UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2021
OR


oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission File Number: 001-35727
Netflix, Inc.
(Exact name of Registrant as specified in its charter)
Delaware77-0467272
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification Number)
100 Winchester Circle, Los Gatos, California 95032
100 Winchester Circle,Los Gatos,California95032(Address and zip code of principal executive offices)(Zip Code)
(408) 540-3700
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per shareNFLXNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒    No  o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x☒    No   o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated Filerx☒Accelerated filero☐
Non-accelerated filero☐(Do not check if a smaller reporting company)Smaller reporting companyo☐
Emerging growth companyo☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  o☐    No  x☒
As of September 30, 2017,March 31, 2021, there were 432,731,130443,383,732 shares of the registrant’s common stock, par value $0.001, outstanding.



Table of Contents
 
Page
Part I. Financial Information
Item 1.
Consolidated Financial Statements
Page
Part I. Financial Information
Item 1.
Consolidated Financial Statements
Consolidated Statements of Operations
3
Consolidated Statements of Comprehensive Income
4
Consolidated Statements of Cash Flows
5
Consolidated Balance Sheets
6
Consolidated Statements of Stockholders' Equity
7
Notes to Consolidated Financial Statements
78
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1819
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
3230
Item 4.
Controls and Procedures
3230
Part II. Other Information
33
Item 1.
Legal Proceedings
3330
Item 1A.
Risk Factors
3331
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
Item 6.
Exhibits
3331
SignaturesExhibit Index
3432
Exhibit IndexSignatures
3532



2
Table of Contents

NETFLIX, INC.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)


Three Months Ended
March 31,
2021		March 31,
2020
Revenues$7,163,282 $5,767,691 
Cost of revenues3,868,511 3,599,701 
Marketing512,512 503,830 
Technology and development525,207 453,817 
General and administrative297,196 252,087 
Operating income1,959,856 958,256 
Other income (expense):
Interest expense(194,440)(184,083)
Interest and other income269,086 21,697 
Income before income taxes2,034,502 795,870 
Provision for income taxes(327,787)(86,803)
Net income$1,706,715 $709,067 
Earnings per share:
Basic$3.85 $1.61 
Diluted$3.75 $1.57 
Weighted-average common shares outstanding:
Basic443,224 439,352 
Diluted455,641 452,494 
 Three Months Ended Nine Months Ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
Revenues$2,984,859
 $2,290,188
 $8,406,958
 $6,353,128
Cost of revenues1,992,980
 1,532,844
 5,552,312
 4,375,482
Marketing312,490
 282,043
 858,083
 706,082
Technology and development255,236
 216,099
 779,427
 626,907
General and administrative215,526
 153,166
 623,760
 418,798
Operating income208,627
 106,036
 593,376
 225,859
Other income (expense):       
Interest expense(60,688) (35,536) (162,912) (106,528)
Interest and other income (expense)(31,702) 8,627
 (76,473) 50,907
Income before income taxes116,237
 79,127
 353,991
 170,238
Provision for (benefit from) income taxes(13,353) 27,610
 (19,421) 50,308
Net income$129,590
 $51,517
 $373,412
 $119,930
Earnings per share:       
Basic$0.30
 $0.12
 $0.87
 $0.28
Diluted$0.29
 $0.12
 $0.84
 $0.27
Weighted-average common shares outstanding:       
Basic432,404
 428,937
 431,473
 428,514
Diluted447,362
 438,389
 446,367
 438,180






















See accompanying notes to the consolidated financial statements.

3
Table of Contents
NETFLIX, INC.
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
Three Months Ended
March 31,
2021		March 31,
2020
Net income$1,706,715 $709,067 
Other comprehensive loss:
Foreign currency translation adjustments
(40,261)(23,533)
Comprehensive income$1,666,454 $685,534 
 Three Months Ended Nine Months Ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
Net income$129,590
 $51,517
 $373,412
 $119,930
Other comprehensive income (loss):       
Foreign currency translation adjustments 
5,678
 2,357
 22,604
 5,453
Change in unrealized gains (losses) on available-for-sale securities, net of tax of $212, $(412), $378, and $810, respectively328
 (676) 599
 1,325
Total other comprehensive income6,006
 1,681
 23,203
 6,778
Comprehensive income$135,596
 $53,198
 $396,615
 $126,708
















































See accompanying notes to the consolidated financial statements.

4
Table of Contents
NETFLIX, INC.


Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
   
Three Months Ended Nine Months Ended
   
September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
Cash flows from operating activities:       
Net income$129,590
 $51,517
 $373,412
 $119,930
Adjustments to reconcile net income to net cash used in operating activities:       
Additions to streaming content assets(2,315,017) (2,442,080) (7,328,104) (6,550,445)
Change in streaming content liabilities(34,587) 529,885
 846,560
 1,674,125
Amortization of streaming content assets1,627,477
 1,224,108
 4,483,954
 3,457,990
Amortization of DVD content assets13,259
 19,284
 48,368
 59,746
Depreciation and amortization of property, equipment and intangibles19,238
 14,410
 52,838
 43,339
Stock-based compensation expense44,763
 43,495
 133,679
 130,029
Excess tax benefits from stock-based compensation—
 (12,762) —
 (37,401)
Other non-cash items9,896
 9,682
 43,081
 31,479
Foreign currency remeasurement loss on long-term debt50,830
 —
 115,050
 —
Deferred taxes(57,090) 14,338
 (104,556) (20,141)
Changes in operating assets and liabilities:       
Other current assets(41,399) 10,250
 (147,000) 48,649
Accounts payable34,029
 27,810
 10,590
 16,707
Accrued expenses74,006
 28,957
 119,506
 72,288
Deferred revenue32,947
 30,230
 94,777
 80,485
Other non-current assets and liabilities(7,549) (11,065) (40,146) (43,604)
Net cash used in operating activities(419,607) (461,941) (1,297,991) (916,824)
Cash flows from investing activities:       
Acquisitions of DVD content assets(10,217) (17,249) (43,213) (58,380)
Purchases of property and equipment(33,963) (27,366) (151,717) (46,605)
Change in other assets(1,107) 125
 (2,940) 676
Purchases of short-term investments(2,799) (128,136) (74,819) (181,590)
Proceeds from sale of short-term investments250,278
 171,747
 320,154
 198,687
Proceeds from maturities of short-term investments—
 24,855
 22,705
 112,555
Net cash provided by investing activities202,192
 23,976
 70,170
 25,343
Cash flows from financing activities:       
Proceeds from issuance of debt—
 —
 1,420,510
 —
Issuance costs(312) —
 (15,325) —
Proceeds from issuance of common stock34,669
 3,819
 73,673
 11,587
Excess tax benefits from stock-based compensation—
 12,762
 —
 37,401
Other financing activities65
 58
 189
 170
Net cash provided by financing activities34,422
 16,639
 1,479,047
 49,158
Effect of exchange rate changes on cash and cash equivalents10,685
 (441) 27,667
 2,151
Net increase (decrease) in cash and cash equivalents(172,308) (421,767) 278,893
 (840,172)
Cash and cash equivalents, beginning of period1,918,777
 1,390,925
 1,467,576
 1,809,330
Cash and cash equivalents, end of period$1,746,469
 $969,158
 $1,746,469
 $969,158
Supplemental disclosure:       
Change in investing activities included in liabilities$(6,876) $17,243
 $(27,041) $15,486
   
Three Months Ended
   
March 31,
2021		March 31,
2020
Cash flows from operating activities:
Net income$1,706,715 $709,067 
Adjustments to reconcile net income to net cash provided by operating activities:
Additions to content assets(3,284,576)(3,294,275)
Change in content liabilities(266,040)258,945 
Amortization of content assets2,719,196 2,483,385 
Depreciation and amortization of property, equipment and intangibles35,741 28,517 
Stock-based compensation expense107,230 97,019 
Foreign currency remeasurement gain on debt(253,330)(93,060)
Other non-cash items72,657 65,448 
Deferred income taxes159,733 46,619 
Changes in operating assets and liabilities:
Other current assets(221,555)(127,353)
Accounts payable(137,313)(149,153)
Accrued expenses and other liabilities177,897 214,191 
Deferred revenue22,279 62,008 
Other non-current assets and liabilities(61,368)(41,446)
Net cash provided by operating activities777,266 259,912 
Cash flows from investing activities:
Purchases of property and equipment(81,001)(98,015)
Change in other assets(4,615)(288)
Net cash used in investing activities(85,616)(98,303)
Cash flows from financing activities:
Repayments of debt(500,000)0 
Proceeds from issuance of common stock48,071 43,694 
Net cash provided by (used in) financing activities(451,929)43,694 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(42,138)(70,902)
Net increase in cash, cash equivalents and restricted cash197,583 134,401 
Cash, cash equivalents and restricted cash at beginning of period8,238,870 5,043,786 
Cash, cash equivalents and restricted cash at end of period$8,436,453 $5,178,187 
See accompanying notes to the consolidated financial statements.

5
Table of Contents
NETFLIX, INC.
Consolidated Balance Sheets
(in thousands, except share and par value data)


As of
   
March 31,
2021		December 31,
2020
(unaudited)
Assets
Current assets:
Cash and cash equivalents$8,403,705 $8,205,550 
Other current assets1,703,803 1,556,030 
Total current assets10,107,508 9,761,580 
Content assets, net26,043,991 25,383,950 
Property and equipment, net1,015,419 960,183 
Other non-current assets2,956,096 3,174,646 
Total assets$40,123,014 $39,280,359 
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities$4,297,957 $4,429,536 
Accounts payable532,942 656,183 
Accrued expenses and other liabilities1,291,812 1,102,196 
Deferred revenue1,140,271 1,117,992 
Short-term debt698,788 499,878 
Total current liabilities7,961,770 7,805,785 
Non-current content liabilities2,465,626 2,618,084 
Long-term debt14,860,552 15,809,095 
Other non-current liabilities1,950,986 1,982,155 
Total liabilities27,238,934 28,215,119 
Commitments and contingencies (Note 7)00
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2021 and December 31, 2020; 443,383,732 and 442,895,261 issued and outstanding at March 31, 2021 and December 31, 2020, respectively3,600,084 3,447,698 
Accumulated other comprehensive income4,137 44,398 
Retained earnings9,279,859 7,573,144 
Total stockholders’ equity12,884,080 11,065,240 
Total liabilities and stockholders’ equity$40,123,014 $39,280,359 
 As of
   
September 30,
2017		 December 31,
2016
 (unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$1,746,469
 $1,467,576
Short-term investments—
 266,206
Current content assets, net4,223,387
 3,726,307
Other current assets415,492
 260,202
Total current assets6,385,348
 5,720,291
Non-current content assets, net9,739,704
 7,274,501
Property and equipment, net322,421
 250,395
Other non-current assets504,067
 341,423
Total assets$16,951,540
 $13,586,610
Liabilities and Stockholders’ Equity   
Current liabilities:   
Current content liabilities$4,142,086
 $3,632,711
Accounts payable301,443
 312,842
Accrued expenses331,723
 197,632
Deferred revenue535,425
 443,472
Total current liabilities5,310,677
 4,586,657
Non-current content liabilities3,296,504
 2,894,654
Long-term debt4,888,783
 3,364,311
Other non-current liabilities128,215
 61,188
Total liabilities13,624,179
 10,906,810
Commitments and contingencies (Note 6)

 

Stockholders’ equity:   
Common stock, $0.001 par value; 4,990,000,000 shares authorized at September 30, 2017 and December 31, 2016; 432,731,130 and 430,054,212 issued and outstanding at September 30, 2017 and December 31, 2016, respectively1,807,123
 1,599,762
Accumulated other comprehensive loss(25,362) (48,565)
Retained earnings1,545,600
 1,128,603
Total stockholders’ equity3,327,361
 2,679,800
Total liabilities and stockholders’ equity$16,951,540
 $13,586,610








See accompanying notes to the consolidated financial statements.

6
Table of Contents
NETFLIX, INC.
Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands)
Three Months Ended
 March 31,
2021		March 31,
2020
Total stockholders' equity, beginning balances$11,065,240 $7,582,157 
Common stock and additional paid-in capital:
Beginning balances$3,447,698 $2,793,929 
Issuance of common stock upon exercise of options45,156 44,584 
Stock-based compensation expense107,230 97,019 
Ending balances$3,600,084 $2,935,532 
Accumulated other comprehensive income (loss):
Beginning balances$44,398 $(23,521)
Other comprehensive loss(40,261)(23,533)
Ending balances$4,137 $(47,054)
Retained earnings:
Beginning balances$7,573,144 $4,811,749 
Net income1,706,715 709,067 
Ending balances$9,279,859 $5,520,816 
Total stockholders' equity, ending balances$12,884,080 $8,409,294 























See accompanying notes to the consolidated financial statements.

7
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NETFLIX, INC.
Notes to Consolidated Financial Statements
(unaudited)


1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying interim consolidated financial statements of Netflix, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162020 filed with the Securities and Exchange Commission (the “SEC”) on January 27, 2017.28, 2021. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the streaming content asset amortization policy;policy and the recognition and measurement of income tax assets and liabilities; and the valuation of stock-based compensation.liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020. Interim results are not necessarily indicative of the results for a full year.
The Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD, all of which derive revenue from monthly membership fees. See Note 10 for further detail on the Company's segments.
There have been no material changes in the Company’s significant accounting policies other than the adoption of Accounting Standards Update ("ASU") 2016-09 described below and in Note 9 and ASU 2017-01 described below, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020.


Recently adopted accounting pronouncements
In March 2016,December 2019, the Financial Accounting Standards Board ("FASB"(“FASB”) issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification ("ASC"Update (“ASU”) Topic 718, Compensation - Stock Compensation2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2016-092019-12 removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies several aspects of the accounting for share-based paymentfranchise taxes, transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, all excess tax benefits and tax deficiencies are recorded asthat result in a component of the provision for income taxesstep-up in the reporting periodtax basis of goodwill, and the effect of enacted changes in which they occur. Additionally, ASU 2016-09 requires that the Company present excess tax benefits on the Statement of Cash Flows as an operating activity. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016.laws or rates in interim periods. The Company adopted ASU 2016-092019-12 in the first quarter of 20172021 and electedthe adoption had no material impact to apply this adoption prospectively. Prior periods have not been adjusted. See Note 9 for information regarding the impact on the Company’s financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805):Clarifying the Definition of a Business. The standard provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. ASU 2017-01 is effective for fiscal periods beginning after December 15, 2017 (including interim periods within those periods) with early adoption permitted. The Company early adopted the standard in the third quarter of 2017 on a prospective basis and the impact on its consolidated financial statements was not material.statements.


Recently issued accounting pronouncements not yet adopted
In May 2014, the FASB issued ASU 2014-09,
2. Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). Recognition
The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of 2018 using the modified retrospective approach. Because the Company's primary source of revenues is from monthly membership fees whichfees. Members are billed in advance of the start of their monthly membership and revenues are recognized ratably over each monthly membership period,period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. The Company is the principal in all its relationships where partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators and internet service providers (“ISPs”), provide access to the service as the Company doesretains control over service delivery to its members. Typically, payments made to the partners, such as for marketing, are expensed. However, if there is no distinct service provided in exchange for the payments made to the partners or if the price that the member pays is established by the partners and there is no standalone price for the Netflix service (for instance, in a bundle), these payments are recognized as a reduction of revenues.
The following tables summarize streaming revenue, paid net membership additions, and paid memberships at end of period by region for the three months ended March 31, 2021 and March 31, 2020, respectively:

United States and Canada (UCAN)
As of/ Three Months Ended
 March 31, 2021March 31, 2020
 (in thousands)
Revenues$3,170,972 $2,702,776 
Paid net membership additions448 2,307 
Paid memberships at end of period (1)74,384 69,969 


8
Table of Contents
Europe, Middle East, and Africa (EMEA)
As of/ Three Months Ended
 March 31, 2021March 31, 2020
 (in thousands)
Revenues$2,343,674 $1,723,474 
Paid net membership additions1,810 6,956 
Paid memberships at end of period (1)68,508 58,734 

Latin America (LATAM)
As of/ Three Months Ended
 March 31, 2021March 31, 2020
 (in thousands)
Revenues$836,647 $793,453 
Paid net membership additions357 2,901 
Paid memberships at end of period (1)37,894 34,318 

Asia-Pacific (APAC)
As of/ Three Months Ended
 March 31, 2021March 31, 2020
 (in thousands)
Revenues$762,414 $483,660 
Paid net membership additions1,361 3,602 
Paid memberships at end of period (1)26,853 19,835 
(1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or certain other promotions that may be offered by the Company to new or rejoining members. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellations, as a result of a failed method of payment, become effective immediately. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company’s internal systems, which utilize industry standard geo-location technology.
Total U.S. revenues, inclusive of DVD revenues not expectreported in the impact on its consolidated financial statementstables above, were $3.0 billion and $2.5 billion for the three months ended March 31, 2021 and 2020, respectively. DVD revenues were $50 million and $64 million for the three months ended March 31, 2021 and 2020, respectively.
Deferred revenue consists of membership fees billed that have not been recognized, as well as gift cards and other prepaid memberships that have not been fully redeemed. As of March 31, 2021, total deferred revenue was $1,140 million, the vast majority of which was related to membership fees billed that are expected to be material.
In February 2016,recognized as revenue within the FASB issued ASU 2016-02, Leases (Topic 842) next month. The remaining deferred revenue balance, which is related to gift cards and other prepaid memberships, will be recognized as revenue over the period of service after redemption, which is expected to occur over the next 12 months. The $22 million increase in orderdeferred revenue as compared to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous

GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying assetof $1,118 million for the lease term on the balance sheet. ASU 2016-02year ended December 31, 2020 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company will adopt ASU 2016-02 in the first quarter of 2019. Although the Company is in the process of evaluating the impact of adoptionresult of the ASU on its consolidated financial statements, the Company currently believes the most significant changes will be relatedincrease in membership fees billed due to the recognitionincreased members and average monthly revenue per paying member.

9
Table of new right-of-use assets and lease liabilities on the Company's balance sheet for real estate operating leases.Contents
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 (including interim periods within those periods) using a retrospective transition method to each period presented and early adoption is permitted. The Company will adopt ASU 2016-18 in the first quarter of 2018 and does not expect the impact on its consolidated financial statements to be material.


2.3. Earnings Per Share


Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:
Three Months Ended
March 31,
2021		March 31,
2020
(in thousands, except per share data)
Basic earnings per share:
Net income$1,706,715 $709,067 
Shares used in computation:
Weighted-average common shares outstanding443,224 439,352 
Basic earnings per share$3.85 $1.61 
Diluted earnings per share:
Net income$1,706,715 $709,067 
Shares used in computation:
Weighted-average common shares outstanding443,224 439,352 
Employee stock options12,417 13,142 
Weighted-average number of shares455,641 452,494 
Diluted earnings per share$3.75 $1.57 
 Three Months Ended Nine Months Ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
 (in thousands, except per share data)
Basic earnings per share:       
Net income$129,590
 $51,517
 $373,412
 $119,930
Shares used in computation:       
Weighted-average common shares outstanding432,404
 428,937
 431,473
 428,514
Basic earnings per share$0.30
 $0.12
 $0.87
 $0.28
        
Diluted earnings per share:       
Net income$129,590
 $51,517
 $373,412
 $119,930
Shares used in computation:       
Weighted-average common shares outstanding432,404
 428,937
 431,473
 428,514
Employee stock options14,958
 9,452
 14,894
 9,666
Weighted-average number of shares447,362
 438,389
 446,367
 438,180
Diluted earnings per share$0.29
 $0.12
 $0.84
 $0.27


Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential common shares excluded from the diluted calculation:
Three Months Ended
March 31,
2021		March 31,
2020
(in thousands)
Employee stock options257 1,516 
10
 Three Months Ended Nine months ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
 (in thousands)
Employee stock options187
 2,559
 213
 1,942
Table of Contents

4. Cash, Cash Equivalents and Restricted Cash



3. Short-term Investments
In July 2017,The following tables summarize the Company sold all short-term investments. As of September 30, 2017, $13.9 million and $1.3 million of money market funds, classified as Level 1 securities, were included in Cash andCompany's cash, cash equivalents, and restricted cash as of March 31, 2021 and December 31, 2020:

 As of March 31, 2021
 Cash and cash equivalentsOther Current AssetsNon-current AssetsTotal
 (in thousands)
Cash$4,019,585 $2,159 $30,443 $4,052,187 
Level 1 securities:
Money market funds4,083,887 0 146 4,084,033 
Level 2 securities:
Foreign Time Deposits300,233 0 0 300,233 
$8,403,705 $2,159 $30,589 $8,436,453 

 As of December 31, 2020
 Cash and cash equivalentsOther Current AssetsNon-current AssetsTotal
 (in thousands)
Cash$3,331,860 $1,783 $31,284 $3,364,927 
Level 1 securities:
Money market funds4,573,690 0 253 4,573,943 
Level 2 securities:
Foreign Time Deposits300,000 0 0 300,000 
$8,205,550 $1,783 $31,537 $8,238,870 
Other current assets include restricted cash for deposits related to self insurance. Non-current assets respectively, on the Company's Consolidated Balance Sheet. Additionally, $3.6 million ofinclude restricted cash is included in Non-current assets on the Company's Consolidated Balance Sheet.
The following table summarizes, by major security type, the Company’s assets at December 31, 2016 that were measured at fair value, the category using the fair value hierarchy and where they are classified on the Consolidated Balance Sheets:
 As of December 31, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 Cash and cash equivalents Short-term investments Non-current assets (1)
 (in thousands)
Cash$1,267,523
 $—
 $—
 $1,267,523
 $1,264,126
 $—
 $3,397
Level 1 securities:             
Money market funds204,967
 —
 —
 204,967
 203,450
 —
 1,517
Level 2 securities:             
Corporate debt securities199,843
 110
 (731) 199,222
 —
 199,222
 —
Government securities35,944
 —
 (128) 35,816
 —
 35,816
 —
Certificates of deposit9,833
 —
 —
 9,833
 —
 9,833
 —
Agency securities21,563
 —
 (228) 21,335
 —
 21,335
 —
Total$1,739,673
 $110
 $(1,087) $1,738,696
 $1,467,576
 $266,206
 $4,914

(1) Primarily restricted cash that is related to workers compensation deposits and letter of credit agreements.
Fair value is a market-based measurement that is determined based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy level assigned to each security in the Company’s available-for-sale portfolio and cash equivalents is based on its assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The fair value of available-for-sale securities and cash equivalents included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market. The fair value of available-for-sale securities included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. These values were obtained from an independent pricing service and were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers. The Company's procedures include controls to ensure that appropriate fair values are recorded, such as comparing prices obtained from multiple independent sources.
See Note 5 6 Debt to the consolidated financial statements for further information regarding the fair value of the Company’s senior notes.
There were no material gross realized gains or losses in the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, respectively.



4.
11

5. Balance Sheet Components

Content Assets, Net
Content assets consisted of the following:
As of
March 31,
2021		December 31,
2020
(in thousands)
Licensed content, net$13,351,416 $13,747,607 
Produced content, net
Released, less amortization5,671,182 5,809,681 
In production6,030,349 4,827,455 
In development and pre-production991,044 999,207 
12,692,575 11,636,343 

Content assets, net$26,043,991 $25,383,950 
 As of
 September 30,
2017		 December 31,
2016
 (in thousands)
Licensed content, net$11,462,217
 $9,595,315
    
Produced content, net

 

Released, less amortization984,945
 335,400
In production1,338,208
 1,010,463
In development and pre-production163,393
 34,215
 2,486,546
 1,380,078
DVD, net14,328
 25,415
Total$13,963,091
 $11,000,808
    
Current content assets, net$4,223,387
 $3,726,307
Non-current content assets, net$9,739,704
 $7,274,501

ProducedAs of March 31, 2021, approximately $5,606 million, $3,376 million, and $2,013 million of the $13,351 million unamortized cost of the licensed content is includedexpected to be amortized in "Non-current content assets, net" oneach of the Consolidated Balance Sheets. Certain original content is licensednext three years.  As of March 31, 2021, approximately $2,130 million, $1,633 million, and therefore not included in produced content. Of$1,038 million of the $5,671 million unamortized cost of the produced content that has been released approximately 29%, 79% and over 80% of the unamortized cost is expected to be amortized overin each of the next twelve, thirty-six and forty-eight months, respectively. Thethree years.
As of March 31, 2021, the amount of accrued participations and residuals iswas not material.
The following table represents the amortization of content assets:
Three Months Ended
 March 31,
2021		March 31,
2020
(in thousands)
Licensed content$1,829,246 $1,860,170 
Produced content889,950 623,215 
Total$2,719,196 $2,483,385 



12

Property and Equipment, Net
Property and equipment and accumulated depreciation consisted of the following:
As of
March 31,
2021		December 31,
2020		Estimated Useful Lives
(in thousands)
Land$51,154 $50,700 
Buildings43,840 42,717 30 years
Leasehold improvements531,507 524,537 Over life of lease
Furniture and fixtures108,495 110,185 3-15 years
Information technology289,813 283,014 3 years
Corporate aircraft110,862 110,629 8 years
Machinery and equipment34,236 34,633 3-5 years
Capital work-in-progress366,056 298,558 
Property and equipment, gross1,535,963 1,454,973 
Less: Accumulated depreciation(520,544)(494,790)
Property and equipment, net$1,015,419 $960,183 
  As of  
  September 30,
2017		 December 31,
2016		 
Estimated Useful Lives

  (in thousands)  
Information technology assets $225,988
 $185,345
 3 years
Furniture and fixtures 47,312
 32,185
 3 years
Buildings 40,681
 40,681
 30 years
Leasehold improvements 218,242
 107,945
 Over life of lease
DVD operations equipment 68,196
 70,152
 5 years
Corporate aircraft 29,391
 —
 8 years
Capital work-in-progress 14,412
 108,296
 
Property and equipment, gross 644,222
 544,604
  
Less: Accumulated depreciation (321,801) (294,209)  
Property and equipment, net $322,421
 $250,395
  



Leases
The decreaseCompany has entered into operating leases primarily for real estate. These operating leases are included in capital work-in-progress from December 31, 2016 is primarily due"Other non-current assets" on the Company's Consolidated Balance Sheets, and represent the Company’s right to leasehold improvementsuse the underlying asset for the Company's expanded Los Gatos, California headquarterslease term. The Company’s obligations to make lease payments are included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Company's new Los Angeles, California facility, bothConsolidated Balance Sheets. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of whichtwelve months or less. These leases are not recorded on the Company's Consolidated Balance Sheets. All operating lease expense is recognized on a straight-line basis over the lease term. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.
Information related to the Company's operating right-of-use assets and related operating lease liabilities were placed into operation inas follows:
Three Months Ended
March 31, 2021March 31, 2020
(in thousands)
Cash paid for operating lease liabilities$82,439 $57,490 
Right-of-use assets obtained in exchange for new operating lease obligations49,445 51,824 
As of
March 31, 2021December 31, 2020
(in thousands)
Operating lease right-of-use assets, net$2,007,729 $2,037,726 
Current operating lease liabilities268,087 256,222 
Non-current operating lease liabilities1,911,892 1,945,631 
Total operating lease liabilities$2,179,979 $2,201,853 






13

Other Current Assets
Other current assets consisted of the first quarter of 2017.following:

As of
March 31,
2021		December 31,
2020
(in thousands)
Trade receivables$807,036 $610,819 
Prepaid expenses273,527 203,042 
Other623,240 742,169 
Total other current assets$1,703,803 $1,556,030 



5. Long-term
6. Debt

As of September 30, 2017,March 31, 2021, the Company had aggregate outstanding long-term debtnotes of $4,888.8$15,559 million, net of $46.8$103 million of issuance costs, with varying maturities (the "Notes"). Of the outstanding balance, $699 million, net of issuance costs, is classified as short-term debt on the Consolidated Balance Sheets. As of December 31, 2020, the Company had aggregate outstanding notes of $16,309 million, net of $107 million of issuance costs. Each of the Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at fixed rates. A portion of the outstanding Notes is denominated in foreign currency (comprised of €5,170 million) and is remeasured into U.S. dollars at each balance sheet date (with remeasurement gain totaling $253 million for the three months ended March 31, 2021).
The following table provides a summary of the Company's Notesoutstanding debt and the fair values based on quoted market prices in less active markets as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
Principal Amount at ParLevel 2 Fair Value as of
  Level 2 Fair Value as ofMarch 31, 2021December 31, 2020Issuance DateMaturityMarch 31, 2021December 31, 2020
Principal Amount at Par Issuance Date Maturity Interest Payment Dates September 30, 2017 December 31, 2016(in millions)(in millions)
5.375% Senior Notes5.375% Senior Notes$0 $500 February 2013February 2021$0 $502 
5.500% Senior Notes5.500% Senior Notes700 700 February 2015February 2022729 735 
5.750% Senior Notes5.750% Senior Notes400 400 February 2014March 2024449 449 
5.875% Senior Notes5.875% Senior Notes800 800 February 2015February 2025917 921 
3.000% Senior Notes (1)3.000% Senior Notes (1)551 574 April 2020June 2025600 616 
3.625% Senior Notes3.625% Senior Notes500 500 April 2020June 2025534 535 
4.375% Senior Notes4.375% Senior Notes1,000 1,000 October 2016November 20261,119 1,110 
3.625% Senior Notes (1)3.625% Senior Notes (1)1,524 1,588 May 2017May 20271,748 1,776 
4.875% Senior Notes4.875% Senior Notes1,600 1,600 October 2017April 20281,812 1,807 
5.875% Senior Notes5.875% Senior Notes1,900 1,900 April 2018November 20282,302 2,280 
4.625% Senior Notes (1)4.625% Senior Notes (1)1,290 1,344 October 2018May 20291,605 1,630 
6.375% Senior Notes6.375% Senior Notes800 800 October 2018May 2029997 995 
3.875% Senior Notes (1)3.875% Senior Notes (1)1,407 1,466 April 2019November 20291,680 1,700 
5.375% Senior Notes5.375% Senior Notes900 900 April 2019November 20291,065 1,061 
3.625% Senior Notes (1)3.625% Senior Notes (1)1,290 1,344 October 2019June 20301,513 1,533 
4.875% Senior Notes4.875% Senior Notes1,000 1,000 October 2019June 20301,152 1,155 
(in millions) (in millions)$15,662 $16,416 $18,222 $18,805 
3.625% Senior Notes (1)$1,535.6
 May 2017 2027 May 15 and November 15 $1,563
 $—
4.375% Senior Notes1,000.0
 October 2016 2026 May 15 and November 15 1,006
 975
5.50% Senior Notes700.0
 February 2015 2022 April 15 and October 15 765
 758
5.875% Senior Notes800.0
 February 2015 2025 April 15 and October 15 879
 868
5.750% Senior Notes400.0
 February 2014 2024 March 1 and September 1 436
 431
5.375% Senior Notes500.0
 February 2013 2021 February 1 and August 1 539
 539
$4,935.6
    
(1) Debt isThe following Senior Notes have a principal amount denominated in euro with aeuro: 3.000% Senior Notes for €470 million, 3.625% Senior Notes for €1,300 million, 4.625% Senior Notes for €1,100 million, 3.875% Senior Notes for €1,200 million, and 3.625% Senior Notes for €1,100 million.




14
Table of Contents
In February 2021, the Company repaid upon maturity the $500 million aggregate principal amount of its 5.375% Senior Notes due February 2021.
The expected timing of principal and is remeasured into U.S. dollars at each balance sheet date. Total proceeds were $1,420.5 million and remeasurement loss on long-term debt was $50.8 million and $115.1 millioninterest payments for the three and nine months ending September 30, 2017, respectively.Company’s outstanding Notes are as follows:

As of 
March 31,
2021		December 31,
2020
(in thousands)
Less than one year$1,453,690 $1,264,020 
Due after one year and through three years1,804,714 2,136,997 
Due after three years and through five years3,161,269 3,614,906 
Due after five years14,581,110 14,841,164 
Total debt obligations$21,000,783 $21,857,087 

Each of the Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest and an applicable premium. The Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of certain of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company was in compliance with all related covenants.
Revolving Credit Facility

In July 2017,As of March 31, 2021, the Company entered intohas a $500.0$750 million unsecured revolving credit facility (“("Revolving Credit Agreement”Agreement"), with an uncommitted incremental facility to increase the amount of the revolving credit facility by up to an additional $250.0 million, subject to certain terms and conditions. which matures on March 29, 2024. Revolving loans may be borrowed, repaid and reborrowed until July 27, 2022,March 29, 2024, at which time all amounts borrowed must be repaid. The Company may use the proceeds of future borrowings under the Revolving Credit Agreement for working capital and general corporate purposes. As of September 30, 2017,March 31, 2021, no amounts have been borrowed under the Revolving Credit Agreement.

The borrowings under the Revolving Credit Agreement bear interest, at the Company’s option, of either (i) a floating rate equal to a base rate (the “Alternate Base Rate”) or (ii) a rate equal to an adjusted London interbank offered rate (the “Adjusted LIBO Rate”), plus a margin of 0.75%. The Alternate Base Rate is defined as the greatest of (A) the rate of interest published by the Wall Street Journal, from time to time, as the prime rate, (B) the federal funds rate, plus 0.500% and (C) the Adjusted LIBO Rate for a one-month interest period, plus 1.00%. The Adjusted LIBO Rate is defined as the London interbank offered rate for deposits in U.S. dollars, for the relevant interest period, adjusted for statutory reserve requirements, but in no event shall the Adjusted LIBO Rate be less than 0.00% per annum.

Regulatory authorities that oversee financial markets have announced that after the end of 2021, they would no longer compel banks currently reporting information used to set the LIBO Rate to continue to make rate submissions. As a result, it is possible that beginning in 2022, the LIBO Rate will no longer be available as a reference rate. Under the terms of the Company's Revolving Credit Agreement, in the event of the discontinuance of the LIBO Rate, a mutually agreed-upon alternate benchmark rate will be established to replace the LIBO Rate. The Company and Lenders shall in good faith establish an alternate benchmark rate which places the Lenders and the Company in the same economic position that existed immediately prior to the discontinuation of the LIBO Rate. The Company does not anticipate that the discontinuance of the LIBO Rate will materially impact its liquidity or financial position.
The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Agreement at aan annual rate of 0.10%. The Revolving Credit Agreement requires the Company to comply with certain covenants, including covenants that limit or restrict the ability of the Company’s subsidiaries to incur debt and limit or restrict the ability of the Company and its subsidiaries to grant liens and enter into sale and leaseback transactions; and, in the case of the Company or a guarantor, merge, consolidate, liquidate, dissolve or sell, transfer, lease or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole. As of September 30, 2017,March 31, 2021 and December 31, 2020, the Company was in compliance with all related covenants.


6.
7. Commitments and Contingencies


Streaming Content
As of September 30, 2017,March 31, 2021, the Company had $17.0$20.7 billion of obligations comprised of $4.1$4.3 billion included in "Current content liabilities" and $3.3$2.5 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $9.6$13.9 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.
15
Table of Contents
As of December 31, 2016,2020, the Company had $14.5$19.2 billion of obligations comprised of $3.6$4.4 billion included in "Current content liabilities" and $2.9$2.6 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $8.0$12.2 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.
The expected timing of payments for these streaming content obligations is as follows:
As of As of 
September 30,
2017		 December 31,
2016		March 31,
2021		December 31,
2020
(in thousands)(in thousands)
Less than one year$6,984,360
 $6,200,611
Less than one year$9,456,342 $8,980,868 
Due after one year and through three years7,918,009
 6,731,336
Due after one year and through three years8,241,022 7,819,563 
Due after three years and through five years1,918,123
 1,386,934
Due after three years and through five years2,259,821 1,973,091 
Due after five years171,438
 160,606
Due after five years767,980 445,308 
Total streaming content obligations$16,991,930
 $14,479,487
Total content obligationsTotal content obligations$20,725,165 $19,218,830 
Content obligations include amounts related to the acquisition, licensing and production of streaming content. Obligations that are in non-U.S. dollar currencies are translated to the U.S. dollar at period end rates. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements.agreements as well as other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of such license agreements. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. However, the unknown obligations are expected to be significant.
Legal Proceedings
From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.
The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.
Indemnification
In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.
The Company's obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.

It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. NoNaN amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.





7.
16
Table of Contents

8. Stockholders’ Equity
Stock Option Plan
In June 2011,2020, the CompanyCompany's stockholders approved the 2020 Stock Plan, which was adopted by the Company’s Board of Directors in March 2020 subject to stockholder approval. The 2020 Stock Plan is the successor to the 2011 Stock Plan. The 2011 Stock Plan and provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants. As of September 30, 2017, 11.3 million shares were reserved for future grants under the 2011 Stock Plan.
A summary of the activities related to the Company’s stock option plans is as follows:
Options Outstanding
Shares
Available
for Grant		Number of
Shares		Weighted-
Average
Exercise Price
(per share)
Balances as of December 31, 202021,702,085 18,676,810 $170.23 
Granted(400,126)400,126 537.47
Exercised— (488,471)92.45 
Expired— (4,648)30.30 
Balances as of March 31, 202121,301,959 18,583,817 $180.22 
Vested and exercisable as of March 31, 202118,583,817 $180.22 
   Options Outstanding    
 Shares
Available
for Grant		 Number of
Shares		 
Weighted-
Average
Exercise Price
(per share)
 Weighted-Average Remaining
Contractual Term
(in years)		 Aggregate
Intrinsic Value
(in thousands)
Balances as of December 31, 201613,289,953
 22,437,347
 $44.83
    
Granted(1,988,266) 1,988,266
 151.82
    
Exercised—
 (2,676,918) 27.53
    
Expired—
 (1,561) 3.25
    
Balances as of September 30, 201711,301,687
 21,747,134
 $56.74
 6.04 $2,709,943
Vested and exercisable as of September 30, 2017  21,747,134
 $56.74
 6.04 $2,709,943


The aggregate intrinsic value inof the table aboveCompany's outstanding stock options as of March 31, 2021 was $6,357 million and represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the thirdfirst quarter of 20172021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of the thirdfirst quarter of 2017.2021. This amount changes based on the fair market value of the Company’s common stock. The weighted-average remaining contractual term of the Company's outstanding stock options as of March 31, 2021 included in the table above was 5.46 years.
A summary of the amounts related to option exercises, is as follows:
Three Months Ended Nine Months EndedThree Months Ended
September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016		March 31,
2021		March 31,
2020
(in thousands)(in thousands)
Total intrinsic value of options exercised$142,664
 $35,443
 $351,488
 $104,168
Total intrinsic value of options exercised$228,020 $303,226 
Cash received from options exercised34,669
 3,819
 73,673
 11,587
Cash received from options exercised48,071 43,694 
Stock-based Compensation
Stock options granted are exercisable for the full ten year contractual term regardless of employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model and the valuation data:
Three Months Ended
March 31,
2021		March 31,
2020
Dividend yield0 %0 %
Expected volatility41 %37 %
Risk-free interest rate1.08 %1.71 %
Suboptimal exercise factor3.81 3.34 
Weighted-average fair value (per share)$268 $167 
Total stock-based compensation expense (in thousands)$107,230 $97,019 
Total income tax impact on provision (in thousands)$24,079 $21,309 

17
 Three Months Ended Nine Months Ended
 September 30,
2017		 September 30,
2016		 September 30,
2017		 September 30,
2016
Dividend yield—% —% —% —%
Expected volatility34% 41% 34% - 37%
 41% - 50%
Risk-free interest rate2.24% 1.57% 2.24% - 2.45%
 1.57% - 2.04%
Suboptimal exercise factor2.58
 2.48
 2.48 - 2.58
 2.48
Weighted-average fair value (per share)$72.98
 $44.68
 $67.23
 $47.79
Total stock-based compensation expense (in thousands)$44,763
 $43,495
 $133,679
 $130,029
Total income tax impact on provision (in thousands)$14,428
 $16,294
 $43,606
 $48,828
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The Company considers several factors in determining the suboptimal exercise factor, including the historical and estimated option exercise behavior.
The Company calculates expected volatility based solely on implied volatility. The Company believes that implied volatility of publicly traded options in its common stock is more reflective of market conditions, and given consistently high trade volumes of the options, can reasonably be expected to be a better indicator of expected volatility than historical volatility of its common stock.
In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the contractual term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero0 in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date.

Stock Repurchases
In March 2021, the Company’s Board of Directors authorized the repurchase of up to $5 billion of its common stock, with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. The Company is not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, general economic, business and market conditions, and alternative investment opportunities. The Company may discontinue any repurchases of its common stock at any time without prior notice. As of March 31, 2021, 0 stock has been repurchased under this program.
8. Accumulated Other Comprehensive Loss

The following table summarizes the changes in the accumulated balance of other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2017:

 Foreign currency Change in unrealized gains on available-for-sale securities Total
 (in thousands)
Balance as of June 30, 2017$(31,040) $(328) $(31,368)
Other comprehensive income before reclassifications5,678
 328
 6,006
Net decrease in other comprehensive loss5,678
 328
 6,006
Balances as of September 30, 2017$(25,362) $—
 $(25,362)


 Foreign currency Change in unrealized gains on available-for-sale securities Total
 (in thousands)
Balances as of December 31, 2016$(47,966) $(599) $(48,565)
Other comprehensive income before reclassifications22,604
 599
 23,203
Net decrease in other comprehensive loss22,604
 599
 23,203
Balances as of September 30, 2017$(25,362) $—
 $(25,362)
The amounts reclassified from accumulated other comprehensive loss were immaterial for the three and nine months ended September 30, 2017.




9. Income Taxes
 Three Months Ended
 March 31,
2021		March 31,
2020
 (in thousands, except percentages)
Provision for income taxes$327,787 $86,803 
Effective tax rate16 %11 %
The effective tax ratesrate for the three months ended September 30, 2017March 31, 2021 differed from the Federal statutory rate primarily due to the impact of international provisions of the Tax Cuts and 2016 were (11)%Jobs Act and 35%, respectively.recognition of excess tax benefits of stock-based compensation. The effective tax rates for the nine months ended September 30, 2017 and 2016 were (5)% and 30%, respectively. The effective tax ratesrate for the three and nine months ended September 30, 2017March 31, 2020 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits as a component of stock-based compensation and the provision for income taxes attributable to the adoption of ASU 2016-09 and Federal and California research and development ("R&D") credits, partially offset by state taxes, foreign taxes, and non-deductible expenses. The effective tax rates for the three and nine months ended September 30, 2016 differedchanges from the Federal statutory rate primarily due to Federal and California R&D credits partially offset by state taxes, foreign taxes and non-deductible expenses. global corporate structure simplification.
The decreaseincrease in effective tax rate for the three and nine months ended September 30, 2017March 31, 2021, as compared to the same period in 20162020 was primarily due primarily to the recognition ofrecognizing less excess tax benefits attributablerelated to stock-based compensation. For the three months ended March 31, 2021, the Company recognized a discrete tax benefit related to the adoptionexcess tax benefits from stock-based compensation of ASU 2016-09 and an increase in foreign income taxed at rates lower than$47 million, compared to the US statutory rate.three months ended March 31, 2020 of $65 million.
Gross unrecognized tax benefits were $37.2$160 million and $19.7$140 million as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $33.3$99 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of September 30, 2017,March 31, 2021, gross unrecognized tax benefits of $15.8$38 million waswere classified as “Other non-current liabilities” and $21.4$64 million as a reduction to deferred tax assets which was classified as "Other non-current assets" in the Consolidated Balance Sheets. The Company includes interest and penalties related to unrecognized tax benefits within the "Provision (benefit) for income taxes" on the Consolidated Statements of Operations and “Other non-current liabilities” in the Consolidated Balance Sheets. Interest and penalties included in the Company’s “Provision (benefit) for income taxes” were not material in any of the periods presented.
Deferred tax assets of $374.0$427 million and $227.2$589 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. As of September 30, 2017, theThe Company has a valuation allowance of $33.1$298 million primarily due to foreign tax credit carryovers. Asand $250 million as of March 31, 2021 and December 31, 2016, it was considered more likely than not that substantially all deferred tax assets would be realized.
As a result of the adoption of ASU 2016-09 in the first quarter of 2017, the Company recorded a cumulative effect adjustment to increase retained earnings by $43.6 million with a corresponding increase to deferred tax assets for the Federal and state net operating losses attributable to excess tax benefits from stock-based compensation which had not been previously recognized. All excess tax benefits and deficiencies in the current and future periods will be recognized as income tax expense in the Company’s Consolidated Statement of Operations in the reporting period in which they occur. This will result in increased volatility in the Company’s effective tax rate. For the three and nine months ended September 30, 2017, the Company recognized a discrete tax benefit2020, respectively. The valuation allowance is related to the excessCalifornia research and development credits and certain foreign tax benefits from stock-based compensation of $41.7 million and $110.5 million, respectively.attributes that the Company does not expect to realize.
The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for 20142016 through 2018 and 2015.is subject to examination for 2019. The 20082015 through 20152019 state tax returns are subject to examination by various state tax authorities. The Company is also currently under examination in the U.K. for 2018 and 2019. The Company has no other significant foreign jurisdiction audits underway. The years 20112015 through 20162020 generally remain subject to examination by foreign tax authorities.
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Given the potential outcome of the current examinations, as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.



10. Segment and Geographic Information

The Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD. Segment information is presented in the same manner that the Company’soperates as 1 operating segment. The Company's chief operating decision maker ("CODM") reviewsis its co-chief executive officers, who review financial information presented on a consolidated basis for the purposes of making operating results indecisions, assessing financial performance and allocating resources. The Company’s CODM reviews
Total U.S. revenues were $3.0 billion and contribution profit (loss)$2.5 billion for each of the reportable segments. Contribution profit (loss) is defined as revenues less cost of revenuesthree months ended March 31, 2021 and marketing expenses incurredMarch 31, 2020, respectively. See Note 2 Revenue Recognition for additional information about streaming revenue by the segment. The Company has aggregated the results of the International operating segments into one reportable segment because these operating segments share similar long-term economic and other qualitative characteristics.
The Domestic streaming segment derives revenues from monthly membership fees for services consisting solely of streaming content to members in the United States. The International streaming segment derives revenues from monthly membership fees for services consisting solely of streaming content to members outside the United States. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. Revenues and the related payment card fees are attributed to the operating segment based on the nature of the underlying membership (streaming or DVD) and the geographic region from which the membership originates. There are no internal revenue transactions between the Company’s segments.
The vast majority of the cost of revenues relate to content expenses, which include the amortization of streaming content assets and other costs associated with the licensing and acquisition of streaming content. In connection with the Company's global expansion, content acquired, licensed, and produced increasingly includes global rights. The Company allocates this content between the International and Domestic streaming segments based on estimated fair market value. Content expenses for each streaming segment thus include both expenses directly incurred by the segment as well as an allocation of expenses incurred for global or multi-territory rights. Other costs of revenues such as

delivery costs are primarily attributed to the operating segment based on amounts directly incurred by the segment. Marketing expenses consist primarily of advertising expenses and certain payments made to marketing partners, including consumer electronics ("CE") manufacturers, multichannel video programming distributors ("MVPDs"), mobile operators and internet service providers ("ISPs"), which are generally included in the segment in which the expenditures are directly incurred.region.
The Company's long-lived tangible assets, as well as the Company's operating lease right-of-use assets recognized on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, were located as follows:
As of
March 31,
2021		December 31,
2020
(in thousands)
United States$2,269,444 $2,224,891 
International753,704 773,018 


 As of
 September 30,
2017		 December 31, 2016
 (in thousands)
United States$293,733
 $236,977
International28,688
 13,418

The following tables represent segment information for the three and nine months ended September 30, 2017:
 As of/ Three Months Ended September 30, 2017
 Domestic
Streaming		 International
Streaming		 Domestic
DVD		 Consolidated
 (in thousands)
Total memberships at end of period (1)52,772
 56,476
 3,569
 

Revenues$1,547,210
 $1,327,435
 $110,214
 $2,984,859
Cost of revenues864,408
 1,081,485
 47,087
 1,992,980
Marketing128,901
 183,589
 —
 312,490
Contribution profit$553,901
 $62,361
 $63,127
 $679,389
Other operating expenses      470,762
Operating income      208,627
Other income (expense)      (92,390)
Benefit from income taxes      (13,353)
Net income      $129,590
 As of/ Nine Months Ended September 30, 2017
 Domestic
Streaming		 International
Streaming		 Domestic
DVD		 Consolidated
 (in thousands)
Total memberships at end of period (1)52,772
 56,476
 3,569
 

Revenues$4,522,751
 $3,538,862
 $345,345
 $8,406,958
Cost of revenues2,445,858
 2,946,414
 160,040
 5,552,312
Marketing357,547
 500,536
 —
 858,083
Contribution profit$1,719,346
 $91,912
 $185,305
 $1,996,563
Other operating expenses      1,403,187
Operating income      593,376
Other income (expense)      (239,385)
Benefit from income taxes      (19,421)
Net income      $373,412


The following tables represent segment information for the three and nine months ended September 30, 2016:
 As of/ Three Months Ended September 30, 2016
 Domestic
Streaming		 International
Streaming		 Domestic
DVD		 Consolidated
 (in thousands)
Total memberships at end of period (1)47,497
 39,246
 4,273
 

Revenues$1,304,333
 $853,480
 $132,375
 $2,290,188
Cost of revenues720,658
 748,515
 63,671
 1,532,844
Marketing108,495
 173,548
 —
 282,043
Contribution profit (loss)$475,180
 $(68,583) $68,704
 $475,301
Other operating expenses      369,265
Operating income      106,036
Other income (expense)      (26,909)
Provision for income taxes      27,610
Net income      $51,517
 As of/ Nine Months Ended September 30, 2016
 Domestic
Streaming		 International
Streaming		 Domestic
DVD		 Consolidated
 (in thousands)
Total memberships at end of period (1)47,497
 39,246
 4,273
 

Revenues$3,673,845
 $2,263,429
 $415,854
 $6,353,128
Cost of revenues2,094,310
 2,076,576
 204,596
 4,375,482
Marketing277,243
 428,839
 —
 706,082
Contribution profit (loss)$1,302,292
 $(241,986) $211,258
 $1,271,564
Other operating expenses      1,045,705
Operating income      225,859
Other income (expense)      (55,621)
Provision for income taxes      50,308
Net income      $119,930
The following table represents the amortization of content assets:
 
Domestic
Streaming
 
International
Streaming
 
Domestic
DVD
 Consolidated
 (in thousands)
Three months ended September 30,       
2017$727,832
 $899,645
 $13,259
 $1,640,736
2016597,039
 627,069
 19,284
 1,243,392
Nine months ended September 30,       
20172,033,268
 2,450,686
 48,368
 4,532,322
20161,709,168
 1,748,822
 59,746
 3,517,736

(1)A membership (also referred to as a subscription) is defined as the right to receive Netflix service following sign-up and a method of payment being provided. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company's internal systems, which utilize industry standard geo-location technology. The Company offers free-trial memberships to certain new and rejoining members. Total members include those who are on a free-trial as long as a method of payment has been provided. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations become effective at the end of the prepaid membership period, while involuntary cancellation of the service, as a result of a failed method of payment, becomes effective immediately.


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations


Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include, but are not limited to statements regarding: our core strategy; our future financial performance, including expectations regarding revenues, deferred revenue, operating income and margin, net income, expenses, and profitability; liquidity, including the sufficiency of our capital resources, adequacy of existing facilities, net cash provided by (used in) operating activities, access to financing sources, and free cash flows; capital allocation strategies, including any stock repurchases; seasonality; impact of foreign exchange rate fluctuations; the impact of the discontinuance of the LIBO Rate; future regulatory changes and the Company’s response to, new accounting standards; content amortization; pricing changes; dividends;their impact on our business; price changes and testing; impact of foreign currency and exchange rate fluctuations, including on net income, revenues and average revenues per paying member; investments in global streaming, including original content; impact of content on membership growth; cash use in connection with the acquisition, licensing and production of content; liquidity and free cash flow; unrecognized tax benefits; deferred tax assets; effective tax rate; accessing and obtaining additional capital, including future debt financing;recently adopted accounting pronouncements; accounting treatment for changes related to content assets; membership growth, including impact of content and pricing changes on membership growth; partnerships; member viewing patterns; dividends; future contractual obligations, including unknown streaming content obligations and timing of payments.payments; our global content and marketing investments, including investments in original programming; content amortization; tax expense; unrecognized tax benefits; deferred tax assets; our ability to effectively manage change and growth; and the impact of the coronavirus (COVID-19) pandemic and our response to it. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 20162020 filed with the Securities and Exchange Commission (“SEC”) on January 27, 2017,28, 2021, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item IA. 
We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.
Investors and others should note that we announce material financial information to our investors using our investor relations Web site (http://ir.netflix.com)website (ir.netflix.net), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media and blogs to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post on social media and blogs could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the United States ("U.S.") social media channels and blogs listed on our investor relations Web site.website.



Overview
We are one of the world’s leading internet television networkentertainment services with over 109approximately 208 million paid streaming membersmemberships in over 190 countries enjoying more than 125 million hours of TV shows and movies per day, including original series, documentaries and feature films.films across a wide variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on nearly any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments.commercials. Additionally, we continue to offer our DVD-by-mail service in the United States (“U.S., our members can receive DVDs delivered quickly to their homes.”).
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We are a pioneer in the internet delivery of TV shows and movies,streaming entertainment, launching our streaming service in 2007. Since this launch, we have developed an ecosystem for internet-connected screens and have added increasing amounts of content that enable consumers to enjoy TV shows and moviesentertainment directly on their internet-connected screens. As a result of these efforts, we have experienced growing consumer acceptance of, and interest in, the delivery of TV shows and movies directly over the internet. Historically, the first and fourth quarters (October through March) represent our greatest membership growth across our Domestic and International streaming segments. Our membership growth may be impacted by the release of certain high-profile original content, which may affect historical seasonal patterns. Internationally, we expect each market to demonstrate more predictable seasonal patterns as our service offering in each market becomes more established and we have a longer history to assess such patterns.entertainment.
Our core strategy is to grow our streaming membership business globally within the parameters of our profitoperating margin targets.target. We are continuously improving our members'members’ experience by expanding our streaming content with a focus on a programming mix of content that delights our members and attracts new members. In addition, we are perpetuallycontinuously enhancing our user interface and extending our streaming service to more internet-connected screens. Our members can also download a selection of titles for offline viewing.

Our membership growth exhibits a seasonal pattern that reflects variations when consumers buy internet-connected screens and when they tend to increase their viewing. Historically, the first and fourth quarters (October through March) represent our greatest streaming membership growth. In addition, our membership growth can be impacted by our content release schedule and changes to pricing.


Results of Operations


The following represents our consolidated performance highlights:

As of/ Three Months EndedChange
March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
(in thousands, except revenue per membership and percentages)
Financial Results:
Streaming revenues$7,113,707 $5,703,363 $1,410,344 25 %
DVD revenues49,575 64,328 (14,753)(23)%
Total revenues$7,163,282 $5,767,691 $1,395,591 24 %
Operating income$1,959,856 $958,256 $1,001,600 105 %
Operating margin27.4 %16.6 %10.8 %65 %
Global Streaming Memberships:
Paid net membership additions3,976 15,766 (11,790)(75)%
Paid memberships at end of period207,639 182,856 24,783 14 %
Average paying memberships205,651 174,973 30,678 18 %
Average monthly revenue per paying membership$11.53 $10.87 $0.66 6 %
 As of/ Three Months Ended Change
 September 30,
2017		 September 30,
2016		 Q3'17 vs. Q3'16
 
(in thousands, except revenue per membership and percentages)

Global streaming memberships at end of period109,248
 86,743
 22,505
 26%
Global streaming average monthly revenue per paying membership$9.44
 $8.82
 $0.62
 7%
Revenues2,984,859
 2,290,188
 694,671
 30%
Global operating income208,627
 106,036
 102,591
 97%
Global operating margin7.0% 4.6% 2.4% 52%
Net income129,590
 51,517
 78,073
 152%


Consolidated revenues for the three months ended September 30, 2017March 31, 2021 increased $694.7 million24% as compared to the three months ended September 30, 2016March 31, 2020. The increase in our consolidated revenues was due to the 18% growth in the average number of paid streamingpaying memberships globally, the majority of which was growthand a 6% increase in our international memberships. In addition, the average monthly revenue per paying streamingmembership. The increase in average monthly revenue per paying membership increasedwas primarily due to price changes and plan mix. The increasefavorable fluctuations in operating incomeforeign exchange rates. Paid net membership additions for the three months ended September 30, 2017March 31, 2021 decreased 75% as compared to the same periodthree months ended March 31, 2020. We believe the decrease in 2016 was duepaid net membership additions can primarily to increased revenues partially offset by increased content expenses as we continue to acquire, license and produce content, including more Netflix originals, as well as increased headcount costs to support continued improvements in our streaming service, our international expansion, and increased content production activities. The increase in net income was comprised of an increase in operating income and an increase in the tax benefit primarily duebe attributed to the adoption of ASU 2016-09COVID-19 pandemic which contributed to significant paid net membership additions in the first quarter of 2017, partially offset by an2020, and resulted in less growth in the first quarter of 2021 as compared to the prior year. While we are unable to accurately predict the impact of the pandemic on paid net membership additions, we expect slower paid net membership additions in the first half of 2021 compared to comparable periods in 2020.
The increase in interest expenseoperating margin is primarily due to content amortization growing at a slower rate as compared to the higher principal of notes outstanding and an24% increase in foreign exchange losses primarilyrevenues as a result of delays in content releases due to the remeasurementCOVID-19 pandemic. Marketing, technology and development, and general and administrative expenses also grew at a slower rate as compared to the growth in revenue.
The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Part I, Item 1A: “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional details. In an effort to protect the health and safety of our euro denominated senior notes.employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, international travel has been curtailed, and while most of our productions have resumed, certain of our productions continue to experience disruption, as do the productions of our third-party content suppliers. Our other partners have similarly had their operations disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. As a result, the pandemic has and continues to affect our ability to produce content,
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which in turn led to delays in certain content releases. Many government measures to contain COVID-19 or slow its spread, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing, continue to remain in effect or may be rescinded, modified, or reinstated. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, will continue to negatively impact business activity across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders.  It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.

Streaming Revenues
We derive revenues from monthly membership fees for services related to streaming content to our members. We offer three typesa variety of streaming membership plans. Inplans, the U.S.price of which varies by country and the features of the plan. As of March 31, 2021, pricing on our "basic" plan is priced at $7.99 per month and includes access to standard definition quality streaming on a single screen at a time. Our "standard" plan is our most popular streaming plan and is priced at $10.99 per month and includes access to high definition quality streaming on two screens concurrently. Our "premium" plan is priced at $13.99 per month and includes access to high definition and ultra-high definition quality content on four screens concurrently. Internationally, the membership plans are structured similarly to the U.S. and range in priceranged from the U.S. dollar equivalent of approximately $5.00$3 to $24 per month to $21.00 per month.
We expect that from time to time the prices of our membership plans in each country may change. For instance, in May 2014, in the U.S.,change and we increased themay test other plan and price of our standard plan from $7.99 per month to $8.99 per month with existing memberships grandfathered for a two year period. In October 2015, in the U.S., we increased the price of this same standard plan from $8.99 per month to $9.99 per month with existing memberships grandfathered for a one year period. In 2016, we phased out grandfathered pricing, giving members the option of electing the basic streaming plan at $7.99 per month, continuing on the standard streaming plan at the higher price of $9.99 per month, or electing the premium plan at $11.99 per month. In October 2017, in the U.S., we increased the price of our standard streaming plan from $9.99 to $10.99 per month and our premium plan from $11.99 to $13.99 per month.variations.
The following representstables summarize streaming revenue and other streaming membership information by region for the key elements to our segment resultsthree months ended March 31, 2021 and March 31, 2020.

United States and Canada (UCAN)
As of/ Three Months EndedChange
 March 31, 2021March 31, 2020Q1'21 vs. Q1'20
 (in thousands, except revenue per membership and percentages)
Revenues$3,170,972 $2,702,776 $468,196 17 %
Paid net membership additions448 2,307 (1,859)(81)%
Paid memberships at end of period74,384 69,969 4,415 6 %
Average paying memberships74,160 68,816 5,344 8 %
Average monthly revenue per paying membership$14.25 $13.09 $1.16 9 %
Constant currency change (1)9 %

Europe, Middle East, and Africa (EMEA)
As of/ Three Months EndedChange
 March 31, 2021March 31, 2020Q1'21 vs. Q1'20
 (in thousands, except revenue per membership and percentages)
Revenues$2,343,674 $1,723,474 $620,200 36 %
Paid net membership additions1,810 6,956 (5,146)(74)%
Paid memberships at end of period68,508 58,734 9,774 17 %
Average paying memberships67,603 55,256 12,347 22 %
Average monthly revenue per paying membership$11.56 $10.40 $1.16 11 %
Constant currency change (1)4 %
21
Table of operations:Contents
We define contribution profit (loss) as revenues less cost of revenues and marketing expenses incurred by the segment.Latin America (LATAM)
As of/ Three Months EndedChange
 March 31, 2021March 31, 2020Q1'21 vs. Q1'20
 (in thousands, except revenue per membership and percentages)
Revenues$836,647 $793,453 $43,194 5 %
Paid net membership additions357 2,901 (2,544)(88)%
Paid memberships at end of period37,894 34,318 3,576 10 %
Average paying memberships37,716 32,868 4,848 15 %
Average monthly revenue per paying membership$7.39 $8.05 $(0.66)(8)%
Constant currency change (1)5 %

Asia-Pacific (APAC)
As of/ Three Months EndedChange
 March 31, 2021March 31, 2020Q1'21 vs. Q1'20
 (in thousands, except revenue per membership and percentages)
Revenues$762,414 $483,660 $278,754 58 %
Paid net membership additions1,361 3,602 (2,241)(62)%
Paid memberships at end of period26,853 19,835 7,018 35 %
Average paying memberships26,173 18,034 8,139 45 %
Average monthly revenue per paying membership$9.71 $8.94 $0.77 9 %
Constant currency change (1)3 %

(1) We believe thisconstant currency information is an important measureuseful in analyzing the underlying trends in average monthly revenue per paying membership. In order to exclude the effect of our operating segment performance as it representsforeign currency rate fluctuations on average monthly revenue per paying membership, we estimate current period revenue assuming foreign exchange rates had remained constant with foreign exchange rates from each segment's performance before global corporate costs.
of the corresponding months of the prior-year period. For the Domestic and International streaming segments, content expenses, which includethree months ended March 31, 2021, our revenues would have been approximately $80 million lower had foreign currency exchange rates remained constant with those for the amortizationthree months ended March 31, 2020.

Cost of the streamingRevenues
Amortization of content assets and other expenses associated withmakes up the licensing and acquisition of streaming content, represent the vast majority of cost of revenues. StreamingExpenses associated with the acquisition, licensing and production of content (such as payroll and related personnel expenses, costs associated with obtaining rights were generally obtained forto music included in our current geographic regions. As we expanded internationally, we obtained additional rights for new geographies. With our global expansion, we now aspire to obtain global rights for our content. We allocate this content, between the Domesticoverall deals with talent, miscellaneous production related costs and International streaming segments based on estimated fair market value. Other cost of revenues such asparticipations and residuals), streaming delivery expenses, customer servicecosts and payment processing fees, including those we pay to our integrated payment partners, tend to be lower as a percentageother operations costs make up the remainder of total cost of revenues. We have built our own global content delivery network ("(“Open Connect"Connect”) to help us efficiently stream a high volume of content to our members over the internet. Streaming deliveryDelivery expenses, therefore, include equipment costs related to Open Connect, payroll and related personnel expenses and all third-party costs, such as cloud computing costs, associated with delivering streaming content over the internet. CostOther operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs incurred in making our content available to members.
Three Months EndedChange
March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
(in thousands, except percentages)
Cost of revenues$3,868,511$3,599,701$268,810 7 %
As a percentage of revenues54 %62 %

22
Table of Contents
The increase in cost of revenues was primarily due to a $236 million increase in the Domestic DVD segment consistcontent amortization relating to our existing and new content, including more exclusive and original programming. Other content costs increased $33 million primarily of delivery expenses, content expenses, including amortization of DVD content assets and revenue sharing expenses, and otherdue to increases in expenses associated with streaming delivery costs and payment processing fees driven by our DVD processing and customer service centers. Delivery expenses for the Domestic DVD segment consist of the postage costs to mail DVDs to and from our members and the packaging and label costs for the mailers.growing member base.
For the Domestic and International streaming segments, marketing
Marketing
Marketing expenses consist primarily of advertising expenses and certain payments made to our marketing partners, including CEconsumer electronics (“CE”) manufacturers, MVPDs,multichannel video programming distributors (“MVPDs”), mobile operators and ISPs.internet service providers (“ISPs”). Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses are incurred by our Domesticalso include payroll and related expenses for personnel that support marketing activities.

International streaming segments given our focus on building consumer awareness of the streaming offerings, and in particular our original content. Marketing expenses incurred by our International streaming segment have been significant and fluctuate dependent upon the number of international territories in which our streaming service is offered, the timing of the launch of new territories and the timing of content releases.
Three Months EndedChange
March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
(in thousands, except percentages)
Marketing$512,512 $503,830 $8,682 2 %
As a percentage of revenues7 %9 %
We have demonstrated our ability to grow domestic streaming contribution margin as evidenced by the increase in contribution margin from 17% in 2012 to 36% in the third quarter of 2017. As a result of our focus on growing the streaming segments, contribution margins for the Domestic and International streaming segments are lower than for our Domestic DVD segment.


Domestic Streaming Segment
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016
  As of/ Three Months Ended Change
  September 30,
2017		 September 30,
2016		 Q3'17 vs. Q3'16
  (in thousands, except revenue per membership and percentages)
Memberships:        
Net additions 851
 368
 483
 131%
Memberships at end of period 52,772
 47,497
 5,275
 11%
Paid memberships at end of period 51,345
 46,479
 4,866
 10%
Average monthly revenue per paying membership $10.15
 $9.40
 $0.75
 8%
         
Contribution profit:        
Revenues $1,547,210
 $1,304,333
 $242,877
 19%
Cost of revenues 864,408
 720,658
 143,750
 20%
Marketing 128,901
 108,495
 20,406
 19%
Contribution profit 553,901
 475,180
 78,721
 17%
Contribution margin 36% 36%    

In the Domestic streaming segment, we derive revenues from monthly membership fees for services consisting solely of streaming content to our members in the United States. The increase in our domestic streaming revenues was primarily due to the 10% growth in the average number of paid memberships, as well as an 8% increase in the average monthly revenue per paying membership, resulting from our price changes and plan mix. In the second half of 2016, we phased out grandfathered pricing and cancellations by members whose grandfathered pricing expired were not material. Our standard plan continues to be the most popular plan choice for new memberships.
The increase in domestic streaming cost of revenuesmarketing expenses was primarily due to a $136.5$11 million increase in content expenses relating to our existing and new streaming content, including more exclusive and original programming.
Domestic marketing expenses increasedpersonnel-related costs, primarily due to increased advertising and public relations.
Our Domestic streaming segment had a contribution margin of 36% for the three months ended September 30, 2017, which is flat compared to the contribution margin of 36% for the three months ended September 30, 2016.

Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016

  As of/ Nine Months Ended Change
  September 30,
2017		 September 30,
2016		 YTD'17 vs. YTD'16
  (in thousands, except revenue per membership and percentages)
Memberships:        
Net additions 3,341
 2,759
 582
 21%
Memberships at end of period 52,772
 47,497
 5,275
 11%
Paid memberships at end of period 51,345
 46,479
 4,866
 10%
Average monthly revenue per paying membership $10.10
 $8.96
 $1.14
 13%
         
Contribution profit:        
Revenues $4,522,751
 $3,673,845
 $848,906
 23%
Cost of revenues 2,445,858
 2,094,310
 351,548
 17%
Marketing 357,547
 277,243
 80,304
 29%
Contribution profit 1,719,346
 1,302,292
 417,054
 32%
Contribution margin 38% 35%    
The increase in our domestic streaming revenues was primarily due to the 9% growth in the average number of paid memberships, as well as a 13% increase in average monthly revenue per paying membership, resulting from our price changes and plan mix.
The increase in domestic streaming cost of revenues was primarily due to a $331.5 million increase in content expenses relating to our existing and new streaming content, including more exclusive and original programming.
Domestic marketing expenses increased primarily due to increased advertising and public relations.
Our Domestic streaming segment had a contribution margin of 38% for the nine months ended September 30, 2017, which increased as compared to the contribution margin of 35% for the nine months ended September 30, 2016 due to growth in paid membershipsaverage headcount to support the increase in our production activity and revenue which continued to outpace content spending.

International Streaming Segment
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016
  As of/ Three Months Ended Change
  September 30,
2017		 September 30,
2016		 Q3'17 vs. Q3'16
  (in thousands, except revenue per membership and percentages)
Memberships:        
Net additions 4,445
 3,198
 1,247
 39%
Memberships at end of period 56,476
 39,246
 17,230
 44%
Paid memberships at end of period 52,678
 36,799
 15,879
 43%
Average monthly revenue per paying membership $8.73
 $8.05
 $0.68
 8%
         
Contribution profit (loss):        
Revenues $1,327,435
 $853,480
 $473,955
 56%
Cost of revenues 1,081,485
 748,515
 332,970
 44%
Marketing 183,589
 173,548
 10,041
 6%
Contribution profit (loss) 62,361
 (68,583) 130,944
 191%
Contribution margin 5% (8)%   


In the International streaming segment, we derive revenues from monthly membership fees for services consisting solely of streaming content to our members outside the United States. We launchedimprovements in our streaming service, in Canada in September 2010 and have expanded our services internationally as shown below.


internationaltimelinea02.jpg
The increase in our international revenues was due to the 43% growth in the average number of paid international memberships, in addition to an 8% increase in the average monthly revenue per paying membership. The increase in the average monthly revenue per paying membership was due to price changes and plan mix coupled with favorable fluctuations in foreign exchange rates. We estimate that international revenues in the third quarter of 2017 would have been approximately $13.3 million lower if foreign exchange rates had remained consistent with the foreign exchange rates from the third quarter of 2016. If foreign currency exchange rates fluctuate more than expected, revenues and average revenue per paying membership may differ from our expectations. Average paid international streaming memberships accounted for 50% of global average paid streaming memberships for the three months ended September 30, 2017, as compared to 43% of global average paid streaming memberships for the same period in 2016.
The increase in international cost of revenues was primarily due to a $298.3 million increase in content expenses relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $34.7 million primarily due to increases in our streaming delivery expenses, costs associated with our customer service call centers and payment processing fees, all driven by our growing member base.
International marketing expenses increased mainly due to increased advertising and public relations as well as increased payments to our partners.
International contribution profit for the three months ended September 30, 2017 was $62.4 million as compared to a contribution loss of $68.6 million for the three months ended September 30, 2016 as profit growth in our more mature markets offset investments in newer markets.

Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016
  As of/ Nine Months Ended Change
  September 30,
2017		 September 30,
2016		 YTD'17 vs. YTD'16
  (in thousands, except revenue per membership and percentages)
Memberships:        
Net additions 12,111
 9,222
 2,889
 31%
Memberships at end of period 56,476
 39,246
 17,230
 44%
Paid memberships at end of period 52,678
 36,799
 15,879
 43%
Average monthly revenue per paying membership $8.39
 $7.70
 $0.69
 9%
         
Contribution profit (loss):        
Revenues $3,538,862
 $2,263,429
 $1,275,433
 56%
Cost of revenues 2,946,414
 2,076,576
 869,838
 42%
Marketing 500,536
 428,839
 71,697
 17%
Contribution profit (loss) 91,912
 (241,986) 333,898
 138%
Contribution margin 3% (11)%    
The increase in our international revenues was due to the 44% growth in our average number of paid international memberships, in addition to a 9% increase in the average monthly revenue per paying membership. The increase in the average monthly revenue per paying membership was due to price changes and plan mix, partially offset by unfavorable fluctuations in foreign exchange rates. We estimate that international revenues in the nine months ended September 30, 2017 would have been approximately $21.0 million higher if foreign exchange rates had remained consistent with the foreign exchange rates for the nine months ended September 30, 2016.
The increase in international cost of revenues was primarily due to a $769.7 million increase in content expenses relating to our existing and new streaming content, including more exclusive and original programming. Other costs increased $100.2 million primarily due to

increases in our streaming delivery expenses, costs associated with our customer service call centers and payment processing fees, all driven by our growing member base, partially offset by decreases resulting from exchange rate fluctuations.
International marketing expenses for the nine months ended September 30, 2017 increased mainly due to increaseddecreased advertising and public relations, as well as increased payments to our partners.
International contribution profit grew to $91.9 million as opposed to a $242.0 million loss for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 as profit growth in our more mature markets offset investments in newer markets.


Domestic DVD Segment
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016
  As of/ Three Months Ended Change
  September 30,
2017		 September 30,
2016		 Q3'17 vs. Q3'16
  (in thousands, except revenue per membership and percentages)
Memberships:        
Net losses (189) (257) 68
 26 %
Memberships at end of period 3,569
 4,273
 (704) (16)%
Paid memberships at end of period 3,520
 4,194
 (674) (16)%
Average monthly revenue per paying membership $10.19
 $10.23
 $(0.04) — %
         
Contribution profit:        
Revenues $110,214
 $132,375
 $(22,161) (17)%
Cost of revenues 47,087
 63,671
 (16,584) (26)%
Contribution profit 63,127
 68,704
 (5,577) (8)%
Contribution margin 57% 52%    

In the Domestic DVD segment, we derive revenues from our DVD-by-mail membership services. The price per plan for DVD-by-mail varies from $4.99 to $14.99 per month according to the plan chosen by the member. DVD-by-mail plans differ by the number of DVDs that a member may have out at any given point. Members electing access to high definition Blu-ray discs, in addition to standard definition DVDs, pay a surcharge ranging from $2 to $3 per month for our most popular plans.
Our Domestic DVD segment contribution margin was 57% for the three months ended September 30, 2017, as compared to 52% for the three months ended September 30, 2016, due to the decreased DVD usage by paying members and decreased DVD content expenses.


Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016
  As of/ Nine Months Ended Change
  September 30,
2017		 September 30,
2016		 YTD'17 vs. YTD'16
  (in thousands, except revenue per membership and percentages)
Memberships:        
Net losses (545) (631) 86
 14 %
Memberships at end of period 3,569
 4,273
 (704) (16)%
Paid memberships at end of period 3,520
 4,194
 (674) (16)%
Average monthly revenue per paying membership $10.16
 $10.21
 $(0.05) — %
         
Contribution profit:        
Revenues $345,345
 $415,854
 $(70,509) (17)%
Cost of revenues 160,040
 204,596
 (44,556) (22)%
Contribution profit 185,305
 211,258
 (25,953) (12)%
Contribution margin 54% 51%    
Our Domestic DVD segment contribution margin was 54% for the nine months ended September 30, 2017, as compared to 51% for the nine months ended September 30, 2016, due to the decreased DVD usage by paying members and decreased DVD content expenses.


Consolidated Operating Expenses
Technology and Development
Technology and development expenses consist of payroll and related expenses for all technology personnel, as well as other costs incurred in making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendation,recommendations, merchandising and streaming delivery technology and infrastructure. Technology and development expenses also include costs associated with computer hardware and software.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016
Three Months EndedChange
March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
(in thousands, except percentages)
Technology and development$525,207 $453,817 $71,390 16 %
As a percentage of revenues7 %8 %
 Three Months Ended Change
 September 30,
2017		 September 30,
2016		 Q3'17 vs. Q3'16
 (in thousands, except percentages)
Technology and development$255,236
 $216,099
 $39,137
 18%
As a percentage of revenues9% 9%    


The increase in technology and development expenses was primarily due to a $22.9$61 million increase in personnel-related costs, including stock-based compensation expense, resulting from an increase in compensation for existing employees and a 2%primarily due to growth in average headcount supportingto support the increase in our production activity and continued improvements in our streaming service and our international expansion. In addition, third party expenses, including costs associated with cloud computing, increased $8.7 million.service.


Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016
 Nine Months Ended Change
 September 30,
2017		 September 30,
2016		 YTD'17 vs. YTD'16
 (in thousands, except percentages)
Technology and development$779,427
 $626,907
 $152,520
 24%
As a percentage of revenues9% 10%    

The increase in technology and development expenses was primarily due to a $101.2 million increase in personnel-related costs, including stock-based compensation expense, resulting from an increase in compensation for existing employees and a 3% growth in average headcount supporting continued improvements in our streaming service and our international expansion. In addition, third party expenses, including costs associated with cloud computing, increased $30.6 million.


General and Administrative
General and administrative expenses consist of payroll and related expenses for corporate personnel, as well aspersonnel. General and administrative expenses also include professional fees and other general corporate expenses.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016

Three Months EndedChange
March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
(in thousands, except percentages)
General and administrative$297,196 $252,087 $45,109 18 %
As a percentage of revenues4 %4 %

23
Table of Contents
 Three Months Ended Change
 September 30,
2017		 September 30,
2016		 Q3'17 vs. Q3'16
 (in thousands, except percentages)
General and administrative$215,526
 $153,166
 $62,360
 41%
As a percentage of revenues7% 7%    

GeneralThe increase in general and administrative expenses increasedwas primarily due to a $37.6$24 million increase in third-party expenses, including costs for contractors and consultants. In addition, personnel-related costs including stock-based compensation expense, resulting from a 50% increaseincreased by $19 million, primarily due to growth in average headcount primarily to support our international and original content expansion, and anthe increase in compensation for existing employees. In addition, facilities-related costs increased $8.2 million, primarily driven by costs for our expanded Los Gatos, California headquartersproduction activity and new Los Angeles, California facility, both of which were placed into operationcontinued improvements in the first quarter of 2017. In addition, third party expenses increased $14.1 million.our streaming service.



Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016

 Nine Months Ended Change
 September 30,
2017		 September 30,
2016		 YTD'17 vs. YTD'16
 (in thousands, except percentages)
General and administrative$623,760
 $418,798
 $204,962
 49%
As a percentage of revenues7% 7%    

General and administrative expenses increased primarily due to a $135.0 million increase in personnel-related costs, including stock-based compensation expense, resulting from a 54% increase in average headcount primarily to support our international and original content expansion, and an increase in compensation for existing employees. In addition, facilities-related costs increased $36.2 million, primarily driven by costs for our expanded Los Gatos, California headquarters and new Los Angeles, California facility, both of which were placed into operation in the first quarter of 2017. In addition, third party expenses increased $31.0 million.


Interest Expense
Interest expense consists primarily of the interest associated with our outstanding long-term debt obligations, including the amortization of debt issuance costs, as well as interestcosts. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further detail on our lease financingdebt obligations.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016
 Three Months EndedChange
 March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
 (in thousands, except percentages)
Interest expense$194,440 $184,083 $10,357 6 %
As a percentage of revenues3 %3 %
  Three Months Ended Change
  September 30,
2017		 September 30,
2016		 Q3'17 vs. Q3'16
  (in thousands, except percentages)
Interest expense $(60,688) $(35,536) $(25,152) (71)%
As a percentage of revenues (2)% (2)%    

Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016
  Nine Months Ended Change
  September 30,
2017		 September 30,
2016		 YTD'17 vs. YTD'16
  (in thousands, except percentages)
Interest expense $(162,912) $(106,528) $(56,384) (53)%
As a percentage of revenues (2)% (2)%    

Interest expense primarily consistedconsists of interest on our Notes of $58.4 million and $156.5$190 million for the three and nine months ended September 30, 2017.March 31, 2021. The increase in interest expense for the three and nine months ended September 30, 2017March 31, 2021 as compared to the three and nine months ended September 30, 2016March 31, 2020 was primarily due to the higher average aggregate principal of interest bearing notes outstanding.increase in debt.

Interest and Other Income (Expense)
Interest and other income (expense) consists primarily of foreign exchange gains and losses on foreign currency denominated balances and interest earned on cash and cash equivalents and short-term investments.equivalents.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016
 Three Months EndedChange
 March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
 (in thousands, except percentages)
Interest and other income$269,086 $21,697 $247,389 1,140 %
As a percentage of revenues4 %— %
  Three Months Ended Change
  September 30,
2017		 September 30,
2016		 Q3'17 vs. Q3'16
  (in thousands, except percentages)
Interest and other income (expense) $(31,702) $8,627
 $(40,329) (467)%
As a percentage of revenues (1)% —%    

Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016
  Nine Months Ended Change
  September 30,
2017		 September 30,
2016		 YTD'17 vs. YTD'16
  (in thousands, except percentages)
Interest and other income (expense) $(76,473) $50,907
 $(127,380) (250)%
As a percentage of revenues (1)% 1%    


Interest and other income (expense) decreased forincreased in the three and nine months ended September 30, 2017,March 31, 2021 primarily due to foreign exchange lossesgains of $35.3$258 million, and $84.7 million, respectively, compared to gains of $6.4$9 million and $44.6 million, respectively, for the corresponding periodsperiod in 2016.2020. In the three and nine months ended September 30, 2017,March 31, 2021, the foreign exchange lossesgains were primarily driven by the $50.8$253 million and $115.1 million, respectively, lossnon-cash gain from the remeasurement of our €1,300.0€5,170 million Senior Notes, coupled with the remeasurement of cash and content liability positions in currencies other than the functional currencies. In the three months ended March 31, 2020, the foreign exchange gains were primarily driven by the $93 million non-cash gain from the remeasurement of our €4,700 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currenciescurrencies.







24
Table of our European and U.S. entities.Contents

Provision for Income Taxes
The effective tax rates for the three months ended September 30, 2017 and 2016 were (11)% and 35%, respectively.
 Three Months EndedChange
 March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
 (in thousands, except percentages)
Provision for income taxes$327,787 $86,803 $240,984 278 %
Effective tax rate16 %11 %

The effective tax rate for the three months ended September 30, 2017March 31, 2021 differed from the Federal statutory rate primarily due to the impact of international provisions of the Tax Cuts and Jobs Act and recognition of excess tax benefits attributable to the adoption of ASU 2016-09 and Federal and California research and development ("R&D") credits partially offset by state taxes, foreign taxes, and non-deductible expenses. stock-based compensation.
The effective tax rate for the three months ended September 30, 2016, differed from the Federal statutory rate primarily due to the Federal and California R&D credits partially offset by state taxes, foreign taxes and non-deductible expenses. The decreaseincrease in our effective tax rate for the three months ended September 30, 2017,March 31, 2021, as compared to the same period in 20162020 was primarily due primarily to the recognition of therecognizing less excess tax benefits attributablerelated to the adoption of ASU 2016-09 and an increase in foreign income taxed at rates lower than the U.S. statutory rate.stock-based compensation.
The effective tax rates for the nine months ended September 30, 2017 and 2016 were (5)% and 30%, respectively. The effective tax rates for the nine months ended September 30, 2017, differed from the Federal statutory rate primarily due to the recognition of excess tax benefits attributable to the adoption of ASU 2016-09 and Federal and California R&D credits, partially offset by state taxes, foreign taxes and non-deductible expenses. The effective tax rate for the nine months ended September 30, 2016, differed from the Federal statutory rate primarily due to the Federal and California research and development credits partially offset by state taxes, foreign taxes and non-deductible expenses. The decrease in our effective tax rate for the nine months ended September 30, 2017 as compared to the same period in 2016 was attributable primarily due to the recognition of the excess tax benefits attributable to the adoption of ASU 2016-09 and an increase in foreign income taxed at rates lower than the U.S. statutory rate.
Liquidity and Capital Resources
As ofChange
March 31,
2021		December 31,
2020		March 31, 2021 vs. December 31, 2020
(in thousands, except percentages)
Cash, cash equivalents and restricted cash$8,436,453 $8,238,870 $197,583 2 %
Short-term and long-term debt15,559,340 16,308,973 (749,633)(5)%

Cash, and cash equivalents was $1,746.5 million as of September 30, 2017, which increased $12.7 million as compared to cash, cash equivalents and short-term investments of $1,733.8restricted cash increased $198 million as of December 31, 2016. The increase in the ninethree months ended September 30, 2017 wasMarch 31, 2021 primarily due to cash provided by operations, partially offset by the repayment of debt.
Debt, net of debt issuance costs, decreased $750 million primarily due to the proceeds fromrepayment upon maturity of the issuance$500 million aggregate principal amount of debt partially offset by cash usedour 5.375% Senior Notes in operations.
Our primary usesFebruary 2021, coupled with the remeasurement of cash include the acquisition, licensingour euro-denominated notes. The amount of principal and production of content, streaming delivery, marketing programs and personnel-related costs. Investmentsinterest on our outstanding notes due in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. We expect to significantly increase our investments in global streaming content, particularly in original content, which will impact our liquidity and result in future negative free cash flows for many years. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for at least the next twelve months.
In July 2017, we entered into a $500.0 million unsecured revolving credit facility (“Revolving Credit Agreement”), with an uncommitted incremental facility to increase the amount of the revolving credit facility by up to an additional $250.0 million subject to certain terms and conditions.months is $1,454 million. As of September 30, 2017,March 31, 2021, no amounts had been borrowed under the $750 million Revolving Credit Agreement. See Note 56 Debt in the accompanying notes to theour consolidated financial statements for additional information.statements.
In May 2017, we issued €1,300.0 million of long-term debt. Long-term debt, net of debt issuance costs, was $4,888.8 million and $3,364.3 million as of September 30, 2017, and December 31, 2016, respectively. See Note 5 to the consolidated financial statements for additional information. We anticipate financingthat our future capital needs infrom the debt market as our after-tax cost of debt is lower than our cost of equity.will be more limited compared to prior years. Our ability to obtain this or any additional financing that we may choose to, or need to, obtain will depend on, among other things, our development efforts, business plans, operating performance and the condition of the capital markets at the time we seek financing. We may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity or debt

securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.
In March 2021, our Board of Directors authorized the repurchase of up to $5 billion of our common stock, with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may discontinue any repurchases of our common stock at any time without prior notice. As of September 30, 2017,March 31, 2021, no stock has been repurchased under this program.
Our primary uses of cash include the acquisition, licensing and production of content, streaming delivery, marketing programs and personnel-related costs. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash equivalents held by our foreign subsidiaries amountedupfront relative to $443.7 million. If these fundslicensed content. For example, production costs are needed for our operationspaid as the content is created, well in advance of when the U.S., we would be required to accrue and pay U.S. income taxes and foreign withholding taxescontent is available on the portion associated with undistributed earningsservice and amortized. We expect to continue to significantly increase our investments in global content, particularly in original content, which will impact our liquidity. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for certain foreign subsidiaries.at least the next twelve months.

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Free Cash Flow
We define free cash flow as cash provided by (used in) operating activities less purchases of property and investing activities excluding the non-operational cash flows from purchases, maturitiesequipment and sales of short-term investments.change in other assets. We believe 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 strategic acquisitions and investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content.like stock repurchases. Free cash flow is considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net income, operating income, net cash flowprovided by (used in) provided by operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP.
In assessing liquidity in relation to our results of operations, we compare free cash flow to net income, noting that the three major recurring differences are excess content payments over expense,amortization, non-cash stock-based compensation expense, non-cash remeasurement gain/loss on our euro-denominated debt, and other working capital differences. The excess content payments over expense is variable based on the payment terms of our content agreements and is expected to increase as we enter into more agreements with upfront cash payments, such as licensing and production of original content. Working capital differences include deferred revenue, excess property and equipment purchases over depreciation, taxes and semi-annual interest payments on our outstanding debt. Our receivables from membersMembership fees due are generally settle quickly and deferred revenue is a source of cash flow.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016collected quickly.
 

 Three Months Ended
 September 30,
2017		 September 30,
2016
 (in thousands)
Net cash used in operating activities$(419,607) $(461,941)
Net cash provided by investing activities202,192
 23,976
Net cash provided by financing activities34,422
 16,639
    
Non-GAAP free cash flow reconciliation:   
Net cash used in operating activities(419,607) (461,941)
Acquisition of DVD content assets(10,217) (17,249)
Purchases of property and equipment(33,963) (27,366)
Change in other assets(1,107) 125
Non-GAAP free cash flow$(464,894) $(506,431)
Three Months EndedChange
March 31,
2021		March 31,
2020		Q1'21 vs. Q1'20
(in thousands, except percentages)
Net cash provided by operating activities$777,266 $259,912 $517,354 199 %
Net cash used in investing activities(85,616)(98,303)(12,687)(13)%
Net cash provided by (used in) financing activities(451,929)43,694 (495,623)(1,134)%
Non-GAAP reconciliation of free cash flow:
Net cash provided by operating activities777,266 259,912 517,354 199 %
Purchases of property and equipment(81,001)(98,015)(17,014)(17)%
Change in other assets(4,615)(288)(4,327)(1,502)%
Free cash flow$691,650 $161,609 $530,041 328 %


Cash used inNet cash provided by operating activities decreased $42.3increased $517 million to $419.6$777 million for the three months ended September 30, 2017, compared to the same period of 2016.March 31, 2021. The decreased use ofincrease in cash provided by operating activities was due primarily todriven by a $694.7$1,396 million or 30%24% increase in revenues, partially offset by thean increase in investments in streaming content that requiresrequire more upfront cash payments. The payments for streaming content assets increased $437.4$515 million, from $3,035 million to $3,551 million, or 23%17%, as compared to the increase in the amortization of content assets of $236 million, from $2,483 million to $2,719 million, or 9%. In addition, we had increased payments associated with higher operating expenses.expenses, primarily related to increased headcount to support our continued improvements in our streaming service and our international expansion.
Cash provided byNet cash used in investing activities increased $178.2decreased $13 million for the three months ended March 31, 2021, primarily due to a $179.0 million increasedecrease in the proceeds from the salepurchases of short-term investments. In July 2017, the Company sold all short-term investments.property and equipment.
CashNet cash provided by (used in) financing activities increased $17.8decreased $496 million infor the quarterthree months ended September 30, 2017, due to an increase in cash received from the issuance of common stock, partially offset by a decrease in excess tax benefits from stock-based compensationMarch 31, 2021, primarily due to the adoptionrepayment of ASU 2016-09 in the first quarter of 2017.debt.
Free cash flow was $594.5$1,015 million lower than net income for the three months ended September 30, 2017March 31, 2021 primarily due to $722.1$831 million of cash payments for streaming content assets over streaming amortization expense, $253 million of non-cash remeasurement gain on our euro-denominated debt, and $38 million in other non-favorable working capital differences, partially offset by $44.8$107 million of non-cash stock-based compensation expense and $82.8 million of favorable other working capital differences.expense.
Free cash flow was $557.9$547 million lower than net income for the three months ended September 30, 2016,March 31, 2020, primarily due to $688.1$552 million of cash payments for streaming content assets over streaming amortization expense and $93 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $43.5$97 million of non-cash stock-based compensation expense and $86.7$1 million in favorable other working capital differences.

Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016
26
 Nine Months Ended
 September 30,
2017		 September 30,
2016
 (in thousands)
Net cash used in operating activities$(1,297,991) $(916,824)
Net cash provided by investing activities70,170
 25,343
Net cash provided by financing activities1,479,047
 49,158
    
Non-GAAP free cash flow reconciliation:   
Net cash used in operating activities(1,297,991) (916,824)
Acquisition of DVD content assets(43,213) (58,380)
Purchases of property and equipment(151,717) (46,605)
Change in other assets(2,940) 676
Non-GAAP free cash flow$(1,495,861) $(1,021,133)

Cash used in operating activities increased $381.2 million to $1,298.0 million for the nine months ended September 30, 2017, compared to the same periodTable of 2016. The significant net cash used in operations is due primarily to the increase in investments in streaming content that requires more upfront payments. The payments for streaming content assets increased $1,605.2 million or 33%. In addition, we had increased payments associated with higher operating expenses. The increased use of cash was partially offset by a $2,053.8 million or 32% increase in revenues.Contents
Cash provided by investing activities increased $44.8 million, primarily due to an increase in the proceeds from the sale and maturities of short-term investments of $138.4 million, net of purchases, coupled with an increase in the purchases of property and equipment of $105.1 million, primarily related to the expansion of our Los Gatos, California headquarters and our new Los Angeles, California facility.
Cash provided by financing activities increased $1,429.9 million in the nine months ended September 30, 2017, due to the proceeds from the issuance of debt of $1,405.2 million, net of $15.3 million of issuance costs.
Free cash flow was $1,869.3 million lower than net income for the nine months ended September 30, 2017 primarily due to $1,997.6 million of cash payments for streaming content assets over streaming amortization expense coupled with $5.4 million non-favorable other working capital differences, partially offset by $133.7 million of non-cash stock-based compensation expenses.
Free cash flow was $1,141.1 million lower than net income for the nine months ended September 30, 2016, primarily due to $1,418.3 million of cash payments for streaming content assets over streaming amortization expense partially offset by $130.0 million of non-cash stock-based compensation expense and $147.2 million favorable other working capital differences.

Contractual Obligations


For the purpose of this table, contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The expected timing of the payment of the obligations discussed below is estimated based on information available to us as of September 30, 2017.March 31, 2021. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. The following table summarizes our contractual obligations as of September 30, 2017:March 31, 2021:


Payments due by Period
Contractual obligations (in thousands):TotalLess than
1 year		1-3 years3-5 yearsMore than
5 years
Content obligations (1)$20,725,165 $9,456,342 $8,241,022 $2,259,821 $767,980 
Debt (2)21,000,783 1,453,690 1,804,714 3,161,269 14,581,110 
Operating lease obligations (3)2,825,470 357,900 655,591 576,630 1,235,349 
Other purchase obligations (4)1,067,747 679,340 383,349 5,058 — 
Total$45,619,165 $11,947,272 $11,084,676 $6,002,778 $16,584,439 
 Payments due by Period
Contractual obligations (in thousands):Total Less than
1 year		 1-3 years 3-5 years More than
5 years
Streaming content obligations (1)$16,991,930
 $6,984,360
 $7,918,009
 $1,918,123
 $171,438
Debt (2)6,708,200
 237,108
 469,578
 1,622,849
 4,378,665
Lease obligations (3)727,508
 96,224
 184,905
 157,762
 288,617
Other purchase obligations (4)642,821
 368,214
 198,418
 46,560
 29,629
Total$25,070,459

$7,685,906
 $8,770,910
 $3,745,294
 $4,868,349


(1)As of September 30, 2017, streaming content obligations were comprised of $4.1 billion included in "Current content liabilities" and $3.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $9.6 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.
Streaming(1)As of March 31, 2021, content obligations increasedwere comprised of $4.3 billion included in “Current content liabilities” and $2.5 billion from $14.5of “Non-current content liabilities” on the Consolidated Balance Sheets and $13.9 billion of obligations that are not reflected on the Consolidated Balance Sheets as of December 31, 2016 to $17.0 billion as of September 30, 2017, primarily due to multi-year commitments associated withthey did not then meet the continued expansion of our exclusive and original programming.criteria for recognition.
Streaming contentContent obligations include amounts related to the acquisition, licensing and production of streaming content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements.agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. The contractual obligations table above does not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $3$1 billion to $5$4 billion over the next three years, with the payments for the vast majority of such amounts expected to occur after the next twelve months. The foregoing range is based on considerable management judgments and the actual amounts may differ. Once we know the title that we will receive and the license fees, we include the amount in the contractual obligations table above.


(2)Long-term debt obligations include our Notes consisting of principal and interest payments. See Note 5 to the consolidated financial statements for further details.

(2)Debt obligations include our Notes consisting of principal and interest payments. See Note 6 Debt to the consolidated financial statements for further details.
(3)Lease obligations include lease financing obligations of $16.4 million related to a portion of our current Los Gatos, California headquarters for which we are the deemed owner for accounting purposes, commitments of $519.3 million for our expanded headquarters in Los Gatos, California, and our new office space in Los Angeles, California and other commitments of $191.8 million for facilities under non-cancelable operating leases. These leases have expiration dates varying through approximately 2028.


(4)Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming delivery, DVD content acquisition, and miscellaneous open purchase orders for which we have not received the related services or goods.

(3)Operating lease obligations are comprised of operating lease liabilities included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Consolidated Balance Sheets, inclusive of imputed interest. Operating lease obligations also include additional obligations that are not reflected on the Consolidated Balance Sheets as they did not meet the criteria for recognition. See Note 5 Balance Sheet Components in the accompanying notes to our consolidated financial statements for further details regarding leases.

(4)Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming delivery and cloud computing costs, as well as other miscellaneous open purchase orders for which we have not received the related services or goods.

As of September 30, 2017,March 31, 2021, we had gross unrecognized tax benefits of $37.2 million which was classified in “Other non-current liabilities” and a reduction to deferred tax assets which was classified as "Other non-current assets" in the consolidated balance sheets.$160 million. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.


Off-Balance Sheet Arrangements
We do not have transactions with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, whereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us.


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Indemnification
The information set forth under Note 6 7 Commitments and Contingencies to the consolidated financial statements under the caption “Indemnification” is incorporated herein by reference.

Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. The Securities and Exchange Commission ("SEC")SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.



Streaming Content
We acquire, license and produce content, including original programing,programming, in order to offer our members unlimited viewing of TV shows and films.video entertainment. The content licenses are for a fixed fee and specific windows of availability. Payment terms for certain content licenses and the production of content require more upfront cash payments relative to the amortization expense. Payments for content, including additions to streamingcontent assets and the changes in related liabilities, are classified within "Net cash used inprovided by operating activities" on the Consolidated Statements of Cash Flows.
We recognize content assets (licensed and produced) as "Content assets, net" on the Consolidated Balance Sheets. For licenseslicensed content, we capitalize the fee per title and record a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known and the title is accepted and available for streaming. The portion available for streaming within one year is recognized as “CurrentFor produced content, assets, net” and the remaining portion as “Non-current content assets, net” on the Consolidated Balance Sheets.
For productions, we capitalize costs associated with the production, including development cost, direct costs and production overhead. We include these amounts in "Non-current content assets, net" on the Consolidated Balance Sheets. Participations and residuals are expensed in line with the amortization of production costs.
Based on factors including historical and estimated viewing patterns, we amortize the content assets (licensed and produced) in “Cost of revenues” on the Consolidated Statements of Operations over the shorter of each title's contractual window of availability or estimated period of use or ten years, beginning with the month of first availability. The amortization periodis on an accelerated basis, as we typically ranges from six months to five years. For content where we expect more upfront viewing, for instance due to the additional merchandising and marketing efforts, we amortize on anand film amortization is more accelerated basis.than TV series amortization. On average, over 90% of a licensed or produced content asset is expected to be amortized within four years after its month of first availability. We review factors that impact the amortization of the content assets on a regular basis. Our estimates related to these factors require considerable management judgment.
Our business model is subscription based as opposed to a model generating revenues at a specific title level. Therefore, contentContent assets both licensed(licensed and producedproduced) are predominantly monetized as a group and therefore are reviewed in aggregate at the operating segmenta group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than amortizedunamortized cost. To date, we have not identified any such event or changes in circumstances. If such changes are identified in the future, these aggregated content assets will be stated at the lower of unamortized cost net realizable value or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. No material write-down from unamortized cost was recorded in any of the periods presented.


Income Taxes
We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain. As of September 30, 2017, there was a valuation allowance of $33.1 million primarily related to foreign tax credit carryovers. There was no valuation allowance as of September 30, 2016.
Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.
In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments and estimates. In the eventHowever, we were to determinebelieve that we wouldit is more likely than not be able to realize all or partthat most of our net deferred tax assets in the future, an adjustment to the deferred tax assets wouldrecorded on our Consolidated Balance Sheets will ultimately be chargedrealized. We record a valuation allowance to earnings inreduce our deferred tax assets to the period in whichnet amount that we make such determination.believe is more likely than not to be realized. As of March 31, 2021, the valuation allowance of $298 million was related to the California research and
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development credits and certain foreign tax attributes that we do not expect to realize.
We did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At September 30, 2017,March 31, 2021, our estimated gross unrecognized tax benefits were $37.2$160 million of which $33.3$99 million, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. See Note 9 Income Taxes to the consolidated financial statements for further information regarding income taxes.

Stock-Based Compensation
We grant fully vested non-qualified stock options to our employees on a monthly basis. As a result of immediate vesting, stock-based compensation expense is fully recognized on the grant date, and no estimate is required for post-vesting option forfeitures. Stock-based compensation expense at the grant date is based on the total number of options granted and an estimate of the fair value of the awards.

We calculate the fair value of our stock option grants using a lattice-binomial model. This model requires the input of highly subjective assumptions. Changes in the subjective input assumptions can materially affect the estimate of fair value of options granted and our results of operations could be impacted.
Expected Volatility: The Company calculates expected volatility based solely on implied volatility. We believe that implied volatility of publicly traded options in our common stock is more reflective of market conditions and, given consistently high trade volumes of the options, can reasonably be expected to be a better indicator of expected volatility than historical volatility of our common stock. An increase/decrease of 10% in our computation of expected volatility would increase/decrease the total stock-based compensation expense by approximately $5.7 million for the three months ended September 30, 2017.
Suboptimal Exercise Factor: Our computation of the suboptimal exercise factor is based on historical and estimated option exercise behavior. An increase/decrease in the suboptimal exercise factor of 10% would increase/decrease the total stock-based compensation expense by approximately $1.1 million for the three months ended September 30, 2017.


Recent Accounting Pronouncements


The information set forth under Note 1 to the consolidated financial statements under the caption “Basis of Presentation and Summary of Significant Accounting Policies” is incorporated herein by reference.


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Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 3.Quantitative and Qualitative Disclosures About Market Risk
For financial market risks related to changes in interest rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II of our Annual Report on Form 10-K for the year ended December 31, 2016.2020. Our exposure to market risk has not changed significantly since December 31, 2016.2020.
Foreign Currency Risk
International revenues and cost of revenues account for 42% and 53%, respectively, of consolidated amounts for the nine months ended September 30, 2017. The majority of international revenues and a smaller portion of expenses areRevenues denominated in currencies other than the U.S. dollar and weaccount for 56% of the consolidated amount for the three months ended March 31, 2021. We therefore have foreign currency risk related to these currencies, which are primarily the euro, the British pound, the Brazilian real, the Canadian dollar, the Mexican Peso, the Australian dollar, and the Japanese yen and the Brazilian real.yen.
Accordingly, changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenue and contribution profit (loss) of our International streaming segmentoperating income as expressed in U.S. dollars. In the ninethree months ended September 30, 2017, we believeMarch 31, 2021, our international revenues would have been approximately $21.0$80 million higherlower had foreign currency exchange rates remained consistent with those in same period of 2016.2020.
We have also experienced and will continue to experience fluctuations in our net income as a result of gains (losses) on the settlement and the remeasurement of monetary assets and liabilities denominated in currencies that are not the functional currency. In the ninethree months ended September 30, 2017,March 31, 2021, we recognized an $84.7a $258 million foreign exchange loss which resultedgain primarily fromdue to the non-cash remeasurement of our €1,300.0 million Senior Notes and was partially offset bydenominated in euros, coupled with the remeasurement of cash and content liability positionsliabilities denominated in currencies other than the functional currencies of our European and U.S. entities.currencies.
In addition, the effect of exchange rate changes on cash, and cash equivalents inand restricted cash as disclosed on the nineConsolidated Statements of Cash Flow for the three months ended September 30, 2017March 31, 2021 was $27.7a decrease of $42 million.
We do not use foreign exchange contracts or derivatives to hedge any foreign currency exposures. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued international expansion increases our exposure to exchange rate fluctuations and, as a result, such fluctuations could have a significant impact on our future results of operations.


Item 4.Controls and Procedures
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chiefco-Chief Executive OfficerOfficers and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chiefco-Chief Executive OfficerOfficers and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act, of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii)that such information is accumulated and communicated to our management, including our Chiefco-Chief Executive OfficerOfficers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our Chiefco-Chief Executive OfficerOfficers and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
 
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2017,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.






PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Item 1.Legal Proceedings
The information set forth under Note 6 7 Commitments and Contingencies in the notes to the consolidated financial statements under the caption “Legal Proceedings” is incorporated herein by reference.


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Item 1A.Risk Factors
Item 1A.Risk Factors
There have been no material changes from the risk factors as previously disclosed under the heading “Risk Factors”"Risk Factors" in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2016.2020.


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Company Purchases of Equity Securities
In March 2021, our Board of Directors authorized the repurchase of up to $5 billion of our common stock, with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may discontinue any repurchases of our common stock at any time without prior notice. As of March 31, 2021, no stock has been repurchased under this program.

Item 6.Exhibits
Item 6.Exhibits
(a) Exhibits:


See Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.


 



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Table of Contents
EXHIBIT INDEX
Exhibit NumberExhibit DescriptionIncorporated by ReferenceFiled
Herewith
FormFile No.ExhibitFiling Date
3.1
10-Q001-357273.1July 17, 2015
3.2
8-K001-357273.1December 18, 2020
10.1†
X
31.1
X
31.2
X
31.3
X
32.1*
X
101The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Balance Sheets, (v) Consolidated Statements of Stockholders' Equity and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tagsX
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRLX


*    These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.
† Indicates a management contract or compensatory plan

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
NETFLIX, INC.
Dated:April 22, 2021By:/s/ Reed Hastings
Reed Hastings
Co-Chief Executive Officer
(Principal executive officer)
Dated:April 22, 2021NETFLIX, INC.By:/s/ Spencer Neumann
Dated:October 18, 2017By:/s/ REED HASTINGS
Reed Hastings
Chief Executive Officer
(Principal executive officer)
Dated:October 18, 2017By:/s/ DAVID WELLS
David Wells
Spencer Neumann
Chief Financial Officer

(Principal financial and accounting officer)


EXHIBIT INDEX

32
Exhibit Number Exhibit Description Incorporated by Reference Filed
Herewith
    Form File No. Exhibit Filing Date  
        
10.14
 
Executive Severance and Retention Incentive Plan, as amended and restated as of July 12, 2017

   001-35727 10.14 July 19, 2017  
             
10.15
 
Revolving Credit Agreement among the Company, Deutsche Bank AG New York Branch, Goldman Sachs Bank USA, JPMorgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc. and Wells Fargo Bank, N.A. and the administrative agent, dated as of July 27, 2017

         X
             
31.1
 
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         X
        
31.2
 
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
         X
        
32.1*
 
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
         X
        
101 
The following financial information from Netflix, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 filed with the SEC on October 18, 2017, formatted in XBRL includes: (i) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016, (ii) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 (iii) Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (iv) Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2017 and 2016 and (v) the Notes to the Consolidated Financial Statements.
         X

*These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.


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