financing activities
1,042,472

 
16,639

 
(17,458
)
 
1,091,630

 
1,640,277

 Effect of exchange rate changes on cash and cash equivalents
(11,316
)
 
(441
)
 
(3,343
)
 
(9,165
)
 
(15,924
)
 Net increase (decrease) in cash and cash equivalents
498,418

 
(421,767
)
 
(306,107
)
 
(341,754
)
 
695,722

 Cash and cash equivalents, beginning of period
969,158

 
1,390,925

 
2,115,437

 
1,809,330

 
1,113,608

 Cash and cash equivalents, end of period
$
1,467,576

 
$
969,158

 
$
1,809,330

 
$
1,467,576

 
$
1,809,330

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
December 31,
2016
 
December 31,
2015
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
$
(557,160
)
 
$
(461,941
)
 
$
(244,745
)
 
$
(1,473,984
)
 
$
(749,439
)
Acquisition of DVD content assets
(18,797
)
 
(17,249
)
 
(20,799
)
 
(77,177
)
 
(77,958
)
Purchases of property and equipment
(61,048
)
 
(27,366
)
 
(12,854
)
 
(107,653
)
 
(91,248
)
Change in other assets
(1,617
)
 
125

 
2,262

 
(941
)
 
(1,912
)
Non-GAAP free cash flow
$
(638,622
)
 
$
(506,431
)
 
$
(276,136
)
 
$
(1,659,755
)
 
$
(920,557
)



nflxlogo2015a08.jpg
9



Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Year Ended
 
December 31,
2016
 
September 30,
2016
 
December 31,
2015
 
December 31,
2016
 
December 31,
2015
Domestic Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
49,431

 
47,497

 
44,738

 
49,431

 
44,738

Paid memberships at end of period
47,905

 
46,479

 
43,401

 
47,905

 
43,401

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,403,462

 
$
1,304,333

 
$
1,105,933

 
$
5,077,307

 
$
4,180,339

Cost of revenues
761,479

 
720,658

 
647,059

 
2,855,789

 
2,487,193

Marketing
105,589

 
108,495

 
79,833

 
382,832

 
317,646

Contribution profit
536,394

 
475,180

 
379,041

 
1,838,686

 
1,375,500

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Total memberships at end of period
44,365

 
39,246

 
30,024

 
44,365

 
30,024

Paid memberships at end of period
41,185

 
36,799

 
27,438

 
41,185

 
27,438

 
 
 
 
 
 
 
 
 
 
Revenues
$
947,666

 
$
853,480

 
$
566,405

 
$
3,211,095

 
$
1,953,435

Cost of revenues
834,794

 
748,515

 
530,880

 
2,911,370

 
1,780,375

Marketing
179,407

 
173,548

 
144,340

 
608,246

 
506,446

Contribution profit (loss)
(66,535
)
 
(68,583
)
 
(108,815
)
 
(308,521
)
 
(333,386
)
 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Total memberships at end of period
4,114

 
4,273

 
4,904

 
4,114

 
4,904

Paid memberships at end of period
4,029

 
4,194

 
4,787

 
4,029

 
4,787

 
 
 
 
 
 
 
 
 
 
Revenues
$
126,413

 
$
132,375

 
$
150,995

 
$
542,267

 
$
645,737

Cost of revenues
58,146

 
63,671

 
71,426

 
262,742

 
323,908

Contribution profit
68,267

 
68,704

 
79,569

 
279,525

 
321,829

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
2,477,541

 
$
2,290,188

 
$
1,823,333

 
$
8,830,669

 
$
6,779,511

Cost of revenues
1,654,419

 
1,532,844

 
1,249,365

 
6,029,901

 
4,591,476

Marketing
284,996

 
282,043

 
224,173

 
991,078

 
824,092

Contribution profit
538,126

 
475,301

 
349,795

 
1,809,690

 
1,363,943

Other operating expenses
384,192

 
369,265

 
289,901

 
1,429,897

 
1,058,117

Operating income
153,934

 
106,036

 
59,894

 
379,793

 
305,826

Other income (expense)
(63,665
)
 
(26,909
)
 
(39,163
)
 
(119,286
)
 
(163,941
)
Provision (benefit) for income taxes
23,521

 
27,610

 
(22,447
)
 
73,829

 
19,244

Net income
$
66,748

 
$
51,517

 
$
43,178

 
$
186,678

 
$
122,641





nflxlogo2015a08.jpg
10


Netflix, Inc.
Non-GAAP Information
(unaudited)
(in thousands, except per share data)

 
Three Months Ended
 
December 31,
2015
 
March 31,
2016
 
June 30,
2016
 
September 30,
2016
 
December 31,
2016
Non-GAAP Adjusted EBITDA reconciliation:
 
 
 
 
 
 
 
 
 
GAAP net income
$
43,178

 
$
27,658

 
$
40,755

 
$
51,517

 
$
66,748

Add:
 
 
 
 
 
 
 
 
 
Interest and other (income) expense
39,163

 
9,574

 
19,138

 
26,909

 
63,665

Provision (benefit) for income taxes
(22,447
)
 
12,221

 
10,477

 
27,610

 
23,521

Depreciation and amortization of property, equipment and intangibles
15,488

 
14,798

 
14,131

 
14,410

 
14,189

Stock-based compensation expense
35,860

 
42,422

 
44,112

 
43,495

 
43,646

Adjusted EBITDA
$
111,242

 
$
106,673

 
$
128,613

 
$
163,941

 
$
211,769





 
 
Three Months Ended
 
 
December 31,
2015
Non-GAAP net income reconciliation:
 
 
GAAP net income
 
$
43,178

Less: Release of tax accrual
 
(13,438
)
Non-GAAP net income
 
$
29,740

Non-GAAP earnings per share:
 
 
Basic
 
$
0.07

Diluted
 
$
0.07

Weighted-average common shares outstanding:
 
 
Basic
 
427,668

Diluted
 
438,257



nflxlogo2015a08.jpg
11