UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x	~~QUARTERLY 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~~June 30, ~~2017~~2022


o	~~TRANSITION 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)



Delaware									77-0467272
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	NFLX	NASDAQ 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 filer~~Accelerated Filer

x☒

Accelerated filer

o☐

Non-accelerated filer

o☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

o☐

Emerging growth company

o☐

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~~June 30, ~~2017,~~2022, there were ~~432,731,130~~444,705,591 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		18
Item 3.			Quantitative and Qualitative Disclosures About Market Risk		32
Item 4.			Controls and Procedures		32
			Part II. Other Information		33
Item 1.			Legal Proceedings		3332
Item 1A.			Risk Factors		33
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 6.			Exhibits		33
~~Signatures~~Exhibit Index					34
~~Exhibit Index~~Signatures					3534

Table of Contents

NETFLIX, INC.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Revenues	$	7,970,141	$	7,341,777	$	15,837,908	$	14,505,059
Cost of revenues	4,690,755		4,018,008		8,975,460		7,886,519
Marketing	574,960		603,973		1,130,938		1,116,485
Technology and development	716,846		537,321		1,374,376		1,062,528
General and administrative	409,297		334,845		807,225		632,041
Operating income	1,578,283		1,847,630		3,549,909		3,807,486
Other income (expense):
Interest expense	(175,455)		(191,322)		(363,034)		(385,762)
Interest and other income (expense)	220,226		(62,519)		415,871		206,567
Income before income taxes	1,623,054		1,593,789		3,602,746		3,628,291
Provision for income taxes	(182,103)		(240,776)		(564,348)		(568,563)
Net income	$	1,440,951	$	1,353,013	$	3,038,398	$	3,059,728

Earnings per share:
Basic	$	3.24	$	3.05	$	6.84	$	6.90
Diluted	$	3.20	$	2.97	$	6.73	$	6.72
Weighted-average shares of common stock outstanding:
Basic	444,557		443,159		444,352		443,192
Diluted	450,169		455,129		451,578		455,385

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 revenues 1,992,980
1,532,844
5,552,312
4,375,482
Marketing 312,490
282,043
858,083
706,082
Technology and development 255,236
216,099
779,427
626,907
General and administrative 215,526
153,166
623,760
418,798
Operating income 208,627
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 taxes 116,237
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:
Basic 432,404
428,937
431,473
428,514
Diluted 447,362
438,389
446,367
438,180

See accompanying notes to the consolidated financial statements.

Table of Contents

NETFLIX, INC.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Net income	$	1,440,951	$	1,353,013	$	3,038,398	$	3,059,728
Other comprehensive income (loss):
Foreign currency translation adjustments	(70,306)		5,638		(103,981)		(34,623)

Comprehensive income	$	1,370,645	$	1,358,651	$	2,934,417	$	3,025,105

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, respectively 328
(676 ) 599
1,325
Total other comprehensive income 6,006
1,681
23,203
6,778
Comprehensive income $ 135,596
$ 53,198
$ 396,615
$ 126,708

See accompanying notes to the consolidated financial statements.

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 assets 1,627,477
1,224,108
4,483,954
3,457,990
Amortization of DVD content assets 13,259
19,284
48,368
59,746
Depreciation and amortization of property, equipment and intangibles 19,238
14,410
52,838
43,339
Stock-based compensation expense 44,763
43,495
133,679
130,029
Excess tax benefits from stock-based compensation —
(12,762 ) —
(37,401 )
Other non-cash items 9,896
9,682
43,081
31,479
Foreign currency remeasurement loss on long-term debt 50,830
—
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 payable 34,029
27,810
10,590
16,707
Accrued expenses 74,006
28,957
119,506
72,288
Deferred revenue 32,947
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 investments 250,278
171,747
320,154
198,687
Proceeds from maturities of short-term investments —
24,855
22,705
112,555
Net cash provided by investing activities 202,192
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 stock 34,669
3,819
73,673
11,587
Excess tax benefits from stock-based compensation —
12,762
—
37,401
Other financing activities 65
58
189
170
Net cash provided by financing activities 34,422
16,639
1,479,047
49,158
Effect of exchange rate changes on cash and cash equivalents 10,685
(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 period 1,918,777
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				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Cash flows from operating activities:
Net income	$	1,440,951	$	1,353,013	$	3,038,398	$	3,059,728
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Additions to content assets	(4,687,011)		(4,096,750)		(8,271,175)		(7,381,326)
Change in content liabilities	191,228		(312,208)		(155,921)		(578,248)
Amortization of content assets	3,261,348		2,806,803		6,427,713		5,525,999
Depreciation and amortization of property, equipment and intangibles	83,505		38,434		158,107		74,175
Stock-based compensation expense	150,392		101,583		269,601		208,813
Foreign currency remeasurement loss (gain) on debt	(304,513)		63,074		(466,334)		(190,256)
Other non-cash items	205,374		108,103		307,342		180,760
Deferred income taxes	(115,820)		51,127		(184,726)		210,860
Changes in operating assets and liabilities:
Other current assets	123,399		(52,373)		164,556		(273,928)
Accounts payable	(122,048)		72,313		(337,492)		(65,000)
Accrued expenses and other liabilities	(238,719)		(171,430)		112,044		6,467
Deferred revenue	(10,376)		47,093		6,367		69,372
Other non-current assets and liabilities	125,040		(72,543)		(42,891)		(133,911)
Net cash provided by (used in) operating activities	102,750		(63,761)		1,025,589		713,505
Cash flows from investing activities:
Purchases of property and equipment	(90,018)		(110,278)		(211,176)		(191,279)
Change in other assets	—		(1,000)		—		(5,615)
Acquisitions	(68,876)		—		(193,397)		—
Net cash used in investing activities	(158,894)		(111,278)		(404,573)		(196,894)
Cash flows from financing activities:
Repayments of debt	—		—		(700,000)		(500,000)
Proceeds from issuance of common stock	11,250		19,749		24,928		67,820
Repurchases of common stock	—		(500,022)		—		(500,022)
Net cash provided by (used in) financing activities	11,250		(480,273)		(675,072)		(932,202)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(145,198)		23,477		(156,646)		(18,661)
Net decrease in cash, cash equivalents and restricted cash	(190,092)		(631,835)		(210,702)		(434,252)
Cash, cash equivalents and restricted cash at beginning of period	6,034,501		8,436,453		6,055,111		8,238,870
Cash, cash equivalents and restricted cash at end of period	$	5,844,409	$	7,804,618	$	5,844,409	$	7,804,618

See accompanying notes to the consolidated financial statements.

Table of Contents

NETFLIX, INC.

Consolidated Balance Sheets

(in thousands, except share and par value data)


	As of
	June 30, 2022		December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	5,819,449	$	6,027,804
Other current assets	2,021,329		2,042,021
Total current assets	7,840,778		8,069,825
Content assets, net	32,533,199		30,919,539
Property and equipment, net	1,361,920		1,323,453
Other non-current assets	4,615,038		4,271,846
Total assets	$	46,350,935	$	44,584,663
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities	$	4,174,966	$	4,292,967
Accounts payable	504,278		837,483
Accrued expenses and other liabilities	1,596,035		1,449,351
Deferred revenue	1,224,743		1,209,342
Short-term debt	—		699,823
Total current liabilities	7,500,022		8,488,966
Non-current content liabilities	2,989,961		3,094,213
Long-term debt	14,233,303		14,693,072
Other non-current liabilities	2,551,675		2,459,164
Total liabilities	27,274,961		28,735,415
Commitments and contingencies (Note 7)	0		0
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at June 30, 2022 and December 31, 2021; 444,705,591 and 443,963,107 issued and outstanding at June 30, 2022 and December 31, 2021, respectively	4,316,870		4,024,561
Treasury stock at cost (1,564,478 shares at June 30, 2022)	(824,190)		(824,190)
Accumulated other comprehensive loss	(144,476)		(40,495)
Retained earnings	15,727,770		12,689,372
Total stockholders’ equity	19,075,974		15,849,248
Total liabilities and stockholders’ equity	$	46,350,935	$	44,584,663

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, net 4,223,387
3,726,307
Other current assets 415,492
260,202
Total current assets 6,385,348
5,720,291
Non-current content assets, net 9,739,704
7,274,501
Property and equipment, net 322,421
250,395
Other non-current assets 504,067
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 payable 301,443
312,842
Accrued expenses 331,723
197,632
Deferred revenue 535,425
443,472
Total current liabilities 5,310,677
4,586,657
Non-current content liabilities 3,296,504
2,894,654
Long-term debt 4,888,783
3,364,311
Other non-current liabilities 128,215
61,188
Total liabilities 13,624,179
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, respectively 1,807,123
1,599,762
Accumulated other comprehensive loss (25,362 ) (48,565 )
Retained earnings 1,545,600
1,128,603
Total stockholders’ equity 3,327,361
2,679,800
Total liabilities and stockholders’ equity $ 16,951,540
$ 13,586,610

See accompanying notes to the consolidated financial statements.

Table of Contents

NETFLIX, INC.

Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Total stockholders' equity, beginning balances	$	17,544,039	$	12,884,080	$	15,849,248	$	11,065,240

Common stock and additional paid-in capital:
Beginning balances	$	4,155,580	$	3,600,084	$	4,024,561	$	3,447,698
Issuance of common stock upon exercise of options	10,898		19,579		22,708		64,735
Stock-based compensation expense	150,392		101,583		269,601		208,813
Ending balances	$	4,316,870	$	3,721,246	$	4,316,870	$	3,721,246

Treasury stock:
Beginning balances	$	(824,190)	$	—	$	(824,190)	$	—
Repurchases of common stock to be held as treasury stock	—		(500,022)		—		(500,022)
Ending balances	$	(824,190)	$	(500,022)	$	(824,190)	$	(500,022)

Accumulated other comprehensive loss
Beginning balances	$	(74,170)	$	4,137	$	(40,495)	$	44,398
Other comprehensive loss	(70,306)		5,638		(103,981)		(34,623)
Ending balances	$	(144,476)	$	9,775	$	(144,476)	$	9,775

Retained earnings:
Beginning balances	$	14,286,819	$	9,279,859	$	12,689,372	$	7,573,144
Net income	1,440,951		1,353,013		3,038,398		3,059,728
Ending balances	$	15,727,770	$	10,632,872	$	15,727,770	$	10,632,872

Total stockholders' equity, ending balances	$	19,075,974	$	13,863,871	$	19,075,974	$	13,863,871

See accompanying notes to the consolidated financial statements.

Table of Contents

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, ~~2016~~2021 filed with the Securities and Exchange Commission (the “SEC”) on January 27, ~~2017.~~2022. 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.~~2021. 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.~~2021.

Recently adopted accounting pronouncements

In ~~March 2016,~~October 2021, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued ~~ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment~~ Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which ~~amends~~requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification ~~("ASC")~~ Topic ~~718, Compensation - Stock Compensation~~606, Revenue from Contracts with Customers. ASU 2016-09 simplifies several aspects of the accounting for share-based payment 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 as a component of the provision for income taxes in the reporting period 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. The Company adopted ASU ~~2016-09~~2021-08 in the first quarter of ~~2017~~2022 and ~~elected~~the 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 which~~fees. 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 ~~does~~retains 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 revenues, paid net membership additions, and paid memberships at end of period by region for the three and six months ended June 30, 2022 and 2021, respectively:

United States and Canada (UCAN)


	As of/ Three Months Ended				As of/ Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(in thousands)
Revenues	$	3,537,863	$	3,234,643	$	6,888,287	$	6,405,615
Paid net membership additions (losses)	(1,296)		(433)		(1,932)		15
Paid memberships at end of period (1)	73,283		73,951		73,283		73,951

Table of Contents

Europe, Middle East, and Africa (EMEA)


	As of/ Three Months Ended				As of/ Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(in thousands)
Revenues	$	2,457,235	$	2,400,480	$	5,019,066	$	4,744,154
Paid net membership additions (losses)	(767)		188		(1,070)		1,998
Paid memberships at end of period (1)	72,966		68,696		72,966		68,696

Latin America (LATAM)


	As of/ Three Months Ended				As of/ Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(in thousands)
Revenues	$	1,030,234	$	860,882	$	2,029,182	$	1,697,529
Paid net membership additions (losses)	14		764		(337)		1,121
Paid memberships at end of period (1)	39,624		38,658		39,624		38,658

Asia-Pacific (APAC)


	As of/ Three Months Ended				As of/ Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(in thousands)
Revenues	$	907,719	$	799,480	$	1,824,473	$	1,561,894
Paid net membership additions	1,080		1,022		2,167		2,383
Paid memberships at end of period (1)	34,799		27,875		34,799		27,875


(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 ~~expect~~reported in the ~~impact on its consolidated financial statements~~tables above, were $3.3 billion and $6.4 billion, respectively, for the three and six months ended June 30, 2022 and $3.0 billion and $6.0 billion, respectively, for the three and six months ended June 30, 2021. DVD revenues were $37 million and $77 million, respectively, for the three and six months ended June 30, 2022 and $46 million and $96 million, respectively, for three and six months ended June 30, 2021.

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 June 30, 2022, total deferred revenue was $1,225 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 $15 million increase in ~~order~~deferred 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~~of $1,209 million as ~~operating leases under previous~~

~~GAAP. ASU 2016-02 requires that~~of December 31, 2021 is 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 asset for the lease term on the balance sheet. ASU 2016-02 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 related to the recognition~~increase in average monthly revenue per paying member and acquisition-related deferred revenue.

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 outstanding shares of common ~~shares outstanding~~stock during the period. Potential shares of common ~~shares~~stock consist of incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	1,440,951	$	1,353,013	$	3,038,398	$	3,059,728
Shares used in computation:
Weighted-average shares of common stock outstanding	444,557		443,159		444,352		443,192
Basic earnings per share	$	3.24	$	3.05	$	6.84	$	6.90

Diluted earnings per share:
Net income	$	1,440,951	$	1,353,013	$	3,038,398	$	3,059,728
Shares used in computation:
Weighted-average shares of common stock outstanding	444,557		443,159		444,352		443,192
Employee stock options	5,612		11,970		7,226		12,193
Weighted-average number of shares	450,169		455,129		451,578		455,385
Diluted earnings per share	$	3.20	$	2.97	$	6.73	$	6.72

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 outstanding 432,404
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 outstanding 432,404
428,937
431,473
428,514
Employee stock options 14,958
9,452
14,894
9,666
Weighted-average number of shares 447,362
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 shares of common ~~shares~~stock excluded from the diluted calculation:

Three Months Ended

Six Months Ended

June 30,
2022

June 30,
2021

June 30,
2022

June 30,
2021

(in thousands)

Employee stock options

8,175

788

5,462

523

Three Months Ended Nine months ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
(in thousands)
Employee stock options 187
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 and~~Company's cash, cash equivalents, and restricted cash as of June 30, 2022 and December 31, 2021:


	As of June 30, 2022
	Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
	(in thousands)
Cash	$	4,655,513	$	904	$	23,910	$	4,680,327
Level 1 securities:
Money market funds	1,163,936		—		146		1,164,082

	$	5,819,449	$	904	$	24,056	$	5,844,409


	As of December 31, 2021
	Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
	(in thousands)
Cash	$	4,103,613	$	3,189	$	23,972	$	4,130,774
Level 1 securities:
Money market funds	1,924,191		—		146		1,924,337

	$	6,027,804	$	3,189	$	24,118	$	6,055,111

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 of~~include 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 funds 204,967
—
—
204,967
203,450
—
1,517
Level 2 securities:
Corporate debt securities 199,843
110
(731 ) 199,222
—
199,222
—
Government securities 35,944
—
(128 ) 35,816
—
35,816
—
Certificates of deposit 9,833
—
—
9,833
—
9,833
—
Agency securities 21,563
—
(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 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~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively.~~2022 or 2021.

5. Balance Sheet Components

Content Assets, Net

Content assets consisted of the following:


	As of
	June 30, 2022		December 31, 2021
	(in thousands)
Licensed content, net	$	13,025,936	$	13,799,221

Produced content, net
Released, less amortization	7,308,112		6,877,743
In production	11,411,491		9,235,975
In development and pre-production	787,660		1,006,600
	19,507,263		17,120,318

Content assets, net	$	32,533,199	$	30,919,539

As of
September 30,
2017 December 31,
2016
(in thousands)
Licensed content, net $ 11,462,217
$ 9,595,315

Produced content, net

Released, less amortization 984,945
335,400
In production 1,338,208
1,010,463
In development and pre-production 163,393
34,215
2,486,546
1,380,078
DVD, net 14,328
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

~~Produced~~As of June 30, 2022, approximately $5,657 million, $2,907 million, and $1,837 million of the $13,026 million unamortized cost of the licensed content is ~~included~~expected to be amortized in ~~"Non-current content assets, net" on~~each of the ~~Consolidated Balance Sheets. Certain original content is licensed~~next three years. As of June 30, 2022, approximately $2,905 million, $1,940 million, and ~~therefore not included in produced content. Of~~$1,225 million of the $7,308 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 ~~over~~in each of the next ~~twelve, thirty-six and forty-eight months, respectively. The~~three years.

As of June 30, 2022, the amount of accrued participations and residuals iswas not material.

The following tables represent the amortization of content assets:


	Three Months Ended
	June 30, 2022		June 30, 2021
	(in thousands)
Licensed content	$	1,899,782	$	1,884,638
Produced content	1,361,566		922,165
Total	$	3,261,348	$	2,806,803


	Six Months Ended
	June 30, 2022		June 30, 2021
	(in thousands)
Licensed content	$	3,784,220	$	3,713,884
Produced content	2,643,493		1,812,115
Total	$	6,427,713	$	5,525,999

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:


	As of
	June 30, 2022		December 31, 2021		Estimated Useful Lives
	(in thousands)
Land	$	84,726	$	82,381
Buildings	50,026		48,123		30 years
Leasehold improvements	984,914		863,342		Over life of lease
Furniture and fixtures	150,978		139,809		3 years
Information technology	422,044		380,452		3 years
Corporate aircraft	110,978		110,978		8 years
Machinery and equipment	27,059		32,426		3-5 years
Capital work-in-progress	196,091		282,248
Property and equipment, gross	2,026,816		1,939,759
Less: Accumulated depreciation	(664,896)		(616,306)
Property and equipment, net	$	1,361,920	$	1,323,453

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 ~~decrease~~Company has entered into operating leases primarily for real estate. 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 improvements~~use the underlying asset for the ~~Company's expanded Los Gatos, California headquarters~~lease 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, both~~Consolidated Balance Sheets. The Company has also entered into various short-term operating leases, primarily for marketing billboards, with an initial term of ~~which~~twelve 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 in~~as follows:


	Three Months Ended
	June 30, 2022		June 30, 2021
	(in thousands)
Cash paid for operating lease liabilities	$	99,758	$	79,472
Right-of-use assets obtained in exchange for new operating lease obligations	39,304		183,351


	Six Months Ended
	June 30, 2022		June 30, 2021
	(in thousands)
Cash paid for operating lease liabilities	$	202,899	$	161,911
Right-of-use assets obtained in exchange for new operating lease obligations	180,602		232,796


	As of
	June 30, 2022		December 31, 2021
	(in thousands)
Operating lease right-of-use assets, net	$	2,341,422	$	2,446,573

Current operating lease liabilities	336,925		315,189
Non-current operating lease liabilities	2,338,829		2,408,486
Total operating lease liabilities	$	2,675,754	$	2,723,675

Other Current Assets

Other current assets consisted of the ~~first quarter~~following:


	As of
	June 30, 2022		December 31, 2021
	(in thousands)
Trade receivables	$	765,386	$	804,320
Prepaid expenses	368,303		323,818
Other	887,640		913,883
Total other current assets	$	2,021,329	$	2,042,021

Table of ~~2017.~~Contents

~~5. Long-term~~6. Debt

As of ~~September~~June 30, ~~2017,~~2022, the Company had aggregate outstanding ~~long-term debt~~notes of ~~$4,888.8~~$14,233 million, net of ~~$46.8~~$85 million of issuance costs, with varying maturities (the "Notes"). As of December 31, 2021, the Company had aggregate outstanding notes of $15,393 million, net of $92 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 $305 million and $466 million, respectively, for the three and six months ended June 30, 2022).

The following table provides a summary of the Company's ~~Notes~~outstanding debt and the fair values based on quoted market prices in less active markets as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:


											Principal Amount at Par						Level 2 Fair Value as of
						Level 2 Fair Value as of					June 30, 2022		December 31, 2021		Issuance Date	Maturity	June 30, 2022		December 31, 2021
	Principal Amount at Par		Issuance Date	Maturity	Interest Payment Dates	September 30, 2017		December 31, 2016			(in millions)						(in millions)
5.500% Senior Notes										5.500% Senior Notes	—		700		February 2015	February 2022	—		704
5.750% Senior Notes										5.750% Senior Notes	400		400		February 2014	March 2024	410		437
5.875% Senior Notes										5.875% Senior Notes	800		800		February 2015	February 2025	815		899
3.000% Senior Notes (1)										3.000% Senior Notes (1)	492		535		April 2020	June 2025	480		581
3.625% Senior Notes										3.625% Senior Notes	500		500		April 2020	June 2025	476		529
4.375% Senior Notes										4.375% Senior Notes	1,000		1,000		October 2016	November 2026	961		1,111
3.625% Senior Notes (1)										3.625% Senior Notes (1)	1,362		1,480		May 2017	May 2027	1,280		1,702
4.875% Senior Notes										4.875% Senior Notes	1,600		1,600		October 2017	April 2028	1,513		1,829
5.875% Senior Notes										5.875% Senior Notes	1,900		1,900		April 2018	November 2028	1,862		2,293
4.625% Senior Notes (1)										4.625% Senior Notes (1)	1,153		1,252		October 2018	May 2029	1,093		1,565
6.375% Senior Notes										6.375% Senior Notes	800		800		October 2018	May 2029	807		999
3.875% Senior Notes (1)										3.875% Senior Notes (1)	1,258		1,366		April 2019	November 2029	1,141		1,651
5.375% Senior Notes										5.375% Senior Notes	900		900		April 2019	November 2029	851		1,068
3.625% Senior Notes (1)										3.625% Senior Notes (1)	1,153		1,252		October 2019	June 2030	1,002		1,493
4.875% Senior Notes										4.875% Senior Notes	1,000		1,000		October 2019	June 2030	919		1,169
	(in millions)					(in millions)					$	14,318	$	15,485			$	13,610	$	18,030
3.625% Senior Notes (1)	$	1,535.6	May 2017	2027	May 15 and November 15	$	1,563	$	—
4.375% Senior Notes	1,000.0		October 2016	2026	May 15 and November 15	1,006		975
5.50% Senior Notes	700.0		February 2015	2022	April 15 and October 15	765		758
5.875% Senior Notes	800.0		February 2015	2025	April 15 and October 15	879		868
5.750% Senior Notes	400.0		February 2014	2024	March 1 and September 1	436		431
5.375% Senior Notes	500.0		February 2013	2021	February 1 and August 1	539		539
	$	4,935.6

(1) ~~Debt is~~The following Senior Notes have a principal amount denominated in ~~euro with a~~euro: 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.

In February 2022, the Company repaid upon maturity the $700 million aggregate principal amount 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 million for the three and nine months ending September 30, 2017, respectively.of its 5.500% Senior Notes.

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~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the Company was in compliance with all related covenants.

Revolving Credit Facility

~~In July 2017,~~On June 17, 2021, the Company ~~entered into a $500.0 million~~amended its unsecured revolving credit facility (“("Revolving Credit ~~Agreement”~~Agreement")~~, with an uncommitted incremental facility~~ to, among other things, extend the maturity date from March 29, 2024 to June 17, 2026 and to increase the ~~amount~~size of the ~~revolving credit~~ facility ~~by up~~from $750 million to ~~an additional $250.0 million, subject to certain terms and conditions.~~$1 billion. Revolving loans may be borrowed, repaid and reborrowed until ~~July 27, 2022,~~June 17, 2026, 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~~June 30, ~~2017,~~2022, no amounts have been borrowed under the Revolving Credit Agreement.

Table of Contents

~~The borrowings~~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 publication of the Adjusted LIBO Rate based upon U.S. Dollars is expected to cease on June 30, 2023. The Revolving Credit Agreement contains customary provisions for the replacement of the Adjusted LIBO Rate with an alternate benchmark rate, including a rate based on the secured overnight financing rate published by the Federal Reserve Bank of New York, as the Adjusted LIBO Rate is phased out in the lending market. The Company does not anticipate that the replacement of the Adjusted LIBO Rate with such alternative benchmark rate, as provided in the Revolving Credit Agreement, 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~~June 30, ~~2017,~~2022 and December 31, 2021, the Company was in compliance with all related covenants.

7. Commitments and Contingencies

~~Streaming~~ Content

As of ~~September~~June 30, ~~2017,~~2022, the Company had ~~$17.0~~$22.8 billion of obligations comprised of ~~$4.1~~$4.2 billion included in "Current content liabilities" and ~~$3.3~~$3.0 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and ~~$9.6~~$15.6 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

As of December 31, ~~2016,~~2021, the Company had ~~$14.5~~$23.2 billion of obligations comprised of ~~$3.6~~$4.3 billion included in "Current content liabilities" and ~~$2.9~~$3.1 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and ~~$8.0~~$15.8 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			June 30, 2022		December 31, 2021
	(in thousands)					(in thousands)
Less than one year	$	6,984,360	$	6,200,611	Less than one year	$	10,208,609	$	10,019,306
Due after one year and through three years	7,918,009		6,731,336		Due after one year and through three years	9,286,478		9,238,315
Due after three years and through five years	1,918,123		1,386,934		Due after three years and through five years	2,904,226		3,238,977
Due after five years	171,438		160,606		Due after five years	370,293		664,762
Total streaming content obligations	$	16,991,930	$	14,479,487
Total content obligations					Total content obligations	$	22,769,606	$	23,161,360

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

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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. No amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

7.8. Stockholders’ Equity

Stock Option Plan

In June ~~2011,~~2020, the ~~Company~~Company'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, 2021	20,145,360	17,595,851	$	219.83
Granted	(1,616,014)	1,616,014	306.48
Exercised	—	(742,484)	30.62
Expired	—	(3,185)	27.24
Balances as of June 30, 2022	18,529,346	18,466,196	$	235.06

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, 2016 13,289,953
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, 2017 11,301,687
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 above~~Company's outstanding stock options as of June 30, 2022 was $773 million and represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the ~~third~~second quarter of ~~2017~~2022 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 ~~third~~second quarter of ~~2017.~~2022. 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 June 30, 2022 included in the table above was 5.47 years. All options outstanding are vested and exercisable.

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A summary of the amounts related to option exercises, is as follows:


	Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016			June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(in thousands)									(in thousands)
Total intrinsic value of options exercised	$	142,664	$	35,443	$	351,488	$	104,168	Total intrinsic value of options exercised	$	83,030	$	90,290	$	197,792	$	318,310
Cash received from options exercised	34,669		3,819		73,673		11,587		Cash received from options exercised	11,250		19,749		24,928		67,820

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						Six Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Dividend yield	—		%	—		%	—		%	—		%
Expected volatility	49		%	36		%	38% - 49%			36% - 41%
Risk-free interest rate	2.57		%	1.62		%	1.71% - 2.57%			1.08% - 1.62%
Suboptimal exercise factor	4.71			3.82			4.71			3.81 - 3.82
Weighted-average fair value (per share)	$	138		$	241		$	167		$	254
Total stock-based compensation expense (in thousands)	$	150,392		$	101,583		$	269,601		$	208,813
Total income tax impact on provision (in thousands)	$	33,335		$	22,832		$	59,748		$	46,911

Three Months Ended Nine Months Ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
Dividend yield — % — % — % — %
Expected volatility 34 % 41 % 34% - 37%
41% - 50%
Risk-free interest rate 2.24 % 1.57 % 2.24% - 2.45%
1.57% - 2.04%
Suboptimal exercise factor 2.58
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

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 zero 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

~~8. Accumulated Other Comprehensive Loss~~

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 ~~following table summarizes~~Company is not obligated to repurchase any specific number of shares, and the ~~changes in~~timing and actual number of shares repurchased will depend on a variety of factors, including the ~~accumulated balance~~Company’s stock price, general economic, business and market conditions, and alternative investment opportunities. The Company may discontinue any repurchases of ~~other comprehensive income (loss), net of tax, for~~its common stock at any time without prior notice. There were no repurchases during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2022. As of June 30, 2022, $4.4 billion remain available for repurchases. Shares repurchased by the Company are accounted for when the transaction is settled. As of June 30, 2022, there were no unsettled share repurchases. Direct costs incurred to acquire the shares are included in the total cost of the shares.

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 reclassifications 5,678
328
6,006
Net decrease in other comprehensive loss 5,678
328
6,006
Balances as of September 30, 2017 $ (25,362 ) $ —
$ (25,362 )

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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 reclassifications 22,604
599
23,203
Net decrease in other comprehensive loss 22,604
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						Six Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
	(in thousands, except percentages)
Provision for income taxes	$	182,103		$	240,776		$	564,348		$	568,563
Effective tax rate	11		%	15		%	16		%	16		%

The effective tax rates for the three and six months ended ~~September~~June 30, ~~2017~~2022 differed from the Federal statutory rate primarily due to an increase in foreign taxes, offset by the impact of international provisions of the Tax Cuts and ~~2016 were (11)%~~Jobs Act, the Federal and ~~35%, respectively. The effective~~California Research and Development (“R&D”) credits, and the recognition of excess tax ~~rates for the nine months ended September 30, 2017 and 2016 were (5)% and 30%, respectively.~~benefits of stock-based compensation. The effective tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~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 ~~as a component~~ of 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 differed 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. stock-based compensation.

The decrease in the effective tax rate for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2022, as compared to the same period in ~~2016~~2021 was ~~due primarily to the recognition of excess tax benefits attributable to the adoption of ASU 2016-09 and an increase in foreign income taxed at rates lower than the US statutory rate.~~

Gross unrecognized tax benefits were $37.2 million and $19.7 million as of September 30, 2017 and December 31, 2016, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $33.3 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of September 30, 2017, gross unrecognized tax benefits of $15.8 million was classified as “Other non-current liabilities” and $21.4 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 million and $227.2 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, 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, the Company has a valuation allowance of $33.1 million primarily due to ~~foreign tax credit carryovers. As of December 31, 2016, it was considered more likely than not that substantially all deferred tax assets would be realized.~~

~~As a result~~the impact of the ~~adoption~~international provisions 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~~Tax Cuts and Jobs Act and the Federal and ~~state net operating losses attributable~~California R&D credits. The effective tax rate for the six months ended June 30, 2022 was consistent compared 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~~same period in ~~which they occur. This will result in increased volatility in the Company’s effective tax rate.~~2021. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of ~~$41.7~~$18 million and ~~$110.5~~$43 million, compared to the three and six months ended June 30, 2021 of $19 million and $66 million.

Gross unrecognized tax benefits were $224 million and $203 million as of June 30, 2022 and December 31, 2021, respectively. The gross unrecognized tax benefits as of June 30, 2022, if recognized by the Company, will result in a reduction of approximately $149 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for ~~2014~~2016 through 2018 and ~~2015.~~is subject to examination for 2019 through 2021. The ~~2008 through 2015~~foreign and state tax returns for years 2015 through 2021 are subject to examination by ~~state tax authorities. The Company has no significant~~various states and foreign ~~jurisdiction audits underway. The years 2011 through 2016 remain subject to examination by foreign tax authorities.~~ jurisdictions.

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,~~However, an estimate of the range of reasonably possible adjustments ~~to the balance of unrecognized tax benefits~~ cannot be ~~made.~~made at this time.

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’s~~operates as 1 operating segment. The Company's chief operating decision maker ("CODM") ~~reviews~~are its co-chief executive officers, who review financial information presented on a consolidated basis for the purposes of making operating ~~results in~~decisions, assessing financial performance and allocating resources. ~~The Company’s CODM reviews~~

Total U.S. revenues were $3.3 billion and ~~contribution profit (loss)~~$6.4 billion, respectively, for ~~each of~~ the ~~reportable segments. Contribution profit (loss) is defined as revenues less cost of revenues~~three and ~~marketing expenses incurred~~six months ended June 30, 2022, and $3.0 billion and $6.0 billion, respectively, for the three and six months ended June 30, 2021. 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 June 30, 2022 and December 31, 2021, were located as follows:


	As of
	June 30, 2022		December 31, 2021
	(in thousands)
United States	$	2,799,973	$	2,833,059
International	903,369		936,967

As of
September 30,
2017 December 31, 2016
(in thousands)
United States $ 293,733
$ 236,977
International 28,688
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 revenues 864,408
1,081,485
47,087
1,992,980
Marketing 128,901
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 revenues 2,445,858
2,946,414
160,040
5,552,312
Marketing 357,547
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 revenues 720,658
748,515
63,671
1,532,844
Marketing 108,495
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 revenues 2,094,310
2,076,576
204,596
4,375,482
Marketing 277,243
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
2016 597,039
627,069
19,284
1,243,392
Nine months ended September 30,
2017 2,033,268
2,450,686
48,368
4,532,322
2016 1,709,168
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

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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 or repurchase programs; seasonality; the impact of ~~and~~foreign exchange rate fluctuations; the ~~Company’s response to, new accounting standards; content amortization; pricing changes; dividends;~~ impact of ~~foreign currency~~the discontinuance of the LIBO Rate; future regulatory changes and ~~exchange rate fluctuations, including~~their impact on ~~net income, revenues~~our business; price changes and ~~average revenues per paying member; investments in global streaming, including original content;~~testing; 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, ~~2016~~2021 filed with the Securities and Exchange Commission (“SEC”) on January 27, ~~2017,~~2022, 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 network~~entertainment services with ~~over 109~~approximately 221 million ~~streaming members~~paid memberships in over 190 countries enjoying ~~more than 125 million hours of~~ TV ~~shows and movies per day, including original~~ series, documentaries, feature films and ~~feature films.~~mobile games across a wide variety of genres and languages. Members can ~~watch~~engage 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.~~”).

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 movies~~entertainment 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 ~~profit~~operating 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. For example, in 2021 we added mobile games to our service. In addition, we are ~~perpetually~~continuously 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 fourth quarter represents our greatest streaming membership growth. In addition, our membership growth can be impacted by our content release schedule and changes to pricing.

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Results of Operations

The following represents our consolidated performance highlights:


	As of/ Three Months Ended						Change
	June 30, 2022			June 30, 2021			Q2'22 vs. Q2'21
	(in thousands, except revenue per membership and percentages)
Financial Results:
Streaming revenues	$	7,933,051		$	7,295,485		$	637,566		9	%
DVD revenues	37,090			46,292			(9,202)			(20)	%
Total revenues	$	7,970,141		$	7,341,777		$	628,364		9	%

Operating income	1,578,283			1,847,630			$	(269,347)		(15)	%
Operating margin	20		%	25		%	(5)		%

Global Streaming Memberships:
Paid net membership additions (losses)	(969)			1,541			(2,510)			(163)	%
Paid memberships at end of period	220,672			209,180			11,492			5	%
Average paying memberships	221,157			208,410			12,747			6	%
Average monthly revenue per paying membership	$	11.96		$	11.67		$	0.29		2	%

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 period 109,248
86,743
22,505
26 %
Global streaming average monthly revenue per paying membership $ 9.44
$ 8.82
$ 0.62
7 %
Revenues 2,984,859
2,290,188
694,671
30 %
Global operating income 208,627
106,036
102,591
97 %
Global operating margin 7.0 % 4.6 % 2.4 % 52 %
Net income 129,590
51,517
78,073
152 %

Consolidated revenues for the three months ended ~~September~~June 30, ~~2017~~2022 increased ~~$694.7 million~~9% as compared to the three months ended ~~September~~June 30, ~~2016~~2021 due to the 6% growth in ~~the~~ average ~~number of paid streaming~~paying memberships ~~globally, the majority of which was growth~~and a 2% increase in ~~our international memberships. In addition, the~~ average monthly revenue per paying ~~streaming~~membership. The increase in average monthly revenue per paying membership ~~increased~~resulted from our price changes, partially offset by the strengthening of the U.S. dollar relative to certain foreign currencies.

The decrease in operating margin is primarily due to ~~price changes and plan mix. The increase in operating income for the three months ended September 30, 2017~~revenues growing at a slower rate as compared to the ~~same period~~16% increase in ~~2016~~content amortization. Revenue growth during the quarter was impacted by fluctuations in foreign exchange rates, while content amortization increased as a result of delays in content releases due ~~primarily~~ to ~~increased~~the COVID-19 pandemic impacting the comparable prior year period. In addition, revenues ~~partially offset by increased~~grew at a slower rate as compared to technology and development, and general and administrative expenses.

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, 2021 for additional details. While our productions have resumed, our productions could experience disruption, as could the productions of our third-party content ~~expenses as~~suppliers. Other partners could similarly have their operations disrupted, including those partners that we ~~continue to acquire, license and produce content, including more Netflix originals,~~use for our operations as well as ~~increased headcount~~development, production, and post-production of content. Production disruptions and new health and safety protocols and requirements can result in additional costs including additional pay to ~~support continued improvements in~~cast and crew and use of Personal Protective Equipment (“PPE”) and testing. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter 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~~business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the tax benefit primarily due to the adoption of ASU 2016-09 in the first quarter of 2017, partially offset by an increase in interest expense primarily due to the higher principal of notes outstanding and an increase in foreign exchange losses primarily due to the remeasurementbest interests of our ~~euro denominated senior notes.~~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 types~~a variety of streaming membership ~~plans. In~~plans, the ~~U.S.~~price of which varies by country and the features of the plan. As of June 30, 2022, 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 membershippaid plans ~~are structured similarly to the U.S. and range in price~~ranged from the U.S. dollar equivalent of ~~approximately $5.00~~$1 to $25 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 the~~may 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 ~~represents~~tables summarize streaming revenue and other streaming membership information by region for the ~~key elements~~three and six months ended June 30, 2022 and 2021.

United States and Canada (UCAN)

Three months ended June 30, 2022 as compared to ~~our segment results~~the three months ended June 30, 2021

Table of ~~operations:~~Contents

~~We define contribution profit (loss)~~


	As of/ Three Months Ended				Change
	June 30, 2022		June 30, 2021		Q2'22 vs. Q2'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	3,537,863	$	3,234,643	$	303,220	9	%
Paid net membership additions (losses)	(1,296)		(433)		(863)		(199)	%
Paid memberships at end of period	73,283		73,951		(668)		(1)	%
Average paying memberships	73,931		74,168		(237)		—	%
Average monthly revenue per paying membership	$	15.95	$	14.54	$	1.41	10	%
Constant currency change (1)							10	%

Six months ended June 30, 2022 as ~~revenues less cost~~compared to the six months ended June 30, 2021


	As of/ Six Months Ended				Change
	June 30, 2022		June 30, 2021		YTD'22 vs. YTD'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	6,888,287	$	6,405,615	$	482,672	8	%
Paid net membership additions (losses)	(1,932)		15		(1,947)		(12,980)	%
Paid memberships at end of period	73,283		73,951		(668)		(1)	%
Average paying memberships	74,414		74,164		250		—	%
Average monthly revenue per paying membership	$	15.43	$	14.40	$	1.03	7	%
Constant currency change (1)							7	%

Europe, Middle East, and Africa (EMEA)

Three months ended June 30, 2022 as compared to the three months ended June 30, 2021


	As of/ Three Months Ended				Change
	June 30, 2022		June 30, 2021		Q2'22 vs. Q2'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	2,457,235	$	2,400,480	$	56,755	2	%
Paid net membership additions (losses)	(767)		188		(955)		(508)	%
Paid memberships at end of period	72,966		68,696		4,270		6	%
Average paying memberships	73,350		68,602		4,748		7	%
Average monthly revenue per paying membership	$	11.17	$	11.66	$	(0.49)	(4)	%
Constant currency change (1)							6	%

Six months ended June 30, 2022 as compared to the six months ended June 30, 2021


	As of/ Six Months Ended				Change
	June 30, 2022		June 30, 2021		YTD'22 vs. YTD'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	5,019,066	$	4,744,154	$	274,912	6	%
Paid net membership additions (losses)	(1,070)		1,998		(3,068)		(154)	%
Paid memberships at end of period	72,966		68,696		4,270		6	%
Average paying memberships	73,618		68,103		5,515		8	%
Average monthly revenue per paying membership	$	11.36	$	11.61	$	(0.25)	(2)	%
Constant currency change (1)							6	%

Latin America (LATAM)

Table of ~~revenues and marketing expenses incurred by~~Contents

Three months ended June 30, 2022 as compared to the ~~segment.~~three months ended June 30, 2021


	As of/ Three Months Ended				Change
	June 30, 2022		June 30, 2021		Q2'22 vs. Q2'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	1,030,234	$	860,882	$	169,352	20	%
Paid net membership additions (losses)	14		764		(750)		(98)	%
Paid memberships at end of period	39,624		38,658		966		2	%
Average paying memberships	39,617		38,276		1,341		4	%
Average monthly revenue per paying membership	$	8.67	$	7.50	$	1.17	16	%
Constant currency change (1)							15	%

Six months ended June 30, 2022 as compared to the six months ended June 30, 2021


	As of/ Six Months Ended				Change
	June 30, 2022		June 30, 2021		YTD'22 vs. YTD'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	2,029,182	$	1,697,529	$	331,653	20	%
Paid net membership additions (losses)	(337)		1,121		(1,458)		(130)	%
Paid memberships at end of period	39,624		38,658		966		2	%
Average paying memberships	39,702		37,996		1,706		4	%
Average monthly revenue per paying membership	$	8.52	$	7.45	$	1.07	14	%
Constant currency change (1)							17	%

Asia-Pacific (APAC)

Three months ended June 30, 2022 as compared to the three months ended June 30, 2021


	As of/ Three Months Ended				Change
	June 30, 2022		June 30, 2021		Q2'22 vs. Q2'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	907,719	$	799,480	$	108,239	14	%
Paid net membership additions	1,080		1,022		58		6	%
Paid memberships at end of period	34,799		27,875		6,924		25	%
Average paying memberships	34,259		27,364		6,895		25	%
Average monthly revenue per paying membership	$	8.83	$	9.74	$	(0.91)	(9)	%
Constant currency change (1)							(2)	%

Table of Contents

Six months ended June 30, 2022 as compared to the six months ended June 30, 2021


	As of/ Six Months Ended				Change
	June 30, 2022		June 30, 2021		YTD'22 vs. YTD'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	1,824,473	$	1,561,894	$	262,579	17	%
Paid net membership additions	2,167		2,383		(216)		(9)	%
Paid memberships at end of period	34,799		27,875		6,924		25	%
Average paying memberships	33,718		26,769		6,949		26	%
Average monthly revenue per paying membership	$	9.02	$	9.72	$	(0.70)	(7)	%
Constant currency change (1)							—	%

(1) We believe ~~this~~constant currency information is ~~an important measure~~useful 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 represents~~foreign 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~~three and ~~International streaming segments, content expenses, which include~~six months ended June 30, 2022, our revenues would have been approximately $339 million and $619 million higher had foreign currency exchange rates remained constant with those for the ~~amortization~~three and six months ended June 30, 2021.

Cost of ~~the streaming~~Revenues

Amortization of content assets ~~and other expenses associated with~~makes up the ~~licensing and acquisition of streaming content, represent the vast~~ majority of cost of revenues. ~~Streaming~~Expenses directly associated with the acquisition, licensing and production of content (such as payroll and related personnel expenses, costs associated with obtaining rights ~~were generally obtained for~~to 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 Domestic~~overall deals with talent, miscellaneous production related costs and ~~International streaming segments based on estimated fair market value. Other cost of revenues such as~~participations and residuals), streaming delivery ~~expenses, customer service~~costs and ~~payment processing fees, including those we pay to our integrated payment partners, tend to be lower as a percentage~~other 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 delivery~~Delivery 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. ~~Cost~~Other operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs directly incurred in making our content available to members.

Three months ended June 30, 2022 as compared to the three months ended June 30, 2021


	Three Months Ended						Change
	June 30, 2022			June 30, 2021			Q2'22 vs. Q2'21
	(in thousands, except percentages)
Cost of revenues	$	4,690,755		$	4,018,008		$	672,747	17	%
As a percentage of revenues	59		%	55		%

The increase in cost of revenues was primarily due to a $455 million increase in content amortization relating to our existing and new content, including more exclusive and original programming. Personnel-related costs also increased $152 million primarily due to growth in average headcount to support the ~~Domestic DVD segment consist~~increase in our production activity, coupled with an increase in employee compensation.

Six months ended June 30, 2022 as compared to the six months ended June 30, 2021


	Six Months Ended						Change
	June 30, 2022			June 30, 2021			YTD'22 vs. YTD'21
	(in thousands, except percentages)
Cost of revenues	$	8,975,460		$	7,886,519		$	1,088,941	14	%
As a percentage of revenues	57		%	54		%

The increase in cost of revenues was primarily due to a $902 million increase in content amortization relating to our existing and new content, including more exclusive and original programming.

Table of delivery expenses, content expenses, including amortization of DVD content assets and revenue sharing expenses, and other expenses associated with 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.Contents

~~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 Domestic~~also 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.

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~~June 30, ~~2017~~2022 as compared to the three months ended ~~September~~June 30, ~~2016~~2021

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 %


	Three Months Ended						Change
	June 30, 2022			June 30, 2021			Q2'22 vs. Q2'21
	(in thousands, except percentages)
Marketing	$	574,960		$	603,973		$	(29,013)	(5)	%
As a percentage of revenues	7		%	8		%

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~~decrease in ~~domestic streaming cost of revenues~~marketing expenses was primarily due to a ~~$136.5~~$84 million decrease in advertising expenses, partially offset by a $61 million increase in ~~content expenses relating to our existing and new streaming content, including more exclusive and original programming.~~

~~Domestic marketing expenses increased~~personnel-related costs primarily due to ~~increased advertising and public relations.~~growth in average headcount to support the increase in our production activity, coupled with an increase in employee compensation.

~~Our Domestic streaming segment had a contribution margin of 36% for the three~~Six months ended ~~September~~June 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~~2022 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021


	Six Months Ended						Change
	June 30, 2022			June 30, 2021			YTD'22 vs. YTD'21
	(in thousands, except percentages)
Marketing	$	1,130,938		$	1,116,485		$	14,453	1	%
As a percentage of revenues	7		%	8		%

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~~marketing expenses was primarily due to a ~~$331.5~~$107 million increase in ~~content expenses relating to our existing and new streaming content, including more exclusive and original programming.~~

~~Domestic marketing expenses increased~~personnel-related costs 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 memberships and revenue which continued~~average headcount to ~~outpace content spending.~~

~~International Streaming Segment~~

~~Three months ended September 30, 2017~~ ~~as compared to~~support 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 launched our streaming service in Canada in September 2010 and have expanded our services internationally as shown below.

~~The~~ increase in our ~~international revenues was due to the 43% growth in the average number of paid international memberships, in addition to~~production activity, coupled with 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,employee compensation, partially offset by ~~unfavorable fluctuations~~a $75 million decrease 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 increased~~ 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 primarily of payroll and related ~~costs incurred in~~expenses for technology personnel responsible for 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 general use computer hardware and software.

Three months ended ~~September~~June 30, ~~2017~~2022 as compared to the three months ended ~~September~~June 30, ~~2016~~2021


	Three Months Ended						Change
	June 30, 2022			June 30, 2021			Q2'22 vs. Q2'21
	(in thousands, except percentages)
Technology and development	$	716,846		$	537,321		$	179,525	33	%
As a percentage of revenues	9		%	7		%

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 revenues 9 % 9 %

The increase in technology and development expenses was primarily due to a ~~$22.9~~$163 million increase in personnel-related costs, ~~including stock-based compensation expense, resulting from~~primarily due an increase in employee compensation ~~for existing employees and a 2%~~coupled with growth in average headcount ~~supporting~~to 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~~Six months ended ~~September~~June 30, ~~2017~~2022 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021

Table of Contents


	Nine Months Ended						Change					Six Months Ended						Change
	September 30, 2017			September 30, 2016			YTD'17 vs. YTD'16					June 30, 2022			June 30, 2021			YTD'22 vs. YTD'21
	(in thousands, except percentages)											(in thousands, except percentages)
Technology and development	$	779,427		$	626,907		$	152,520	24	%	Technology and development	$	1,374,376		$	1,062,528		$	311,848	29	%
As a percentage of revenues	9		%	10		%					As a percentage of revenues	9		%	7		%

The increase in technology and development expenses was primarily due to a ~~$101.2~~$275 million increase in personnel-related costs, ~~including stock-based compensation expense, resulting from~~primarily due to an increase in employee compensation ~~for existing employees and a 3%~~coupled with growth in average headcount ~~supporting~~to 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 $30.6 million.~~service.

General and Administrative

General and administrative expenses consist of payroll and related expenses for corporate ~~personnel, as well as~~personnel. General and administrative expenses also include professional fees and other general corporate expenses.

Three months ended ~~September~~June 30, ~~2017~~2022 as compared to the three months ended ~~September~~June 30, ~~2016~~2021


	Three Months Ended						Change
	June 30, 2022			June 30, 2021			Q2'22 vs. Q2'21
	(in thousands, except percentages)
General and administrative	$	409,297		$	334,845		$	74,452	22	%
As a percentage of revenues	5		%	5		%

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 revenues 7 % 7 %

~~General~~The increase in general and administrative expenses ~~increased~~was primarily due to a ~~$37.6~~$95 million increase in personnel-related costs, ~~including stock-based compensation expense, resulting from a 50% increase~~primarily due to growth in average headcount ~~primarily~~ to support the increase in our ~~international~~production activity and ~~original content expansion, and~~continued improvements in our streaming service, coupled with an 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 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 $14.1 million.employee compensation.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2022 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021


	Six Months Ended						Change
	June 30, 2022			June 30, 2021			YTD'22 vs. YTD'21
	(in thousands, except percentages)
General and administrative	$	807,225		$	632,041		$	175,184	28	%
As a percentage of revenues	5		%	4		%

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 revenues 7 % 7 %

~~General~~The increase in general and administrative expenses ~~increased~~was primarily due to a ~~$135.0~~$195 million increase in personnel-related costs, ~~including stock-based compensation expense, resulting from a 54% increase~~primarily due to growth in average headcount ~~primarily~~ to support the increase in our ~~international~~production activity and ~~original content expansion, and~~continued improvements in our streaming service, coupled with 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.employee compensation.

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 interest~~costs. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further detail on our ~~lease financing~~debt obligations.

Three months ended ~~September~~June 30, ~~2017~~2022 as compared to the three months ended ~~September~~June 30, ~~2016~~2021


	Three Months Ended						Change
	June 30, 2022			June 30, 2021			Q2'22 vs. Q2'21
	(in thousands, except percentages)
Interest expense	$	175,455		$	191,322		$	(15,867)	(8)	%
As a percentage of revenues	2		%	3		%

Table of Contents

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~~Six months ended ~~September~~June 30, ~~2017~~2022 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021


	Nine Months Ended						Change						Six Months Ended						Change
	September 30, 2017			September 30, 2016			YTD'17 vs. YTD'16						June 30, 2022			June 30, 2021			YTD'22 vs. YTD'21
	(in thousands, except percentages)												(in thousands, except percentages)
Interest expense	$	(162,912	)	$	(106,528	)	$	(56,384	)	(53	)%	Interest expense	$	363,034		$	385,762		$	(22,728)	(6)	%
As a percentage of revenues	(2		)%	(2		)%						As a percentage of revenues	2		%	3		%

Interest expense primarily ~~consisted~~consists of interest on our Notes of ~~$58.4~~$178 million and ~~$156.5~~$356 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2022. The ~~increase~~decrease in interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 as compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021 was ~~primarily~~ due to the ~~higher~~lower average aggregate principal of interest bearing notes outstanding.

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~~June 30, ~~2017~~2022 as compared to the three months ended ~~September~~June 30, ~~2016~~2021


	Three Months Ended						Change
	June 30, 2022			June 30, 2021			Q2'22 vs. Q2'21
	(in thousands, except percentages)
Interest and other income (expense)	$	220,226		$	(62,519)		$	282,745	452	%
As a percentage of revenues	3		%	(1)		%

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~~Six months ended ~~September~~June 30, ~~2017~~2022 as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021


	Nine Months Ended						Change						Six Months Ended						Change
	September 30, 2017			September 30, 2016			YTD'17 vs. YTD'16						June 30, 2022			June 30, 2021			YTD'22 vs. YTD'21
	(in thousands, except percentages)												(in thousands, except percentages)
Interest and other income (expense)	$	(76,473	)	$	50,907		$	(127,380	)	(250	)%	Interest and other income (expense)	$	415,871		$	206,567		$	209,304	101	%
As a percentage of revenues	(1		)%	1		%						As a percentage of revenues	3		%	1		%

Interest and other income (expense) ~~decreased for~~increased in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 primarily due to foreign exchange gains of $239 million and $431 million, respectively, compared to foreign exchange losses of ~~$35.3~~$60 million and ~~$84.7 million, respectively, compared to~~foreign exchange gains of ~~$6.4 million and $44.6~~$198 million, respectively, for the corresponding periods in ~~2016.~~2021. In the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, the foreign exchange ~~losses~~gains were primarily driven by the ~~$50.8~~non-cash gains of $305 million and ~~$115.1~~$466 million, respectively, ~~loss~~ from the remeasurement of our ~~€1,300.0~~€5,170 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional ~~currencies~~currencies. In the three months ended June 30, 2021, the foreign exchange losses were primarily driven by the non-cash loss of $63 million from the remeasurement of our ~~European~~€5,170 million Senior Notes, partially offset by the remeasurement of cash and ~~U.S. entities.~~content liability positions in currencies other than the functional currencies. In the six months ended June 30, 2021, the foreign exchange gains were primarily driven by the non-cash gain of $190 million from the remeasurement of our €5,170 million Senior Notes, coupled with the remeasurement of cash and content liability positions in currencies other than the functional currencies.

Provision for Income Taxes

Table of Contents

Three months ended June 30, 2022 as compared to the three months ended June 30, 2021


	Three Months Ended						Change
	June 30, 2022			June 30, 2021			Q2'22 vs. Q2'21
	(in thousands, except percentages)
Provision for income taxes	$	182,103		$	240,776		$	(58,673)	(24)	%
Effective tax rate	11		%	15		%

Six months ended June 30, 2022 as compared to the six months ended June 30, 2021


	Six Months Ended						Change
	June 30, 2022			June 30, 2021			YTD'22 vs. YTD'21
	(in thousands, except percentages)
Provision for income taxes	$	564,348		$	568,563		$	(4,215)	(1)	%
Effective tax rate	16		%	16		%

The effective tax rates for the three and six months ended ~~September~~June 30, ~~2017 and 2016 were (11)% and 35%, respectively. The effective tax rate for the three months ended September 30, 2017~~2022 differed from the Federal statutory rate primarily due to an increase in foreign taxes, offset by the impact of international provisions of the Tax Cuts and Jobs Act, the Federal and California R&D credits, and the recognition of excess tax benefits ~~attributable to~~of stock-based compensation.

The decrease in 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 rate for the three months ended ~~September~~June 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 decrease in our effective tax rate for the three months ended September 30, 2017,2022, as compared to the same period in ~~2016~~2021 was ~~due primarily 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.~~

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~~impact of ~~excess tax benefits attributable to~~ the ~~adoption~~international provisions of ~~ASU 2016-09~~the Tax Cuts and Jobs Act and the Federal and California R&D ~~credits, partially offset by state taxes, foreign taxes and non-deductible expenses.~~credits. The effective tax rate for the ~~nine~~six months ended ~~September~~June 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 as2022 was consistent 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.2021.

Liquidity and Capital Resources


	As of				Change
	June 30, 2022		December 31, 2021		June 30, 2022 vs. December 31, 2021
	(in thousands, except percentages)
Cash, cash equivalents and restricted cash	$	5,844,409	$	6,055,111	$	(210,702)	(3)	%
Short-term and long-term debt	14,233,303		15,392,895		(1,159,592)		(8)	%

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 $1,733.8~~restricted cash decreased $211 million ~~as of December 31, 2016. The increase~~ in the ~~nine~~six months ended ~~September~~June 30, ~~2017 was~~2022 primarily due to the ~~proceeds from the issuance~~repayment of debt, purchases of property and equipment and acquisitions, partially offset by cash ~~used~~provided by operations.

Debt, net of debt issuance costs, decreased $1,160 million primarily due to the repayment upon maturity of the $700 million aggregate principal amount of our 5.500% Senior Notes in ~~operations.~~

~~Our primary uses~~February 2022, coupled with the remeasurement of ~~cash include the acquisition, licensing and production~~our euro-denominated notes. The amount of ~~content, streaming delivery, marketing programs and personnel-related costs. Investments~~interest 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 $678 million. As of ~~September~~June 30, ~~2017,~~2022, no amounts had been borrowed under the $1 billion Revolving Credit Agreement. See Note 56 Debt in the accompanying notes to ~~the~~our 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 ~~financing~~that 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. There were no repurchases during the six months ended June 30, 2022. As of ~~September~~June 30, ~~2017, cash and cash equivalents held by our foreign subsidiaries amounted to $443.7 million. If these funds are needed~~2022, $4.4 billion remains available for our operations in the U.S., we would be required to accrue and pay U.S. income taxes and foreign withholding taxes on the portion associated with undistributed earnings for certain foreign subsidiaries.repurchases.

~~Free Cash Flow~~

Table of Contents

We define free cash flow as cash provided by (used in) operating and investing activities excluding the non-operational cash flows from purchases, maturities and sales of short-term investments. We believe free cash flow is an important liquidity metric because it measures, during a given period, the amountOur primary uses of cash generated that is available to repay debt obligations, make investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content. 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, cash flow (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, non-cash stock-based compensation expense 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, taxes and semi-annual interest payments on our outstanding debt. Our receivables from members 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, 2016~~

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 activities 202,192
23,976
Net cash provided by financing activities 34,422
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 )

Cash used in operating activities decreased $42.3 million to $419.6 million for the three months ended September 30, 2017, compared to the same period of 2016. The decreased use of cash was due primarily to a $694.7 million or 30% increase in revenues, partially offset by the increase in investments in streaming content that requires more upfront payments. The payments for streaming content assets increased $437.4 million or 23%. In addition, we had increased payments associated with higher operating expenses.

Cash provided by investing activities increased $178.2 million, primarily due to a $179.0 million increase in the proceeds from the sale of short-term investments. In July 2017, the Company sold all short-term investments.

Cash provided by financing activities increased $17.8 million in the quarter 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 compensation due to the adoption of ASU 2016-09 in the first quarter of 2017.

Free cash flow was $594.5 million lower than net income for the three months ended September 30, 2017 primarily due to $722.1 million of cash payments for streaming content assets over streaming amortization expense partially offset by $44.8 million of non-cash stock-based compensation expense and $82.8 million of favorable other working capital differences.

Free cash flow was $557.9 million lower than net income for the three months ended September 30, 2016, primarily due to $688.1 million of cash payments for streaming content assets over streaming amortization expense partially offset by $43.5 million of non-cash stock-based compensation expense and $86.7 million favorable other working capital differences.

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

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 activities 70,170
25,343
Net cash provided by financing activities 1,479,047
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 period 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.

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. 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:

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 content obligations increased $2.5 billion from $14.5 billion as of December 31, 2016 to $17.0 billion as of September 30, 2017, primarily due to multi-year commitments associated with the continued expansion of our exclusive and original programming.

~~Streaming content obligations include amounts related to~~ the acquisition, licensing and production of content, marketing programs, streaming delivery 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 upfront relative to licensed content. ~~An obligation~~For example, production costs are paid as the content is created, well in advance of when the content is available on the service and amortized. We expect to continue to significantly invest 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 the ~~production~~next twelve months and beyond.

Our material cash requirements from known contractual and other obligations primarily relate to our content, debt and lease obligations. Expected timing of those payments are as follows:


	Total		Next 12 Months		Beyond 12 Months
Content obligations (1)	$	22,769,606	$	10,208,609	$	12,560,997
Debt (2)	18,410,082		677,647		17,732,435
Operating lease obligations (3)	3,489,470		451,812		3,037,658
Total	$	44,669,158	$	11,338,068	$	33,331,090

(1)As of June 30, 2022, content ~~includes non-cancelable commitments under creative talent~~obligations were comprised of $4.2 billion included in “Current content liabilities” and ~~employment agreements. An obligation for the acquisition and licensing~~$3.0 billion of “Non-current 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~~liabilities” 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~~Sheets and $15.6 billion of obligations that are not ~~yet determinable~~reflected on the Consolidated Balance Sheets as ofthey did not then meet the ~~reporting date. Traditional film output deals, or certain TV series license agreements where~~criteria for recognition. See Note 7 Commitments and Contingencies to the ~~number of seasons to be aired is unknown, are examples of these types of agreements.~~ consolidated financial statements for further details.

The ~~contractual obligations table~~material cash requirements above ~~does~~do 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.

As of ~~September~~June 30, ~~2017,~~2022, 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.$224 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~~Free Cash Flow

We dodefine free cash flow as cash provided by (used in) operating activities less purchases of property and equipment and 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 like stock repurchases. Free cash flow is considered a non-GAAP financial measure and should not ~~have transactions with unconsolidated entities, such~~be considered in isolation of, or 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,a substitute for, net income, operating income, net cash provided by (used in) operating activities, or any other ~~obligation under~~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 major recurring differences are excess content payments over amortization, non-cash stock-based compensation expense, non-cash remeasurement gain/loss on our euro-denominated debt, and other working capital differences. 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 members generally settle quickly.

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Three months ended June 30, 2022 as compared to the three months ended June 30, 2021


	Three Months Ended				Change
	June 30, 2022		June 30, 2021		Q2'22 vs. Q2'21
	(in thousands, except percentages)
Net cash provided by (used in) operating activities	$	102,750	$	(63,761)	$	166,511	261	%
Net cash used in investing activities	(158,894)		(111,278)		47,616		43	%
Net cash provided by (used in) financing activities	11,250		(480,273)		491,523		102	%

Non-GAAP reconciliation of free cash flow:
Net cash provided by operating activities	102,750		(63,761)		166,511		261	%
Purchases of property and equipment	(90,018)		(110,278)		20,260		18	%
Change in other assets	—		(1,000)		1,000		100	%
Free cash flow	$	12,732	$	(175,039)	$	187,771	107	%

Net cash provided by (used in) operating activities increased $167 million to $103 million for the three months ended June 30, 2022. The increase in cash provided by operating activities was primarily driven by a ~~variable interest~~$628 million or 9% increase in revenues, partially offset by an ~~unconsolidated entity~~increase in investments in content that ~~provides~~require more upfront cash payments. The payments for content assets increased $87 million, from $4,409 million to $4,496 million, or 2%, as compared to the increase in the amortization of content assets of $455 million, from $2,807 million to $3,261 million, or 16%. In addition, we had increased payments associated with higher operating expenses, primarily related to increased headcount to support our continued improvements in our streaming service and our international expansion.

Net cash used in investing activities increased $48 million for the three months ended June 30, 2022, primarily due to an increase in acquisitions.

Net cash provided by (used in) financing ~~liquidity, market risk,~~activities increased $492 million for the three months ended June 30, 2022, primarily due to there being no repurchases of common stock in the three months ended June 30, 2022, as compared to repurchases of common stock for an aggregate amount of $500 million in the three months ended June 30, 2021.

Free cash flow was $1,428 million lower than net income for the three months ended June 30, 2022 primarily due to $1,234 million of cash payments for content assets over amortization expense and $305 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $150 million of non-cash stock-based compensation expense and $39 million in other favorable working capital differences.

Free cash flow was $1,528 million lower than net income for the three months ended June 30, 2021, primarily due to $1,602 million of cash payments for content assets over amortization expense and $91 million in other non-favorable working capital differences, partially offset by $102 million of non-cash stock-based compensation expense and $63 million of non-cash remeasurement loss on our euro-denominated debt.

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Six months ended June 30, 2022 as compared to the six months ended June 30, 2021


	Six Months Ended				Change
	June 30, 2022		June 30, 2021		YTD'22 vs. YTD'21
	(in thousands, except percentages)
Net cash provided by operating activities	$	1,025,589	$	713,505	$	312,084	44	%
Net cash used in investing activities	(404,573)		(196,894)		207,679		105	%
Net cash used in financing activities	(675,072)		(932,202)		(257,130)		(28)	%

Non-GAAP reconciliation of free cash flow:
Net cash provided by operating activities	1,025,589		713,505		312,084		44	%
Purchases of property and equipment	(211,176)		(191,279)		19,897		10	%
Change in other assets	—		(5,615)		(5,615)		(100)	%
Free cash flow	$	814,413	$	516,611	$	297,802	58	%

Net cash provided by operating activities increased $312 million to $1,026 million for the six months ended June 30, 2022. The increase in cash provided by operating activities was primarily driven by a $1,333 million or ~~credit risk~~9% increase in revenues, partially offset by an increase in investments in content that require more upfront cash payments. The payments for content assets increased $467 million, from $7,960 million to $8,427 million, or 6% as compared to the increase in the amortization of content assets of $902 million, from $5,526 million to $6,428 million, or 16%. In addition, we had increased payments associated with higher operating expenses, primarily related to increased headcount to support our continued improvements in our streaming service and our international expansion

Net cash used in investing activities increased $208 million for the six months ended June 30, 2022, primarily due to ~~us.~~the increase in purchases of property and equipment and acquisitions.

Net cash used in financing activities decreased $257 million in the six months ended June 30, 2022, due to there being no repurchases of common stock in the six months ended June 30, 2022 as compared to repurchases of common stock for an aggregate amount of $500 million in the six months ended June 30, 2021, partially offset by the repayment upon maturity of the $700 million aggregate principal amount of our 5.500% Senior Notes in February 2022 as compared to the repayment upon maturity of the $500 million aggregate principal amount of our 5.375% Senior Notes in February 2021.

Free cash flow was $2,224 million lower than net income for the six months ended June 30, 2022 primarily due to $1,999 million of cash payments for content assets over amortization expense, $466 million of non-cash remeasurement gain on our euro-denominated debt and $29 million in other non-favorable working capital differences, partially offset by $270 million of non-cash stock-based compensation expense.

Free cash flow was $2,543 million lower than net income for the six months ended June 30, 2021, primarily due to $2,434 million of cash payments for content assets over amortization expense, $190 million of non-cash remeasurement gain on our euro-denominated debt, and $128 million in other non-favorable working capital differences, partially offset by $209 million of non-cash stock-based compensation expense.

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.

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~~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 ~~streaming~~content assets and the changes in related liabilities, are classified within "Net cash ~~used in~~provided by (used in) 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 ~~licenses~~licensed 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 “Current~~For 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 ~~period~~is on an accelerated basis, as we typically ~~ranges from six months to five years. For content where we~~ expect more upfront viewing, ~~due~~and film amortization is more accelerated than TV series amortization. On average, over 90% of a licensed or produced content asset is expected to ~~the additional merchandising and marketing efforts, we amortize on an accelerated basis.~~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, content~~Content assets ~~both licensed~~(licensed and ~~produced~~produced) are predominantly monetized as a group and therefore are reviewed ~~in aggregate~~ at ~~the operating segment~~a 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 ~~amortized~~unamortized 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 event~~However, we ~~were to determine~~believe that ~~we would~~it is more likely than not ~~be able to realize all or part~~that most of ~~our net deferred tax assets in the future, an adjustment to~~ the deferred tax assets ~~would~~recorded on our Consolidated Balance Sheets will ultimately be ~~charged~~realized. We record a valuation allowance to ~~earnings in~~reduce our deferred tax assets to the ~~period in which~~net amount that we ~~make such determination.~~believe is more likely than not to be realized. As of June 30, 2022, the valuation allowance of $346 million was related to the California R&D 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~~June 30, ~~2017,~~2022, our estimated gross unrecognized tax benefits were ~~$37.2~~$224 million of which ~~$33.3~~$149 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 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.~~2021. Our exposure to market risk has not changed significantly since December 31, ~~2016.~~2021.

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 areCurrencies denominated in ~~currencies~~ other than the U.S. dollar ~~and we~~accounted for 57% of revenue for the six months ended June 30, 2022. 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 segment~~operating income as expressed in U.S. dollars. In the ~~nine~~six months ended ~~September~~June 30, ~~2017, we believe~~2022, our ~~international~~ revenues would have been approximately ~~$21.0~~$619 million higher had foreign currency exchange rates remained consistent with those in same period of ~~2016.~~2021.

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 ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we recognized ~~an $84.7~~a $431 million foreign exchange ~~loss which resulted~~gain primarily ~~from~~due to the non-cash remeasurement of our ~~€1,300.0 million~~ Senior Notes ~~and was~~denominated in euros, partially offset by the remeasurement of cash and content ~~liability positions~~liabilities 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 ~~nine~~Consolidated Statements of Cash Flow for the six months ended ~~September~~June 30, ~~2017~~2022 was ~~$27.7~~a decrease of $157 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 ~~Chief~~co-Chief Executive ~~Officer~~Officers 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)~~Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our ~~Chief~~co-Chief Executive ~~Officer~~Officers 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 ~~Chief~~co-Chief Executive ~~Officer~~Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our ~~Chief~~co-Chief Executive ~~Officer~~Officers 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~~June 30, ~~2017,~~2022, 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’s~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Company Purchases of Equity Securities

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. There were no repurchases during the three months ended June 30, 2022. As of June 30, 2022, $4.4 billion remains available for repurchases.


~~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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EXHIBIT INDEX

Exhibit Number

Exhibit Description

Incorporated by Reference

Filed
Herewith

Form

File No.

Exhibit

Filing Date

3.1

Restated Certificate of Incorporation

8-K

001-35727

3.1

June 8, 2022

3.2

Amended and Restated Bylaws

8-K

001-35727

3.2

June 8, 2022

31.1

Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certifications of Co-Chief Executive Officers and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, 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 tags

104

The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL

* 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:			July 21, 2022	By:	/s/ Reed Hastings
					Reed Hastings Co-Chief Executive Officer (Principal executive officer)

Dated:			July 21, 2022	~~NETFLIX, INC.~~By:	/s/ Spencer Neumann
~~Dated:~~			~~October 18, 2017~~	~~By:~~	~~/s/ REED HASTINGS~~
			~~Reed Hastings~~ ~~Chief Executive Officer~~ ~~(Principal executive officer)~~

~~Dated:~~	~~October 18, 2017~~	~~By:~~	~~/s/ DAVID WELLS~~
			~~David Wells~~ Spencer Neumann Chief Financial Officer (Principal financial ~~and accounting~~ officer)

~~EXHIBIT INDEX~~

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.



	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 funds	204,967		—		—			204,967		203,450		—		1,517
Level 2 securities:
Corporate debt securities	199,843		110		(731		)	199,222		—		199,222		—
Government securities	35,944		—		(128		)	35,816		—		35,816		—
Certificates of deposit	9,833		—		—			9,833		—		9,833		—
Agency securities	21,563		—		(228		)	21,335		—		21,335		—
Total	$	1,739,673	$	110	$	(1,087	)	$	1,738,696	$	1,467,576	$	266,206	$	4,914



	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 reclassifications	5,678			328			6,006
Net decrease in other comprehensive loss	5,678			328			6,006
Balances as of September 30, 2017	$	(25,362	)	$	—		$	(25,362	)



	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 revenues	864,408		1,081,485		47,087		1,992,980
Marketing	128,901		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						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		%



	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