Attached files
file | filename |
---|---|
8-K - 8-K - NETFLIX INC | form8-kq214.htm |
Exhibit 99.1
July 21, 2014
Fellow Shareholders,
Fifteen years after launching our subscription service, we have over fifty million members enjoying Netflix in over 40 countries. As we gain new members, we are investing to further improve our content and member experience, and to expand the global availability of our service. Our summary results and forecast are below:
(in millions except per share data and Streaming Content Obligations) | Q2 '13 | Q3 '13 | Q4 '13 | Q1 '14 | Q2 '14 | Q3 '14 Forecast | ||||||||||||
Total Streaming: | ||||||||||||||||||
Revenue | $ | 837 | $ | 884 | $ | 962 | $ | 1,066 | $ | 1,146 | $ | 1,224 | ||||||
Contribution Profit | $ | 85 | $ | 92 | $ | 117 | $ | 166 | $ | 212 | $ | 203 | ||||||
Contribution Margin | 10.2 | % | 10.4 | % | 12.2 | % | 15.6 | % | 18.5 | % | 16.6 | % | ||||||
Paid Members | 35.63 | 38.01 | 41.43 | 46.14 | 47.99 | 50.89 | ||||||||||||
Total Members | 37.56 | 40.28 | 44.35 | 48.35 | 50.05 | 53.74 | ||||||||||||
Net Additions | 1.24 | 2.73 | 4.07 | 4.00 | 1.69 | 3.69 | ||||||||||||
Domestic Streaming: | ||||||||||||||||||
Revenue | $ | 671 | $ | 701 | $ | 741 | $ | 799 | $ | 838 | $ | 877 | ||||||
Contribution Profit | $ | 151 | $ | 166 | $ | 174 | $ | 201 | $ | 227 | $ | 245 | ||||||
Contribution Margin | 22.5 | % | 23.7 | % | 23.4 | % | 25.2 | % | 27.1 | % | 27.9 | % | ||||||
Paid Members | 28.62 | 29.93 | 31.71 | 34.38 | 35.09 | 36.52 | ||||||||||||
Total Members | 29.81 | 31.09 | 33.42 | 35.67 | 36.24 | 37.58 | ||||||||||||
Net Additions | 0.63 | 1.29 | 2.33 | 2.25 | 0.57 | 1.33 | ||||||||||||
International Streaming: | ||||||||||||||||||
Revenue | $ | 166 | $ | 183 | $ | 221 | $ | 267 | $ | 307 | $ | 347 | ||||||
Contribution Profit (Loss) | $ | (66 | ) | $ | (74 | ) | $ | (57 | ) | $ | (35 | ) | $ | (15 | ) | $ | (42 | ) |
Contribution Margin | -39.7 | % | -40.6 | % | -25.9 | % | -13.1 | % | -5.0 | % | -12.1 | % | ||||||
Paid Members | 7.01 | 8.08 | 9.72 | 11.76 | 12.91 | 14.37 | ||||||||||||
Total Members | 7.75 | 9.19 | 10.93 | 12.68 | 13.80 | 16.16 | ||||||||||||
Net Additions | 0.61 | 1.44 | 1.74 | 1.75 | 1.12 | 2.36 | ||||||||||||
Total (including DVD): | ||||||||||||||||||
Operating Income | $ | 57 | $ | 57 | $ | 82 | $ | 98 | $ | 130 | $ | 103 | ||||||
Net Income | $ | 29 | $ | 32 | $ | 48 | $ | 53 | $ | 71 | $ | 55 | ||||||
EPS | $ | 0.49 | $ | 0.52 | $ | 0.79 | $ | 0.86 | $ | 1.15 | $ | 0.89 | ||||||
Free Cash Flow | $ | 13 | $ | 7 | $ | 5 | $ | 8 | $ | 16 | ||||||||
Shares (FD) | 60.6 | 61.0 | 61.3 | 61.5 | 61.6 | |||||||||||||
Streaming Content Obligations* ($B) | $ | 6.4 | $ | 6.5 | $ | 7.3 | $ | 7.1 | $ | 7.7 | ||||||||
*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 |
Financial Performance
Our U.S. member base grew to more than 36 million on the strength of our ever-improving content offering, including Orange is the New Black Season 2. For Q3, we expect about 1.3 million net additions, comparable to Q3’13 in which we premiered Orange Season 1. We are pleased our net additions in the U.S. remain on par with last year.
Our U.S. contribution margin expanded 460 bps y/y to 27.1%, as revenue continued to grow faster than spending on content and marketing. As previously mentioned, we’ll re-evaluate our current 400 bps y/y margin improvement target once we achieve a 30% contribution margin sometime next year. The three models we are evaluating are 400, 200, and 100 basis points margin improvement per year over the next few years.
Outside the U.S., we generated continued growth in all of our markets. We ended Q2 with 13.8 million international members, growing 78% y/y. In September, we’ll be launching Netflix in Germany, France, Austria, Switzerland, Belgium, and Luxembourg. This launch into markets with over 60 million broadband households will significantly increase our European presence and raise our current international addressable market to over 180 million broadband households, or 2x the number of current U.S. broadband households.
Our international contribution loss of ($15.3) million has been rapidly approaching contribution profitability as we see improvements across all existing markets. Our broad success from Argentina to Finland has convinced us to further invest aggressively in global expansion. Our European expansion this quarter will add new expenses to the segment, so we expect a consolidated contribution loss of ($42) million for the international segment in Q3. Even after our upcoming expansion in Europe, we’ll only address about one-third (271 million of 728 million1) of current global broadband households, providing a great opportunity to build on our international success beyond 2014. As explained in our Long Term Letter2, our plan remains to run at about global break-even to fund investment in global expansion.
In May, we raised prices modestly in most of our markets for new members on our two screens at-a-time HD plan, and introduced a one screen at-a-time, standard definition plan across our markets. Our two screen HD plan continues to be the most popular plan choice for new members. We expect ARPU to rise slowly as members at the new prices grow as a percentage of total membership. There was minimal impact on membership growth from this price change.
______________________
1SNL Kagan
2http://ir.netflix.com/long-term-view.cfm
2 |
Content
Original Series
The release of Orange is the New Black Season 2 has been every bit the global media event we had hoped for; critically acclaimed and embraced by a fervent and growing fan base. In its first month, Orange became the most watched series in every Netflix territory, with many members either watching for the first time or re-watching Season 1, in addition to the 13 new episodes of Season 2.
Earlier this month, Netflix original series and documentaries received 31 Emmy nominations, more than double the 14 we received in our first year of releasing original programming. In its first year of eligibility, Orange received 12 nominations, more than any other comedy series, while nominations for House of Cards grew from 9 last year to 13 this year. Notably, these two shows were nominated for Outstanding Comedy Series and Outstanding Drama Series while The Square, which received 4 nominations, is up for Outstanding Documentary. It is quite rare for a single network to receive nominations in all three of these categories as well as Outstanding Lead Actor and Outstanding Lead Actress for both drama (Kevin Spacey and Robin Wright for House of Cards) and comedy (Ricky Gervais for Derek and Taylor Schilling for Orange.)
Hemlock Grove3 debuted July 11 and has already begun to build on its Season 1 audience. We have been very pleased with the second season of Derek that launched in May and with the launch of our latest original documentary The Battered Bastards of Baseball4.
In the coming weeks, we will premiere the all new 4th and final season of The Killing5 (8/1) and a new adult animated comedy BoJack Horseman6 (8/22). Also in August, we will release Mission Blue (8/15) from the Oscar-winning director of The Cove, Fisher Stevens.
Reflecting the increasingly global nature of the Netflix service, we now have original series in production around the world, involving some of the best storytellers working in television and film today. Marco Polo, a historical adventure from Executive Producer Harvey Weinstein, is shooting in Kazakhstan and Malaysia. In New York there is Marvel’s Daredevil, the first of our original series from Marvel Television, as well as the already eagerly-anticipated third season of Orange is the New Black; while in Baltimore, production is underway on the third season of House of Cards. In the Florida Keys, the creators of Damages (Glenn Kessler, Daniel Zelman, and Todd Kessler) are shooting a dark family thriller with an ensemble cast led by Kyle Chandler, Sissy Spacek, Sam Shepard, Linda Cardellini, Ben Mendelsohn, and Norbert Leo Butz. Sense8, a mind-bending series from the Wachowskis (The Matrix trilogy, Cloud Atlas) and J. Michael Straczynski (Babylon 5), began production in San Francisco last month, is now in Chicago, and will shoot in many international locations this year.
In August, production begins in Los Angeles on Grace and Frankie, a comedy led by Jane Fonda, Lily Tomlin, Martin Sheen and Sam Waterston; and in Colombia, Brazilian director José Padilha (Elite Squad, Robocop) will begin filming Narcos with an all-star international cast led by Wagner Moura.
______________________
3https://www.youtube.com/watch?v=A3m56kalm7Y&list=PLvahqwMqN4M3SI7WgoI9t58DtrkjLgP8R
4https://www.youtube.com/watch?v=RA76b5Hhvxg&list=UUWOA1ZGywLbqmigxE4Qlvuw
5https://www.youtube.com/watch?v=oU7clobUQmQ&list=PLvahqwMqN4M1uQ5JITdkmNrxZnwtUG-DP
6https://www.youtube.com/watch?v=QxIXxrUQKYw&list=PLvahqwMqN4M1uQ5JITdkmNrxZnwtUG-DP
3 |
During the quarter, we announced our first-ever talk show, hosted by Chelsea Handler, the popular comedian and best-selling author. As with scripted programming, but unlike news or sports, fewer people are watching talk shows live and are instead watching stacked episodes on DVR or online in the days and weeks following initial airing. Our intent is to produce a show with Handler and her team that reflects this shift to on-demand enjoyment and that will appeal to a global audience. Handler recently taped her first special for Netflix -- a stand-up show that’s been sold out across the U.S., the U.K. and Ireland -- and will produce four more in 2015 before we launch the talk show in early 2016.
Marketing
In Q2 we focused our marketing on the launch of the second season of Orange is the New Black in each of our markets. This campaign represents our largest content marketing push to date and we are pleased with the reaction from fans. Social media sentiment was overwhelmingly positive and search volume7 validated that we had a big hit on our hands. Season 3 next year should be even bigger.
Our Netflix brand advertising continues to resonate with consumers, highlighting the fun ways people’s lives are enriched when they watch something great. Our well-received You’ve Got to Get it To Get It campaign in Canada was extended with three new ads “Airport”8, “Test Results”9, and “Proposal”10 this quarter. We ran the first ad in the campaign, “Pep Talk”11, during the NHL playoffs and were delighted when New York Rangers head coach Alain Vigneault picked up the joke12 during a pre-game press conference, leading the NHL Network to interview13 the coach from our ad.
Another successful example of our brand advertising is our Viva Netflix campaign in Mexico which began with “Abuelita,”14 featuring a fun take on local family viewing habits, quickly followed by “Oribe”15 in which Mexico’s star striker returns home from the World Cup slightly earlier than his spouse expected.
In Q2 we updated our logo from the red block with white letters to the cleaner red letters. We were pleased to execute this transition with the minimum of distraction.
In-Store Gift Cards Coming This Fall We are introducing physical gift cards in select stores in the U.S., Canada, Mexico, and Germany starting later this year. In mature markets, gift cards will extend our brand presence and make it easier to access Netflix. In newer markets, gift cards help build the brand and provide an easier alternative for consumers to join Netflix in markets with developing online payments. |
______________________
7http://www.google.com/trends/topcharts#vm=chart&cid=tv_shows&geo=US&date=201406&cat
8http://www.youtube.com/watch?v=lM4KF9uiGhk&list=UUWOA1ZGywLbqmigxE4Qlvuw
9http://www.youtube.com/watch?v=X-c-9AxeBs8&list=UUWOA1ZGywLbqmigxE4Qlvuw
10http://www.youtube.com/watch?v=rBCdIZhMzKk&list=UUWOA1ZGywLbqmigxE4Qlvuw
11https://www.youtube.com/watch?v=ZDLY5zEs8ak
12http://www.si.com/nhl/home-ice/2014/06/11/alain-vigneault-looks-to-netflix-for-inspiration-in-stanley-cup-final-game-4
13http://video.nhl.com/videocenter/console?id=625004
14http://www.youtube.com/watch?v=SFg4JJjwvRI&feature=youtu.be&list=UUWOA1ZGywLbqmigxE4Qlvuw
15http://www.youtube.com/watch?v=pW3brlaKxH0
4 |
Product
MVPD Set-Top Boxes
The Netflix app on Virgin Media set-top boxes in the U.K. continues to be a compelling streaming experience that delivers above-median viewing and satisfaction. We continue to gain traction in our international markets with set-top box integration and, in the U.S., launched the Netflix app on the TiVo platform with several regional MVPDs including Suddenlink, RCN, Grande and Atlantic Broadband during the quarter. MVPDs would rather their customers' use Netflix on their set-top and remote than use Netflix on Internet set-tops such as Apple TV, partially because that drives the pay-per-view consumption for the respective set-top owner.
Android TV Platform
The Netflix app for Google's Android TV platform will appear on TVs from Sony, Sharp, and others in the coming months. Widespread adoption of Android TV can reduce the number of different platforms we need to support to ensure Netflix is broadly available on Smart TVs delivering a consistently first-rate experience, no matter the vendor. Android TV incorporates Google's "cast" feature, allowing content discovery on mobile devices and laptops with streaming delivered to the big screen.
Smart TV growing in Latin America
Post World Cup, the number of Smart TVs used for Netflix viewing in Latin American countries is at a new high; in fact, the percentage of viewing from Smart TVs in Latin America is higher than any other region we serve. Members accessing Netflix on a big screen generally watch more and retain better than members using smaller devices.
UHD 4K Video Quality
We are now streaming flagship content in UHD 4K to members with 4K Smart TVs, putting Netflix at the leading edge of high-quality AV delivery. Already, Samsung, LG, and Sony have in retail around the world 4K Smart TVs, and House of Cards Season 2 and all seasons of Breaking Bad are now available for streaming in the new format. Content available to stream in 4K will grow steadily as several of our original series are or will be shooting in 4K, including Marco Polo, Sense8, and Narcos. UHD 4K will be an Internet-centric format as linear TV will be late to switch their networks to UHD 4K.
Strong Net Neutrality
Our focus on strong net neutrality, including interconnection, is about preventing large ISPs from holding our joint customers hostage with poor performance to extract payments from us, other Internet content firms, and Internet transit suppliers such as Level 3 and Cogent.
Our policy goals are for the FCC to not sanctify paid prioritization, and for the DOJ/FCC to block the merger of Comcast/TWC, or at the very least, to require as condition to approving the merger that the combined entity be prevented from charging for interconnection.
5 |
6.3 Million U.S. DVD Memberships
Our DVD-by-mail business continues to satisfy 6.3 million members. Contribution profit for the segment was $92.8 million in the quarter, as expected, and we anticipate $90 million for Q3. A year ago in Q2, we lost 475k DVD memberships. In Q2 this year it was only 391k. DVD and Blu-ray offer amazing and comprehensive selection that keeps a core membership uniquely satisfied.
Reference
For quick reference, our eight most recent investor letters are here: April 201416, January 201417, October 201318, July 201319, April 201320, January 201321, October 201222, July 201223.
________________________
16http://files.shareholder.com/downloads/NFLX/3337146746x0x745654/fb5aaae0-b991-4e76-863c-3b859c8dece8/Q114%20Earnings%20Letter%204.21.14%20final.pdf
17http://files.shareholder.com/downloads/NFLX/3337146746x0x720306/119321bc-89c3-4306-93ac-93c02da2354f/Q4%2013%20Letter%20to%20shareholders.pdf
18http://files.shareholder.com/downloads/NFLX/2531040512x0x698481/ecfe1ab4-66f5-4e23-a64a-1ca025216e5e/Q313%20Earnings%20Letter%2010.21.13%2010.30am.pdf
19http://files.shareholder.com/downloads/NFLX/2531040512x0x678215/a9076739-bc08-421e-8dba-52570f4e489e/Q213%20Investor%20Letter.pdf
20http://ir.netflix.com/common/download/download.cfm?companyid=NFLX&fileid=655293&filekey=5c1951a4-e79c-49c8-bb83-1595635bf934&filename=Investor_Letter_Q12013.pdf
21http://files.shareholder.com/downloads/NFLX/2531040512x0x630302/e7656660-df35-4384-9f39-cb0f39e54f0b/Investor%20Letter%20Q42012%2001.23.13.pdf
22http://files.shareholder.com/downloads/NFLX/2531040512x0x607614/6bc75664-8a60-4398-8e52-fe918b79bf67/Investor%20Letter%20Q3%202012%2010.23.12.pdf
23http://files.shareholder.com/downloads/NFLX/2531040512x0x585175/818f7f39-011e-4227-ba2f-7d30b8ad3d23/Investor%20Letter%20Q2%202012%2007.24.12.pdf
6 |
Summary
We have a huge global opportunity ahead and a lot of challenges too. We are thrilled for the creators of our original series and documentaries who earned 31 Emmy nominations this year, and whose incredible work is being enjoyed by many of our 50 million members.
Sincerely,
Reed Hastings, CEO | David Wells, CFO |
21st July 2014 Earnings Interview
Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview at 2 p.m. Pacific Time at youtube.com/netflixir. The interview will be conducted by Michael Nathanson, MoffettNathanson and Doug Anmuth, J.P. Morgan. Questions that investors would like to see asked should be sent to michael@moffettnathanson.com or douglas.anmuth@jpmorgan.com.
IR Contact: | PR Contact: |
Erin Kasenchak | Jonathan Friedland |
Director, Investor Relations | Chief Communications Officer |
408 540-3691 | 310 734-2958 |
7 |
Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measure of free cash flow. Management believes that free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities. However, this non-GAAP measure 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 this non-GAAP measure is 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 international expansion and performance; content offerings; marketing; gift cards; device and platform integration; member growth domestically and internationally, including net, total and paid; revenue, average revenue per subscriber, contribution profit (loss) and contribution margin for both domestic (streaming and DVD) and international operations, as well as consolidated operating income, 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 instant streaming; fluctuations in consumer usage of our service; service disruptions; production risks; actions of Internet Service Providers; and, widespread 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 February 3, 2014. 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.
8 |
Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Three Months Ended | Six Months Ended | ||||||||||||||||||
June 30, 2014 | March 31, 2014 | June 30, 2013 (1) | June 30, 2014 | June 30, 2013 (1) | |||||||||||||||
Revenues | $ | 1,340,407 | $ | 1,270,089 | $ | 1,069,372 | $ | 2,610,496 | $ | 2,093,333 | |||||||||
Cost of revenues | 914,848 | 869,186 | 760,674 | 1,784,034 | 1,497,626 | ||||||||||||||
Marketing | 120,763 | 137,098 | 114,611 | 257,861 | 233,697 | ||||||||||||||
Technology and development | 115,182 | 110,310 | 93,126 | 225,492 | 185,101 | ||||||||||||||
General and administrative | 60,014 | 55,900 | 43,844 | 115,914 | 87,970 | ||||||||||||||
Operating income | 129,600 | 97,595 | 57,117 | 227,195 | 88,939 | ||||||||||||||
Other income (expense): | |||||||||||||||||||
Interest expense | (13,328 | ) | (10,052 | ) | (7,528 | ) | (23,380 | ) | (14,268 | ) | |||||||||
Interest and other income (expense) | 1,100 | 1,401 | (2,940 | ) | 2,501 | (1,963 | ) | ||||||||||||
Loss on extinguishment of debt | — | — | — | — | (25,129 | ) | |||||||||||||
Income before income taxes | 117,372 | 88,944 | 46,649 | 206,316 | 47,579 | ||||||||||||||
Provision for income taxes | 46,354 | 35,829 | 17,178 | 82,183 | 15,419 | ||||||||||||||
Net income | $ | 71,018 | $ | 53,115 | $ | 29,471 | $ | 124,133 | $ | 32,160 | |||||||||
Earnings per share: | |||||||||||||||||||
Basic | $ | 1.18 | $ | 0.89 | $ | 0.51 | $ | 2.07 | $ | 0.56 | |||||||||
Diluted | $ | 1.15 | $ | 0.86 | $ | 0.49 | $ | 2.02 | $ | 0.53 | |||||||||
Weighted-average common shares outstanding: | |||||||||||||||||||
Basic | 59,996 | 59,817 | 58,192 | 59,907 | 57,089 | ||||||||||||||
Diluted | 61,634 | 61,548 | 60,590 | 61,592 | 60,369 |
(1) Certain prior period amounts have been reclassified from "Marketing" to "Cost of revenues" to conform to current period presentation.
9 |
Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
As of | |||||||
June 30, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,214,244 | $ | 604,965 | |||
Short-term investments | 500,121 | 595,440 | |||||
Current content library, net | 1,786,341 | 1,706,421 | |||||
Other current assets | 167,674 | 151,937 | |||||
Total current assets | 3,668,380 | 3,058,763 | |||||
Non-current content library, net | 2,348,796 | 2,091,071 | |||||
Property and equipment, net | 141,715 | 133,605 | |||||
Other non-current assets | 166,931 | 129,124 | |||||
Total assets | $ | 6,325,822 | $ | 5,412,563 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Current content liabilities | $ | 1,858,020 | $ | 1,775,983 | |||
Accounts payable | 137,226 | 108,435 | |||||
Accrued expenses | 98,548 | 54,018 | |||||
Deferred revenue | 241,330 | 215,767 | |||||
Total current liabilities | 2,335,124 | 2,154,203 | |||||
Non-current content liabilities | 1,390,770 | 1,345,590 | |||||
Long-term debt | 900,000 | 500,000 | |||||
Other non-current liabilities | 90,223 | 79,209 | |||||
Total liabilities | 4,716,117 | 4,079,002 | |||||
Stockholders' equity: | |||||||
Common stock, $0.001 par value; 160,000,000 shares authorized at June 30 2014 and December 31, 2013; 60,091,015 and 59,607,001 issued and outstanding at June 30, 2014 and December 31, 2013, respectively | 60 | 60 | |||||
Additional paid-in capital | 926,525 | 777,441 | |||||
Accumulated other comprehensive income | 6,502 | 3,575 | |||||
Retained earnings | 676,618 | 552,485 | |||||
Total stockholders' equity | 1,609,705 | 1,333,561 | |||||
Total liabilities and stockholders' equity | $ | 6,325,822 | $ | 5,412,563 |
10 |
Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended | Six Months Ended | ||||||||||||||||||
June 30, 2014 | March 31, 2014 | June 30, 2013 | June 30, 2014 | June 30, 2013 | |||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income | $ | 71,018 | $ | 53,115 | $ | 29,471 | $ | 124,133 | $ | 32,160 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||
Additions to streaming content library | (813,314 | ) | (749,399 | ) | (593,454 | ) | (1,562,713 | ) | (1,185,395 | ) | |||||||||
Change in streaming content liabilities | 78,359 | 42,244 | 7,284 | 120,603 | 16,984 | ||||||||||||||
Amortization of streaming content library | 639,037 | 600,735 | 510,250 | 1,239,772 | 995,990 | ||||||||||||||
Amortization of DVD content library | 16,923 | 16,121 | 17,709 | 33,044 | 35,946 | ||||||||||||||
Depreciation and amortization of property, equipment and intangibles | 12,977 | 12,382 | 12,026 | 25,359 | 24,077 | ||||||||||||||
Stock-based compensation expense | 29,285 | 25,825 | 17,955 | 55,110 | 35,701 | ||||||||||||||
Excess tax benefits from stock-based compensation | (14,628 | ) | (32,732 | ) | (20,368 | ) | (47,360 | ) | (31,983 | ) | |||||||||
Other non-cash items | 3,251 | 2,196 | 1,188 | 5,447 | 2,938 | ||||||||||||||
Loss on extinguishment of debt | — | — | — | — | 25,129 | ||||||||||||||
Deferred taxes | (16,569 | ) | (13,103 | ) | (2,040 | ) | (29,672 | ) | (8,788 | ) | |||||||||
Changes in operating assets and liabilities: | |||||||||||||||||||
Other current assets | (20,685 | ) | 35,066 | 33,762 | 14,381 | 28,035 | |||||||||||||
Accounts payable | (3,086 | ) | 22,812 | (5,138 | ) | 19,726 | 11,881 | ||||||||||||
Accrued expenses | 59,008 | (442 | ) | 10,494 | 58,566 | 6,362 | |||||||||||||
Deferred revenue | 11,315 | 14,248 | 7,693 | 25,563 | 17,099 | ||||||||||||||
Other non-current assets and liabilities | 3,133 | 7,291 | 7,111 | 10,424 | 15,557 | ||||||||||||||
Net cash provided by operating activities | 56,024 | 36,359 | 33,943 | 92,383 | 21,693 | ||||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Acquisition of DVD content library | (20,981 | ) | (14,914 | ) | (14,023 | ) | (35,895 | ) | (35,216 | ) | |||||||||
Purchases of property and equipment | (19,869 | ) | (13,334 | ) | (8,088 | ) | (33,203 | ) | (20,206 | ) | |||||||||
Other assets | 1,129 | 295 | 1,087 | 1,424 | 5,137 | ||||||||||||||
Purchases of short-term investments | (170,908 | ) | (60,546 | ) | (146,050 | ) | (231,454 | ) | (381,673 | ) | |||||||||
Proceeds from sale of short-term investments | 89,662 | 143,048 | 33,979 | 232,710 | 115,207 | ||||||||||||||
Proceeds from maturities of short-term investments | 92,014 | 3,090 | 5,410 | 95,104 | 9,830 | ||||||||||||||
Net cash (used in) provided by investing activities | (28,953 | ) | 57,639 | (127,685 | ) | 28,686 | (306,921 | ) | |||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Proceeds from issuance of common stock | 14,469 | 32,448 | 28,846 | 46,917 | 67,992 | ||||||||||||||
Proceeds from issuance of debt | — | 400,000 | — | 400,000 | 500,000 | ||||||||||||||
Issuance costs | (353 | ) | (6,727 | ) | — | (7,080 | ) | (9,414 | ) | ||||||||||
Redemption of debt | — | — | — | — | (219,362 | ) | |||||||||||||
Excess tax benefits from stock-based compensation | 14,628 | 32,732 | 20,368 | 47,360 | 31,983 | ||||||||||||||
Principal payments of lease financing obligations | (271 | ) | (267 | ) | (255 | ) | (538 | ) | (658 | ) | |||||||||
Net cash provided by financing activities | 28,473 | 458,186 | 48,959 | 486,659 | 370,541 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 1,250 | 301 | (2,590 | ) | 1,551 | (4,926 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents | 56,794 | 552,485 | (47,373 | ) | 609,279 | 80,387 | |||||||||||||
Cash and cash equivalents, beginning of period | 1,157,450 | 604,965 | 418,051 | 604,965 | 290,291 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 1,214,244 | $ | 1,157,450 | $ | 370,678 | $ | 1,214,244 | $ | 370,678 | |||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||
June 30, 2014 | March 31, 2014 | June 30, 2013 | June 30, 2014 | June 30, 2013 | |||||||||||||||
Non-GAAP free cash flow reconciliation: | |||||||||||||||||||
Net cash provided by operating activities | $ | 56,024 | $ | 36,359 | $ | 33,943 | $ | 92,383 | $ | 21,693 | |||||||||
Acquisition of DVD content library | (20,981 | ) | (14,914 | ) | (14,023 | ) | (35,895 | ) | (35,216 | ) | |||||||||
Purchases of property and equipment | (19,869 | ) | (13,334 | ) | (8,088 | ) | (33,203 | ) | (20,206 | ) | |||||||||
Other assets | 1,129 | 295 | 1,087 | 1,424 | 5,137 | ||||||||||||||
Non-GAAP free cash flow | $ | 16,303 | $ | 8,406 | $ | 12,919 | $ | 24,709 | $ | (28,592 | ) |
11 |
Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
As of / Three Months Ended | As of/ Six Months Ended | ||||||||||||||||||
June 30, 2014 | March 31, 2014 | June 30, 2013 (1) | June 30, 2014 | June 30, 2013 (1) | |||||||||||||||
Domestic Streaming | |||||||||||||||||||
Total members at end of period | 36,244 | 35,674 | 29,807 | 36,244 | 29,807 | ||||||||||||||
Paid members at end of period | 35,085 | 34,377 | 28,624 | 35,085 | 28,624 | ||||||||||||||
Revenues | $ | 838,225 | $ | 798,617 | $ | 671,089 | $ | 1,636,842 | $ | 1,309,738 | |||||||||
Cost of revenues | 546,223 | 517,094 | 452,598 | 1,063,317 | 892,932 | ||||||||||||||
Marketing | 64,727 | 80,258 | 67,177 | 144,985 | 134,142 | ||||||||||||||
Contribution profit | 227,275 | 201,265 | 151,314 | 428,540 | 282,664 | ||||||||||||||
International Streaming | |||||||||||||||||||
Total members at end of period | 13,801 | 12,683 | 7,747 | 13,801 | 7,747 | ||||||||||||||
Paid members at end of period | 12,907 | 11,755 | 7,014 | 12,907 | 7,014 | ||||||||||||||
Revenues | $ | 307,461 | $ | 267,118 | $ | 165,902 | $ | 574,579 | $ | 307,921 | |||||||||
Cost of revenues | 266,697 | 245,267 | 184,400 | 511,964 | 351,292 | ||||||||||||||
Marketing | 56,036 | 56,840 | 47,335 | 112,876 | 99,382 | ||||||||||||||
Contribution profit (loss) | (15,272 | ) | (34,989 | ) | (65,833 | ) | (50,261 | ) | (142,753 | ) | |||||||||
Domestic DVD | |||||||||||||||||||
Total members at end of period | 6,261 | 6,652 | 7,508 | 6,261 | 7,508 | ||||||||||||||
Paid members at end of period | 6,167 | 6,509 | 7,369 | 6,167 | 7,369 | ||||||||||||||
Revenues | $ | 194,721 | $ | 204,354 | $ | 232,381 | $ | 399,075 | $ | 475,674 | |||||||||
Cost of revenues | 101,928 | 106,825 | 123,676 | 208,753 | 253,402 | ||||||||||||||
Marketing | — | — | 99 | — | 173 | ||||||||||||||
Contribution profit | 92,793 | 97,529 | 108,606 | 190,322 | 222,099 | ||||||||||||||
Consolidated | |||||||||||||||||||
Revenues | $ | 1,340,407 | $ | 1,270,089 | $ | 1,069,372 | $ | 2,610,496 | $ | 2,093,333 | |||||||||
Cost of revenues | 914,848 | 869,186 | 760,674 | 1,784,034 | 1,497,626 | ||||||||||||||
Marketing | 120,763 | 137,098 | 114,611 | 257,861 | 233,697 | ||||||||||||||
Contribution profit | 304,796 | 263,805 | 194,087 | 568,601 | 362,010 | ||||||||||||||
Other operating expenses | 175,196 | 166,210 | 136,970 | 341,406 | 273,071 | ||||||||||||||
Operating income | 129,600 | 97,595 | 57,117 | 227,195 | 88,939 | ||||||||||||||
Other income (expense) | (12,228 | ) | (8,651 | ) | (10,468 | ) | (20,879 | ) | (16,231 | ) | |||||||||
Loss on extinguishment of debt | — | — | — | — | (25,129 | ) | |||||||||||||
Provision for income taxes | 46,354 | 35,829 | 17,178 | 82,183 | 15,419 | ||||||||||||||
Net income | $ | 71,018 | $ | 53,115 | $ | 29,471 | $ | 124,133 | $ | 32,160 |
(1) Certain prior period amounts have been reclassified from "Marketing" to "Cost of revenues" to conform to current period presentation.
12 |