SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Delaware					77-0467272
(State or other jurisdiction of incorporation or organization)					(I.R.S. Employer Identification Number)

~~Delaware~~		~~77-0467272~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~		~~(I.R.S. Employer~~ ~~Identification Number)~~

100 Winchester Circle,	Los Gatos,		California	95032
(Address of principal executive offices)					(Zip Code)

(~~408~~) (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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 31, ~~2020,~~2021, there were ~~439,780,618~~443,383,732 shares of the registrant’s common stock, par value $0.001, outstanding.

Table of Contents


					Page
			Part I. Financial Information
Item 1.			Consolidated Financial Statements

				~~Page~~
	~~Part I. Financial Information~~
~~Item 1.~~	~~Consolidated Financial Statements~~

	Consolidated Statements of Operations	3
			Consolidated Statements of Comprehensive Income		4
			Consolidated Statements of Cash Flows		5
			Consolidated Balance Sheets		6
			Consolidated Statements of Stockholders' Equity		7
			Notes to Consolidated Financial Statements		8
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.			Quantitative and Qualitative Disclosures About Market Risk		2930
Item 4.			Controls and Procedures		2930
			Part II. Other Information
Item 1.			Legal Proceedings		2930
Item 1A.			Risk Factors		3031
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 6.			Exhibits		3031
Exhibit Index					3132
Signatures					3132

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NETFLIX, INC.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)


	Three Months Ended
	March 31, 2021		March 31, 2020
Revenues	$	7,163,282	$	5,767,691
Cost of revenues	3,868,511		3,599,701
Marketing	512,512		503,830
Technology and development	525,207		453,817
General and administrative	297,196		252,087
Operating income	1,959,856		958,256
Other income (expense):
Interest expense	(194,440)		(184,083)
Interest and other income	269,086		21,697
Income before income taxes	2,034,502		795,870
Provision for income taxes	(327,787)		(86,803)
Net income	$	1,706,715	$	709,067

Earnings per share:
Basic	$	3.85	$	1.61
Diluted	$	3.75	$	1.57
Weighted-average common shares outstanding:
Basic	443,224		439,352
Diluted	455,641		452,494

Three Months Ended
March 31,
2020 March 31,
2019
Revenues $ 5,767,691
$ 4,520,992
Cost of revenues 3,599,701
2,870,614
Marketing 503,830
616,578
Technology and development 453,817
372,764
General and administrative 252,087
201,952
Operating income 958,256
459,084
Other income (expense):
Interest expense (184,083 ) (135,529 )
Interest and other income (expense) 21,697
76,104
Income before income taxes 795,870
399,659
Provision for income taxes 86,803
55,607
Net income $ 709,067
$ 344,052

Earnings per share:
Basic $ 1.61
$ 0.79
Diluted $ 1.57
$ 0.76
Weighted-average common shares outstanding:
Basic 439,352
436,947
Diluted 452,494
451,922

See accompanying notes to the consolidated financial statements.

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NETFLIX, INC.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)


	Three Months Ended
	March 31, 2021		March 31, 2020
Net income	$	1,706,715	$	709,067
Other comprehensive loss:
Foreign currency translation adjustments	(40,261)		(23,533)

Comprehensive income	$	1,666,454	$	685,534

Three Months Ended
March 31,
2020 March 31,
2019
Net income $ 709,067
$ 344,052
Other comprehensive loss:
Foreign currency translation adjustments
(23,533 ) (6,018 )
Comprehensive income $ 685,534
$ 338,034

See accompanying notes to the consolidated financial statements.

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NETFLIX, INC.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Three Months Ended							Three Months Ended
	March 31, 2020			March 31, 2019				March 31, 2021		March 31, 2020
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	709,067		$	344,052		Net income	$	1,706,715	$	709,067
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Additions to content assets	(3,294,275		)	(2,997,746		)	Additions to content assets	(3,284,576)		(3,294,275)
Change in content liabilities	258,945			(14,698		)	Change in content liabilities	(266,040)		258,945
Amortization of content assets	2,483,385			2,124,686			Amortization of content assets	2,719,196		2,483,385
Depreciation and amortization of property, equipment and intangibles	28,517			23,561			Depreciation and amortization of property, equipment and intangibles	35,741		28,517
Stock-based compensation expense	97,019			101,200			Stock-based compensation expense	107,230		97,019
Foreign currency remeasurement gain on debt							Foreign currency remeasurement gain on debt	(253,330)		(93,060)
Other non-cash items	65,448			45,708			Other non-cash items	72,657		65,448
Foreign currency remeasurement gain on debt	(93,060		)	(57,600		)
Deferred taxes	46,619			6,627
Deferred income taxes							Deferred income taxes	159,733		46,619
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Other current assets	(127,353		)	(32,076		)	Other current assets	(221,555)		(127,353)
Accounts payable	(149,153		)	(124,467		)	Accounts payable	(137,313)		(149,153)
Accrued expenses and other liabilities	214,191			157,647			Accrued expenses and other liabilities	177,897		214,191
Deferred revenue	62,008			47,793			Deferred revenue	22,279		62,008
Other non-current assets and liabilities	(41,446		)	(4,486		)	Other non-current assets and liabilities	(61,368)		(41,446)
Net cash provided by (used in) operating activities	259,912			(379,799		)
Net cash provided by operating activities							Net cash provided by operating activities	777,266		259,912
Cash flows from investing activities:							Cash flows from investing activities:
Purchases of property and equipment	(98,015		)	(60,381		)	Purchases of property and equipment	(81,001)		(98,015)
Change in other assets	(288		)	(19,722		)	Change in other assets	(4,615)		(288)
Net cash used in investing activities	(98,303		)	(80,103		)	Net cash used in investing activities	(85,616)		(98,303)
Cash flows from financing activities:							Cash flows from financing activities:

Repayments of debt							Repayments of debt	(500,000)		0
Proceeds from issuance of common stock	43,694			22,972			Proceeds from issuance of common stock	48,071		43,694
Net cash provided by financing activities	43,694			22,972
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	(451,929)		43,694
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(70,902		)	(5,014		)	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(42,138)		(70,902)
Net increase (decrease) in cash, cash equivalents and restricted cash	134,401			(441,944		)
Net increase in cash, cash equivalents and restricted cash							Net increase in cash, cash equivalents and restricted cash	197,583		134,401
Cash, cash equivalents and restricted cash at beginning of period	5,043,786			3,812,041			Cash, cash equivalents and restricted cash at beginning of period	8,238,870		5,043,786
Cash, cash equivalents and restricted cash at end of period	$	5,178,187		$	3,370,097		Cash, cash equivalents and restricted cash at end of period	$	8,436,453	$	5,178,187

See accompanying notes to the consolidated financial statements.

Consolidated Balance Sheets


	As of
	March 31, 2021		December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	8,403,705	$	8,205,550
Other current assets	1,703,803		1,556,030
Total current assets	10,107,508		9,761,580
Content assets, net	26,043,991		25,383,950
Property and equipment, net	1,015,419		960,183
Other non-current assets	2,956,096		3,174,646
Total assets	$	40,123,014	$	39,280,359
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities	$	4,297,957	$	4,429,536
Accounts payable	532,942		656,183
Accrued expenses and other liabilities	1,291,812		1,102,196
Deferred revenue	1,140,271		1,117,992
Short-term debt	698,788		499,878
Total current liabilities	7,961,770		7,805,785
Non-current content liabilities	2,465,626		2,618,084
Long-term debt	14,860,552		15,809,095
Other non-current liabilities	1,950,986		1,982,155
Total liabilities	27,238,934		28,215,119
Commitments and contingencies (Note 7)	0		0
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2021 and December 31, 2020; 443,383,732 and 442,895,261 issued and outstanding at March 31, 2021 and December 31, 2020, respectively	3,600,084		3,447,698
Accumulated other comprehensive income	4,137		44,398
Retained earnings	9,279,859		7,573,144
Total stockholders’ equity	12,884,080		11,065,240
Total liabilities and stockholders’ equity	$	40,123,014	$	39,280,359

As of

March 31,
2020 December 31,
2019
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 5,151,884
$ 5,018,437
Other current assets 1,295,897
1,160,067
Total current assets 6,447,781
6,178,504
Content assets, net 25,266,889
24,504,567
Property and equipment, net 650,455
565,221
Other non-current assets 2,694,785
2,727,420
Total assets $ 35,059,910
$ 33,975,712
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities $ 4,761,585
$ 4,413,561
Accounts payable 545,488
674,347
Accrued expenses and other liabilities 1,061,090
843,043
Deferred revenue 986,753
924,745
Short-term debt 498,809
—
Total current liabilities 7,853,725
6,855,696
Non-current content liabilities 3,206,051
3,334,323
Long-term debt 14,170,692
14,759,260
Other non-current liabilities 1,420,148
1,444,276
Total liabilities 26,650,616
26,393,555
Commitments and contingencies (Note 7)

Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2020 and December 31, 2019; 439,780,618 and 438,806,649 issued and outstanding at March 31, 2020 and December 31, 2019, respectively 2,935,532
2,793,929
Accumulated other comprehensive loss (47,054 ) (23,521 )
Retained earnings 5,520,816
4,811,749
Total stockholders’ equity 8,409,294
7,582,157
Total liabilities and stockholders’ equity $ 35,059,910
$ 33,975,712

See accompanying notes to the consolidated financial statements.

Consolidated Statements of Stockholders’ Equity

Three Months Ended
March 31,
2020 March 31,
2019
Total stockholders' equity, beginning balances $ 7,582,157
$ 5,238,765

Common stock and additional paid-in capital:
Beginning balances $ 2,793,929
$ 2,315,988
Issuance of common stock upon exercise of options 44,584
22,585
Stock-based compensation expense 97,019
101,200
Ending balance $ 2,935,532
$ 2,439,773

Accumulated other comprehensive loss:
Beginning balances $ (23,521 ) $ (19,582 )
Other comprehensive loss (23,533 ) (6,018 )
Ending balance $ (47,054 ) $ (25,600 )

Retained earnings:
Beginning balances $ 4,811,749
$ 2,942,359
Net income 709,067
344,052
Adoption of ASU 2016-02, Leases (Topic 842) —
2,474
Ending balances $ 5,520,816
$ 3,288,885

Total stockholders' equity, ending balances $ 8,409,294
$ 5,703,058

See accompanying notes to the consolidated financial statements.

Notes to Consolidated Financial Statements

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, ~~2019~~2020 filed with the Securities and Exchange Commission (the “SEC”) on January ~~29, 2020.~~28, 2021. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the content asset amortization policy and the recognition and measurement of income tax assets and 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, ~~2019.~~2020. Interim results are not necessarily indicative of the results for a full year.

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Recently adopted accounting pronouncements

In ~~June 2016,~~December 2019, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued Accounting Standards Update ~~("ASU"~~(“ASU”) ~~2016-13,~~2019-12, ~~Financial Instruments—Credit Losses~~Simplifying the Accounting for Income Taxes (Topic ~~326)~~740),. ASU 2019-12 removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in ~~order to improve financial reporting~~interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of ~~expected credit losses on financial instruments~~goodwill, and ~~other commitments to extend credit. ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces~~ the ~~incurred loss impairment methodology~~effect of enacted changes in ~~prior GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses.~~tax laws or rates in interim periods. The Company adopted ASU ~~2016-13~~2019-12 in the first quarter of ~~2020~~2021 and the ~~impact of the~~ adoption ~~was not~~had no material impact to the ~~Company's~~Company’s consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors. The Company will continue to actively monitor the impact of the recent coronavirus (COVID-19) pandemic on expected credit losses.statements.

The Company's primary source of revenues is from monthly membership fees. Members are billed in advance of the start of their monthly membership and revenues are recognized ratably over each monthly membership 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 retains control over service delivery to its members. Typically, payments made to the partners, such as for marketing, are ~~expensed, but~~expensed. However, if there is no distinct service provided in exchange for the ~~case where~~payments made to the partners or if the price that the member pays is established by the partners and there is no standalone price for the Netflix service (for instance, in a bundle), these payments are recognized as a reduction of revenues.

The following tables summarize streaming revenue, paid net membership additions, and paid memberships at end of period by region for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019,~~2020, respectively:

United States and Canada (UCAN)


	As of/ Three Months Ended
	March 31, 2021		March 31, 2020
	(in thousands)
Revenues	$	3,170,972	$	2,702,776
Paid net membership additions	448		2,307
Paid memberships at end of period (1)	74,384		69,969

As of/ Three Months Ended
March 31, 2020 March 31, 2019
(in thousands)
Revenues $ 2,702,776
$ 2,256,851
Paid net membership additions 2,307
1,876
Paid memberships at end of period (1) 69,969
66,633

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Europe, Middle East, and Africa (EMEA)


	As of/ Three Months Ended
	March 31, 2021		March 31, 2020
	(in thousands)
Revenues	$	2,343,674	$	1,723,474
Paid net membership additions	1,810		6,956
Paid memberships at end of period (1)	68,508		58,734

As of/ Three Months Ended
March 31, 2020 March 31, 2019
(in thousands)
Revenues $ 1,723,474
$ 1,233,379
Paid net membership additions 6,956
4,724
Paid memberships at end of period (1) 58,734
42,542

Latin America (LATAM)


	As of/ Three Months Ended
	March 31, 2021		March 31, 2020
	(in thousands)
Revenues	$	836,647	$	793,453
Paid net membership additions	357		2,901
Paid memberships at end of period (1)	37,894		34,318

As of/ Three Months Ended
March 31, 2020 March 31, 2019
(in thousands)
Revenues $ 793,453
$ 630,472
Paid net membership additions 2,901
1,470
Paid memberships at end of period (1) 34,318
27,547

Asia-Pacific (APAC)


	As of/ Three Months Ended
	March 31, 2021		March 31, 2020
	(in thousands)
Revenues	$	762,414	$	483,660
Paid net membership additions	1,361		3,602
Paid memberships at end of period (1)	26,853		19,835

As of/ Three Months Ended
March 31, 2020 March 31, 2019
(in thousands)
Revenues $ 483,660
$ 319,602
Paid net membership additions 3,602
1,534
Paid memberships at end of period (1) 19,835
12,141



(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 ~~promotional offering~~promotions that may be offered by the Company to ~~certain~~ new ~~and~~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, ~~becomes~~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 reported in the tables above, were ~~$2.5~~$3.0 billion and ~~$2.2~~$2.5 billion for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. DVD revenues were ~~$64~~$50 million and ~~$81~~$64 million for the three months ended March 31, ~~2020~~2021 and ~~March 31, 2019,~~2020, respectively.

Deferred revenue consists of membership fees billed that have not been recognized, as well as gift cards and other prepaid memberships that have not been fully redeemed. As of March 31, ~~2020,~~2021, total deferred revenue was ~~$987~~$1,140 million, the vast majority of which was related to membership fees billed that are expected to be recognized as revenue within the 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 ~~$62~~$22 million increase in deferred revenue as compared to the balance of ~~$925~~$1,118 million for the year ended December 31, ~~2019~~2020 is a result of the increase in membership fees billed due to increased ~~memberships.~~members and average monthly revenue per paying member.

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3. Earnings Per Share

Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential common shares outstanding during the period. Potential common shares consist of incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:


	Three Months Ended
	March 31, 2021		March 31, 2020
	(in thousands, except per share data)
Basic earnings per share:
Net income	$	1,706,715	$	709,067
Shares used in computation:
Weighted-average common shares outstanding	443,224		439,352
Basic earnings per share	$	3.85	$	1.61

Diluted earnings per share:
Net income	$	1,706,715	$	709,067
Shares used in computation:
Weighted-average common shares outstanding	443,224		439,352
Employee stock options	12,417		13,142
Weighted-average number of shares	455,641		452,494
Diluted earnings per share	$	3.75	$	1.57

Three Months Ended
March 31,
2020 March 31,
2019
(in thousands, except per share data)
Basic earnings per share:
Net income $ 709,067
$ 344,052
Shares used in computation:
Weighted-average common shares outstanding 439,352
436,947
Basic earnings per share $ 1.61
$ 0.79

Diluted earnings per share:
Net income $ 709,067
$ 344,052
Shares used in computation:
Weighted-average common shares outstanding 439,352
436,947
Employee stock options 13,142
14,975
Weighted-average number of shares 452,494
451,922
Diluted earnings per share $ 1.57
$ 0.76

Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential common shares excluded from the diluted calculation:

Three Months Ended

March 31,
2021

March 31,
2020

(in thousands)

Employee stock options

257

1,516

Three Months Ended
March 31,
2020 March 31,
2019
(in thousands)
Employee stock options 1,516
652

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4. Cash, Cash Equivalents and Restricted Cash

The following tables summarize the Company's cash, cash equivalents, and restricted cash as of March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:

As of March 31, 2020
Cash and cash equivalents Other Current Assets Non-current Assets Total
(in thousands)
Cash $ 3,100,789
$ 2,514
$ 23,536
$ 3,126,839
Level 1 securities:
Money market funds 1,751,095
—
253
1,751,348
Level 2 securities:
Foreign Time Deposits 300,000
—
—
300,000

$ 5,151,884
$ 2,514
$ 23,789
$ 5,178,187

As of December 31, 2019
Cash and cash equivalents Other Current Assets Non-current Assets Total
(in thousands)
Cash $ 3,103,525
$ 1,863
$ 22,161
$ 3,127,549
Level 1 securities:
Money market funds 1,614,912
—
1,325
1,616,237
Level 2 securities:
Foreign Time Deposits 300,000
—
—
300,000

$ 5,018,437
$ 1,863
$ 23,486
$ 5,043,786


	As of March 31, 2021
	Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
	(in thousands)
Cash	$	4,019,585	$	2,159	$	30,443	$	4,052,187
Level 1 securities:
Money market funds	4,083,887		0		146		4,084,033
Level 2 securities:
Foreign Time Deposits	300,233		0		0		300,233

	$	8,403,705	$	2,159	$	30,589	$	8,436,453


	As of December 31, 2020
	Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
	(in thousands)
Cash	$	3,331,860	$	1,783	$	31,284	$	3,364,927
Level 1 securities:
Money market funds	4,573,690		0		253		4,573,943
Level 2 securities:
Foreign Time Deposits	300,000		0		0		300,000

	$	8,205,550	$	1,783	$	31,537	$	8,238,870

Other current assets include restricted cash for deposits related to self insurance. Non-current assets include restricted cash related to ~~workers compensation deposits and~~ letter of credit agreements. The fair value of cash equivalents 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.

See Note 6 Debt to the consolidated financial statements for further information regarding the fair value of the Company’s senior notes.

There were no material gross realized gains or losses in the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

5. Balance Sheet Components

Content Assets, Net

Content assets consisted of the following:


	As of
	March 31, 2021		December 31, 2020
	(in thousands)
Licensed content, net	$	13,351,416	$	13,747,607

Produced content, net
Released, less amortization	5,671,182		5,809,681
In production	6,030,349		4,827,455
In development and pre-production	991,044		999,207
	12,692,575		11,636,343

Content assets, net	$	26,043,991	$	25,383,950

As of
March 31,
2020 December 31,
2019
(in thousands)
Licensed content, net $ 14,637,502
$ 14,703,352

Produced content, net

Released, less amortization 4,638,736
4,382,685
In production 5,282,350
4,750,664
In development and pre-production 708,301
667,866
10,629,387
9,801,215

Total $ 25,266,889
$ 24,504,567

As of March 31, ~~2020,~~2021, approximately ~~$5,736~~$5,606 million, ~~$3,760~~$3,376 million, and ~~$2,478~~$2,013 million of the ~~$14,638~~$13,351 million unamortized cost of the licensed content is expected to be amortized in each of the next three years. As of March 31, ~~2020,~~2021, approximately ~~$1,645~~$2,130 million, ~~$1,276~~$1,633 million, and ~~$941~~$1,038 million of the ~~$4,639~~$5,671 million unamortized cost of the produced content that has been released is expected to be amortized in each of the next three years.

As of March 31, ~~2020,~~2021, the amount of accrued participations and residuals was not material.

The following table represents the amortization of content assets:


	Three Months Ended
	March 31, 2021		March 31, 2020
	(in thousands)
Licensed content	$	1,829,246	$	1,860,170
Produced content	889,950		623,215
Total	$	2,719,196	$	2,483,385

Three Months Ended
March 31,
2020 March 31,
2019
(in thousands)
Licensed content $ 1,860,170
$ 1,774,289
Produced content 623,215
350,397
Total $ 2,483,385
$ 2,124,686

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:

As of
March 31,
2020 December 31,
2019 Estimated Useful Lives
(in thousands)
Land $ 6,125
$ 6,125

Buildings 34,459
33,141
30 years
Leasehold improvements 361,648
354,999
Over life of lease
Furniture and fixtures 87,925
87,465
3-15 years
Information technology 249,440
243,565
3 years
Corporate aircraft 109,619
108,995
8 years
Machinery and equipment 43,776
46,415
3-5 years
Capital work-in-progress 194,019
100,521

Property and equipment, gross 1,087,011
981,226

Less: Accumulated depreciation (436,556 ) (416,005 )
Property and equipment, net $ 650,455
$ 565,221

The Company has entered into operating leases primarily for real estate. These operating leases are included in "Other non-current assets" on the Company's Consolidated Balance Sheets, and represent the Company’s right to use the underlying asset for the 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 Consolidated Balance Sheets. As of March 31, 2020, total right-of-use assets were approximately $1,502 million and total operating lease liabilities were approximately $1,596 million, of which $196 million and $1,400 million were classified in "Accrued expenses and other liabilities" and "Other non-current liabilities", respectively. As of December 31, 2019, total right-of-use assets were approximately $1,532 million and total operating lease liabilities were approximately $1,613 million, of which $190 million and $1,423 million were classified in "Accrued expenses and other liabilities" and "Other non-current liabilities", respectively. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of 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 as follows:


	Three Months Ended
	March 31, 2021		March 31, 2020
	(in thousands)
Cash paid for operating lease liabilities	$	82,439	$	57,490
Right-of-use assets obtained in exchange for new operating lease obligations	49,445		51,824

Three Months Ended
March 31, 2020 March 31, 2019
(in thousands)
Cash paid for operating lease liabilities $ 57,490
$ 37,653
Right-of-use assets obtained in exchange for new operating lease obligations (1) 51,824
842,395


	As of
	March 31, 2021		December 31, 2020
	(in thousands)
Operating lease right-of-use assets, net	$	2,007,729	$	2,037,726

Current operating lease liabilities	268,087		256,222
Non-current operating lease liabilities	1,911,892		1,945,631
Total operating lease liabilities	$	2,179,979	$	2,201,853

~~(1) In the three months ended March 31, 2019, the balance includes $743 million for operating leases existing on January 1, 2019.~~

Other Current Assets

Other current assets consisted of the following:

As of
March 31,
2020 December 31,
2019
(in thousands)
Trade receivables $ 539,916
$ 454,399
Prepaid expenses 214,350
180,999
Other receivables 541,631
524,669
Total other current assets $ 1,295,897
$ 1,160,067

As of March 31, ~~2020,~~2021, the Company had aggregate outstanding notes of ~~$14,670~~$15,559 million, net of ~~$110~~$103 million of issuance costs, with varying maturities (the "Notes"). Of the outstanding balance, ~~$499~~$699 million, net of issuance costs, is classified as short-term debt on the Consolidated Balance Sheets. As of December 31, ~~2019,~~2020, the Company had aggregate outstanding ~~long-term~~ notes of ~~$14,759~~$16,309 million, net of ~~$114~~$107 million of issuance costs. Each of the Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at fixed rates. A portion of the outstanding ~~notes~~Notes is denominated in foreign currency (comprised of ~~€4,700~~€5,170 million) and is remeasured into U.S. dollars at each balance sheet date (with remeasurement gain totaling ~~$93~~$253 million for the ~~quarter~~three months ended March 31, ~~2020)~~2021).

The following table provides a summary of the Company's outstanding debt and the fair values based on quoted market prices in less active markets as of March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:

Principal Amount at Par Level 2 Fair Value as of
March 31, 2020 December 31, 2019 Issuance Date Maturity March 31, 2020 December 31, 2019
(in millions) (in millions)
5.375% Senior Notes $ 500
$ 500
February 2013 February 2021 $ 507
$ 518
5.500% Senior Notes 700
700
February 2015 February 2022 722
744
5.750% Senior Notes 400
400
February 2014 March 2024 426
444
5.875% Senior Notes 800
800
February 2015 February 2025 847
896
4.375% Senior Notes 1,000
1,000
October 2016 November 2026 1,018
1,026
3.625% Senior Notes (1) 1,433
1,459
May 2017 May 2027 1,433
1,565
4.875% Senior Notes 1,600
1,600
October 2017 April 2028 1,632
1,670
5.875% Senior Notes 1,900
1,900
April 2018 November 2028 2,047
2,111
4.625% Senior Notes (1) 1,212
1,234
October 2018 May 2029 1,246
1,378
6.375% Senior Notes 800
800
October 2018 May 2029 883
916
3.875% Senior Notes (1) 1,323
1,346
April 2019 November 2029 1,303
1,429
5.375% Senior Notes 900
900
April 2019 November 2029 942
960
3.625% Senior Notes (1) 1,212
1,234
October 2019 June 2030 1,191
1,273
4.875% Senior Notes 1,000
1,000
October 2019 June 2030 1,024
1,019
$ 14,780
$ 14,873


	Principal Amount at Par						Level 2 Fair Value as of
	March 31, 2021		December 31, 2020		Issuance Date	Maturity	March 31, 2021		December 31, 2020
	(in millions)						(in millions)
5.375% Senior Notes	$	0	$	500	February 2013	February 2021	$	0	$	502
5.500% Senior Notes	700		700		February 2015	February 2022	729		735
5.750% Senior Notes	400		400		February 2014	March 2024	449		449
5.875% Senior Notes	800		800		February 2015	February 2025	917		921
3.000% Senior Notes (1)	551		574		April 2020	June 2025	600		616
3.625% Senior Notes	500		500		April 2020	June 2025	534		535
4.375% Senior Notes	1,000		1,000		October 2016	November 2026	1,119		1,110
3.625% Senior Notes (1)	1,524		1,588		May 2017	May 2027	1,748		1,776
4.875% Senior Notes	1,600		1,600		October 2017	April 2028	1,812		1,807
5.875% Senior Notes	1,900		1,900		April 2018	November 2028	2,302		2,280
4.625% Senior Notes (1)	1,290		1,344		October 2018	May 2029	1,605		1,630
6.375% Senior Notes	800		800		October 2018	May 2029	997		995
3.875% Senior Notes (1)	1,407		1,466		April 2019	November 2029	1,680		1,700
5.375% Senior Notes	900		900		April 2019	November 2029	1,065		1,061
3.625% Senior Notes (1)	1,290		1,344		October 2019	June 2030	1,513		1,533
4.875% Senior Notes	1,000		1,000		October 2019	June 2030	1,152		1,155
	$	15,662	$	16,416			$	18,222	$	18,805

(1) The following Senior Notes have a principal amount denominated in 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 2021, the Company repaid upon maturity the $500 million aggregate principal amount of its 5.375% Senior Notes due February 2021.

The expected timing of principal and interest payments for ~~these~~the Company’s outstanding Notes are as follows:


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

As of
March 31,
2020 December 31, 2019
(in thousands)
Less than one year $ 1,233,206
$ 736,969
Due after one year and through three years 2,060,732
2,581,471
Due after three years and through five years 2,502,066
1,705,201
Due after five years 14,791,650
15,699,800
Total debt obligations $ 20,587,654
$ 20,723,441

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 March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company was in compliance with all related covenants.

Revolving Credit Facility

As of March 31, ~~2020,~~2021, the Company has a $750 million unsecured revolving credit facility ("Revolving Credit Agreement") which matures on March 29, 2024. Revolving loans may be borrowed, repaid and reborrowed until March 29, 2024, at which time all amounts borrowed must be repaid. The Company may use the proceeds of future borrowings under the Revolving Credit Agreement for working capital and general corporate purposes. As of March 31, ~~2020,~~2021, no amounts have been borrowed under the Revolving Credit Agreement.

The borrowings under the Revolving Credit Agreement bear interest, at the Company’s option, of either (i) a floating rate equal to a base rate (the “Alternate Base Rate”) or (ii) a rate equal to an adjusted London interbank offered rate (the “Adjusted LIBO Rate”), plus a margin of 0.75%. The Alternate Base Rate is defined as the greatest of (A) the rate of interest published by the Wall Street Journal, from time to time, as the prime rate, (B) the federal funds rate, plus 0.500% and (C) the Adjusted LIBO Rate for a one-month interest period, plus 1.00%. The Adjusted LIBO Rate is defined as the London interbank offered rate for deposits in U.S. dollars, for the relevant interest period, adjusted for statutory reserve requirements, but in no event shall the Adjusted LIBO Rate be less than 0.00% per annum. Regulatory authorities that oversee financial markets have announced that after the end of 2021, they would no longer compel banks currently reporting information used to set the LIBO Rate to continue to make rate submissions. As a result, it is possible that beginning in 2022, the LIBO Rate will no longer be available as a reference rate. Under the terms of the Company's Revolving Credit Agreement, in the event of the discontinuance of the LIBO Rate, a mutually agreed-upon alternate benchmark rate will be established to replace the LIBO Rate. The Company and Lenders shall in good faith establish an alternate benchmark rate which places the Lenders and the Company in the same economic position that existed immediately prior to the discontinuation of the LIBO Rate. The Company does not anticipate that the discontinuance of the LIBO Rate will materially impact its liquidity or financial position.

The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Agreement at an 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 March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company was in compliance with all related covenants.

As of March 31, ~~2020,~~2021, the Company had ~~$19.2~~$20.7 billion of obligations comprised of ~~$4.8~~$4.3 billion included in "Current content liabilities" and ~~$3.2~~$2.5 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and ~~$11.2~~$13.9 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

As of December 31, ~~2019,~~2020, the Company had ~~$19.5~~$19.2 billion of obligations comprised of $4.4 billion included in "Current content liabilities" and ~~$3.3~~$2.6 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and ~~$11.8~~$12.2 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

The expected timing of payments for these content obligations is as follows:

As of
March 31,
2020 December 31,
2019
(in thousands)
Less than one year $ 8,618,185
$ 8,477,367
Due after one year and through three years 8,064,206
8,352,731
Due after three years and through five years 1,974,855
2,041,340
Due after five years 516,792
618,644
Total content obligations $ 19,174,038
$ 19,490,082

Content obligations include amounts related to the acquisition, licensing and production of 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 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.

From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.

The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.

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. NaN amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

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.

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, 2020	21,702,085	18,676,810	$	170.23
Granted	(400,126)	400,126	537.47
Exercised	—	(488,471)	92.45
Expired	—	(4,648)	30.30
Balances as of March 31, 2021	21,301,959	18,583,817	$	180.22
Vested and exercisable as of March 31, 2021		18,583,817	$	180.22

Options Outstanding
Shares
Available
for Grant Number of
Shares
Weighted-
Average
Exercise Price
(per share)
Balances as of December 31, 2019 6,111,561
20,859,326
$ 124.28
Granted (581,455 ) 581,455
354.55
Exercised —
(973,969 ) 45.77
Expired —
(48 ) 9.96
Balances as of March 31, 2020 5,530,106
20,466,764
$ 134.56
Vested and exercisable as of March 31, 2020 20,466,764
$ 134.56

The aggregate intrinsic value of the Company's outstanding stock options as of March 31, ~~2020~~2021 was ~~$4,937~~$6,357 million and represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of ~~2020~~2021 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 first quarter of ~~2020.~~2021. This amount changes based on the fair market value of the Company’s common stock. The weighted-average remaining contractual term of the Company's outstanding stock options as of March 31, ~~2020~~2021 included in the table above was ~~5.57~~5.46 years.

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

Three Months Ended
March 31,
2020 March 31,
2019
(in thousands)
Total intrinsic value of options exercised $ 303,226
$ 180,842
Cash received from options exercised 43,694
22,972


	Three Months Ended
	March 31, 2021		March 31, 2020
	(in thousands)
Total intrinsic value of options exercised	$	228,020	$	303,226
Cash received from options exercised	48,071		43,694

Stock-based Compensation

Stock options granted are exercisable for the full ten year contractual term regardless of employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model and the valuation data:

Three Months Ended
March 31,
2020 March 31,
2019
Dividend yield — % — %
Expected volatility 37 % 41 %
Risk-free interest rate 1.71 % 2.74 %
Suboptimal exercise factor 3.34
3.07
Weighted-average fair value (per share) $ 167
$ 163
Total stock-based compensation expense (in thousands) $ 97,019
$ 101,200
Total income tax impact on provision (in thousands) $ 21,309
$ 21,628

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 0 in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date.

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

Three Months Ended
March 31,
2020 March 31,
2019
(in thousands, except percentages)
Provision for income taxes $ 86,803
$ 55,607
Effective tax rate 11 % 14 %


	Three Months Ended
	March 31, 2021			March 31, 2020
	(in thousands, except percentages)
Provision for income taxes	$	327,787		$	86,803
Effective tax rate	16		%	11		%

~~In connection with~~The effective tax rate for the three months ended March 31, 2021 differed from the Federal statutory rate primarily due to the impact of international provisions of the Tax Cuts and Jobs Act and recognition of ~~2017 the Company simplified its global corporate structure, effective April 1, 2019. The~~excess tax ~~impacts~~benefits of ~~such simplifications were not material to the financial statements taken as a whole.~~

stock-based compensation. The effective tax rate for the three months ended March 31, 2020 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation ~~Federal and California research and development (“R&D”) credits,~~ and the international provisions of U.S. tax reform that became effective in 2018, partially offset by state taxes, foreign taxes, and non-deductible expenses. The effective tax rate for the three months ended March 31, 2019 differedchanges from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation, Federal and California R&D credits, and effects of the international tax provisions from U.S. tax reform that became effective in 2018, partially offset by state taxes, foreign taxes, and non-deductible expenses.global corporate structure simplification.

The ~~decrease~~increase in effective tax rate for the three months ended March 31, ~~2020,~~2021, as compared to the same period in ~~2019~~2020 was primarily due to ~~changes from the global corporate structure simplification, offset by a lower benefit on a percentage basis for~~recognizing less excess tax benefits ofrelated to stock-based ~~compensation and Federal and California R&D credits due to higher pre-tax income.~~compensation. For the three months ended March 31, ~~2020,~~2021, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of ~~$65~~$47 million, compared to the three months ended March 31, ~~2019~~2020 of ~~$41~~$65 million.

Gross unrecognized tax benefits were ~~$71~~$160 million and ~~$67~~$140 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately ~~$60~~$99 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of March 31, ~~2020,~~2021, gross unrecognized tax benefits of ~~$19~~$38 million were classified as “Other non-current liabilities” and ~~$52~~$64 million as a reduction to deferred tax assets which was classified as "Other non-current assets" in the Consolidated Balance Sheets. The Company includes interest and penalties related to unrecognized tax benefits within the "Provision 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 for income taxes” were not material in any of the periods presented.

Deferred tax assets of ~~$612~~$427 million and ~~$658~~$589 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The Company has a valuation allowance of ~~$132~~$298 million and ~~$135~~$250 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The valuation allowance is ~~primarily~~ related to the California research and development credits and certain foreign tax ~~credits~~attributes that ~~are~~the Company does not ~~likely~~expect to ~~be realized.~~realize.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for 2016 ~~2017,~~through 2018 and ~~2018.~~is subject to examination for 2019. The ~~2011~~2015 through ~~2018~~2019 state tax returns are subject to examination by various state tax authorities. The Company is also currently under examination in the U.K. for 2018 and 2019. The Company has no other significant foreign jurisdiction audits underway. The years ~~2014~~2015 through ~~2019~~2020 generally remain subject to examination by foreign tax authorities.

Given the potential outcome of the current examinations, as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

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

Total U.S. revenues were ~~$2.5~~$3.0 billion and ~~$2.2~~$2.5 billion for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019,~~2020, respectively. See Note 2 Revenue Recognition for additional information about streaming revenue by region.

The Company's long-lived tangible assets, as well as the Company's operating lease right-of-use assets recognized on the Consolidated Balance Sheets as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, were located as follows:


	As of
	March 31, 2021		December 31, 2020
	(in thousands)
United States	$	2,269,444	$	2,224,891
International	753,704		773,018

As of
March 31,
2020 December 31, 2019
(in thousands)
United States $ 1,573,683
$ 1,503,459
International 579,092
594,047

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; ~~content amortization; impact~~our future financial performance, including expectations regarding revenues, deferred revenue, operating income and margin, net income, expenses, and profitability; liquidity, including the sufficiency of ~~recently adopted accounting pronouncements; price changes~~our capital resources, adequacy of existing facilities, net cash provided by (used in) operating activities, access to financing sources, and ~~testing; dividends;~~free cash flows; capital allocation strategies, including any stock repurchases; seasonality; impact of foreign ~~currency and~~ exchange rate fluctuations, including on net income, revenues and average revenues per paying member; deferred revenue; investments in global content, including original content; impact of content on membership growth;fluctuations; the impact of the discontinuance of the LIBO Rate; ~~liquidity, including cash flows from operations, available funds~~future regulatory changes and ~~access to financing sources; net cash provided by (used in) operating activities~~their impact on our business; price changes and ~~free cash flow; unrecognized tax benefits; deferred tax assets; accessing and obtaining additional capital, including use~~testing; impact of ~~the debt market;~~recently adopted accounting pronouncements; accounting treatment for changes related to content assets; ~~net income;~~membership growth, including impact of content and pricing changes on membership growth; partnerships; member viewing patterns; dividends; future contractual obligations, including unknown content obligations and timing of payments; ~~membership growth for the remainder of the fiscal year;~~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 ~~recent~~ 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, ~~2019~~2020 filed with the Securities and Exchange Commission (“SEC”) on January ~~29, 2020,~~28, 2021, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item IA.

We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.

Investors and others should note that we announce material financial information to our investors using our investor relations website ~~(netflixinvestor.com)~~(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 website.

We are one of the world’s leading ~~subscription streaming~~ entertainment ~~service~~services with ~~over 182~~approximately 208 million paid streaming memberships in over 190 countries enjoying TV series, documentaries and feature films across a wide variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, all without commercials. Additionally, we continue to offer our ~~legacy~~ DVD-by-mail service in the United ~~States.~~States (“U.S.”).

We are a pioneer in the delivery of 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 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 streaming entertainment.

Our core strategy is to grow our streaming membership business globally within the parameters of our operating margin target. We are continuously improving our ~~members'~~members’ experience by expanding our content with a focus on a programming mix of content that delights our

members and attracts new members. In addition, we are continuously enhancing our user interface and extending our streaming service to more internet-connected screens. Our members can download a selection of titles for offline viewing.

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

Results of Operations

The following represents our consolidated performance highlights:


	As of/ Three Months Ended						Change
	March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20
	(in thousands, except revenue per membership and percentages)
Financial Results:
Streaming revenues	$	7,113,707		$	5,703,363		$	1,410,344		25	%
DVD revenues	49,575			64,328			(14,753)			(23)	%
Total revenues	$	7,163,282		$	5,767,691		$	1,395,591		24	%

Operating income	$	1,959,856		$	958,256		$	1,001,600		105	%
Operating margin	27.4		%	16.6		%	10.8		%	65	%

Global Streaming Memberships:
Paid net membership additions	3,976			15,766			(11,790)			(75)	%
Paid memberships at end of period	207,639			182,856			24,783			14	%
Average paying memberships	205,651			174,973			30,678			18	%
Average monthly revenue per paying membership	$	11.53		$	10.87		$	0.66		6	%

As of/ Three Months Ended Change
March 31,
2020 March 31,
2019 Q1'20 vs. Q1'19
(in thousands, except revenue per membership and percentages)
Global Streaming Memberships:
Paid net membership additions 15,766
9,604
6,162
64 %
Paid memberships at end of period 182,856
148,863
33,993
23 %
Average paying memberships 174,973
144,061
30,912
21 %
Average monthly revenue per paying membership $ 10.87
$ 10.27
$ 0.60
6 %

Financial Results:
Streaming revenues $ 5,703,363
$ 4,440,304
$ 1,263,059
28 %
DVD revenues 64,328
80,688
(16,360 ) (20 )%
Total revenues $ 5,767,691
$ 4,520,992
$ 1,246,699
28 %

Operating income $ 958,256
$ 459,084
$ 499,172
109 %
Operating margin 16.6 % 10.2 % 6.4 % 63 %

Paid net membership additions for the three months ended March 31, 2020 increased 64% as compared to the three months ended March 31, 2019, as a result of the long term trend toward streaming on demand entertainment and in large extent due to the COVID-19 pandemic and resulting local government mandates of home confinement. While we are unable to accurately predict the impact of the pandemic on paid net membership additions in subsequent quarters, the pandemic resulted in significant paid net membership additions in the first quarter of 2020 and may result in slower membership growth for the remainder of the fiscal year.

Consolidated revenues for the three months ended March 31, ~~2020~~2021 increased ~~28%~~24% as compared to the three months ended March 31, ~~2019.~~2020. The increase in our consolidated revenues was due to the ~~21%~~18% growth in average paying memberships and a 6% increase in average monthly revenue per paying membership. The increase in average monthly revenue per paying membership ~~resulted from our~~was primarily due to price changes and ~~plan mix and was partially offset by the timing of paid~~favorable fluctuations in foreign exchange rates. Paid net membership ~~additions. As~~additions for the ~~majority of~~three months ended March 31, 2021 decreased 75% as compared to the three months ended March 31, 2020. We believe the decrease in paid net membership additions ~~occurred~~can primarily be attributed to the COVID-19 pandemic which contributed to significant paid net membership additions in the ~~last month~~first quarter of 2020, and resulted in less growth in the first quarter of 2021 as compared to the prior year. While we are unable to accurately predict the impact of the ~~quarter, the full revenue impact will be reflected in average monthly revenue per paying~~pandemic on paid net membership additions, we expect slower paid net membership additions in the ~~second quarter~~first half of ~~2020. The increase~~2021 compared to comparable periods in average monthly revenue per paying membership was further offset by the strengthening of the U.S. dollar relative to certain foreign currencies partially due to volatile market conditions arising from the pandemic, which resulted in a reduction to revenue.2020.

The increase in operating margin is primarily due to ~~increased~~content amortization growing at a slower rate as compared to the 24% increase in revenues ~~partially offset by increased headcount costs and increased~~as a result of delays in content ~~expenses as we continue to acquire, license and produce content, including more Netflix originals. We additionally incurred $218 million in incremental content costs in the first quarter of 2020~~releases due to ~~paused productions~~the COVID-19 pandemic. Marketing, technology and development, and general and administrative expenses also grew at a slower rate as compared to the ~~establishment of a hardship fund to provide relief payments to workers impacted by the pandemic.~~growth in revenue.

The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Part I, Item 1A: ~~"Risk Factors"~~“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional details. In an effort to protect the health and safety of our employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, international travel has been ~~severely~~ curtailed, and ~~virtually all~~while most of our productions ~~are paused,~~have resumed, certain of our productions continue to experience disruption, as ~~are~~do the productions of our third-party content suppliers. Our other partners have similarly had their operations ~~altered or temporarily suspended,~~disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. ~~We had~~As a result, the pandemic has and continues to ~~temporarily reduce the network traffic~~affect our ability to produce content,

which in ~~some countries and have seen significant disruption~~turn led to delays in customer support operations and have increased headcount to meet the growing demand. We additionally have not been able to provide the same level of product features, such as language dubbing, on some newcertain content releases.

~~In an effort~~ Many government measures to contain COVID-19 or slow its spread, ~~governments around the world have also enacted various measures,~~ including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing, ~~when engaging~~continue to remain in ~~essential activities.~~effect or may be rescinded, modified, or reinstated. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, will continue to negatively impact business activity across the globe. While we have observed demand increases for our streaming entertainment service in the past fiscal quarter, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity decelerates across the globe.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.

We derive revenues from monthly membership fees for services related to streaming content to our members. We offer a variety of streaming membership plans, the price of which varies by country and the features of the plan. As of March 31, ~~2020,~~2021, pricing on our plans ranged from the U.S. dollar equivalent of $3 to ~~$22~~$24 per month. We expect that from time to time the prices of our membership plans in each country may change and we may test other plan and price variations.

The following tables summarize streaming revenue and other streaming membership information by region for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019.~~2020.

United States and Canada (UCAN)


	As of/ Three Months Ended				Change
	March 31, 2021		March 31, 2020		Q1'21 vs. Q1'20
	(in thousands, except revenue per membership and percentages)
Revenues	$	3,170,972	$	2,702,776	$	468,196	17	%
Paid net membership additions	448		2,307		(1,859)		(81)	%
Paid memberships at end of period	74,384		69,969		4,415		6	%
Average paying memberships	74,160		68,816		5,344		8	%
Average monthly revenue per paying membership	$	14.25	$	13.09	$	1.16	9	%
Constant currency change (1)							9	%

As of/ Three Months Ended Change
March 31, 2020 March 31, 2019 Q1'20 vs. Q1'19
(in thousands, except revenue per membership and percentages)
Revenues $ 2,702,776
$ 2,256,851
$ 445,925
20 %
Paid net membership additions 2,307
1,876
431
23 %
Paid memberships at end of period 69,969
66,633
3,336
5 %
Average paying memberships 68,816
65,695
3,121
5 %
Average monthly revenue per paying membership $ 13.09
$ 11.45
$ 1.64
14 %
Constant currency change (1) 14 %

Europe, Middle East, and Africa (EMEA)


	As of/ Three Months Ended				Change
	March 31, 2021		March 31, 2020		Q1'21 vs. Q1'20
	(in thousands, except revenue per membership and percentages)
Revenues	$	2,343,674	$	1,723,474	$	620,200	36	%
Paid net membership additions	1,810		6,956		(5,146)		(74)	%
Paid memberships at end of period	68,508		58,734		9,774		17	%
Average paying memberships	67,603		55,256		12,347		22	%
Average monthly revenue per paying membership	$	11.56	$	10.40	$	1.16	11	%
Constant currency change (1)							4	%

As of/ Three Months Ended Change
March 31, 2020 March 31, 2019 Q1'20 vs. Q1'19
(in thousands, except revenue per membership and percentages)
Revenues $ 1,723,474
$ 1,233,379
$ 490,095
40 %
Paid net membership additions 6,956
4,724
2,232
47 %
Paid memberships at end of period 58,734
42,542
16,192
38 %
Average paying memberships 55,256
40,180
15,076
38 %
Average monthly revenue per paying membership $ 10.40
$ 10.23
$ 0.17
2 %
Constant currency change (1) 4 %

Table of Contents

Latin America (LATAM)


	As of/ Three Months Ended				Change
	March 31, 2021		March 31, 2020		Q1'21 vs. Q1'20
	(in thousands, except revenue per membership and percentages)
Revenues	$	836,647	$	793,453	$	43,194	5	%
Paid net membership additions	357		2,901		(2,544)		(88)	%
Paid memberships at end of period	37,894		34,318		3,576		10	%
Average paying memberships	37,716		32,868		4,848		15	%
Average monthly revenue per paying membership	$	7.39	$	8.05	$	(0.66)	(8)	%
Constant currency change (1)							5	%

As of/ Three Months Ended Change
March 31, 2020 March 31, 2019 Q1'20 vs. Q1'19
(in thousands, except revenue per membership and percentages)
Revenues $ 793,453
$ 630,472
$ 162,981
26 %
Paid net membership additions 2,901
1,470
1,431
97 %
Paid memberships at end of period 34,318
27,547
6,771
25 %
Average paying memberships 32,868
26,812
6,056
23 %
Average monthly revenue per paying membership $ 8.05
$ 7.84
$ 0.21
3 %
Constant currency change (1) 12 %

Asia-Pacific (APAC)


	As of/ Three Months Ended				Change
	March 31, 2021		March 31, 2020		Q1'21 vs. Q1'20
	(in thousands, except revenue per membership and percentages)
Revenues	$	762,414	$	483,660	$	278,754	58	%
Paid net membership additions	1,361		3,602		(2,241)		(62)	%
Paid memberships at end of period	26,853		19,835		7,018		35	%
Average paying memberships	26,173		18,034		8,139		45	%
Average monthly revenue per paying membership	$	9.71	$	8.94	$	0.77	9	%
Constant currency change (1)							3	%

As of/ Three Months Ended Change
March 31, 2020 March 31, 2019 Q1'20 vs. Q1'19
(in thousands, except revenue per membership and percentages)
Revenues $ 483,660
$ 319,602
$ 164,058
51 %
Paid net membership additions 3,602
1,534
2,068
135 %
Paid memberships at end of period 19,835
12,141
7,694
63 %
Average paying memberships 18,034
11,374
6,660
59 %
Average monthly revenue per paying membership $ 8.94
$ 9.37
$ (0.43 ) (5 )%
Constant currency change (1) (3 )%

(1) We believe constant currency information is useful in analyzing the underlying trends in average monthly revenue per paying membership. In order to exclude the effect of 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 of the corresponding months of the prior-year period. For the three months ended March 31, ~~2020,~~2021, our revenues would have been approximately ~~$115~~$80 million ~~higher~~lower had foreign currency exchange rates remained constant with those for the three months ended March 31, ~~2019.~~2020.

Cost of Revenues

Amortization of content assets makes up the majority of cost of revenues. Expenses associated with the acquisition, licensing and production of content (such as payroll and related personnel expenses, costs associated with obtaining rights to music included in our content, overall deals with talent, miscellaneous production related costs and participations and residuals), streaming delivery costs and other operations costs make up the remainder of cost of revenues. We have built our own global content delivery network (“Open Connect”) to help us efficiently stream a high volume of content to our members over the internet. 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 content over the internet. Other operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs incurred in making our content available to members.


	Three Months Ended						Change
	March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20
	(in thousands, except percentages)
Cost of revenues	$	3,868,511		$	3,599,701		$	268,810	7	%
As a percentage of revenues	54		%	62		%

Three Months Ended Change
March 31,
2020 March 31,
2019 Q1'20 vs. Q1'19
(in thousands, except percentages)
Cost of revenues $ 3,599,701
$ 2,870,614
$ 729,087
25 %
As a percentage of revenues 62 % 63 %

Table of Contents

The increase in cost of revenues was primarily due to a ~~$359~~$236 million increase in content amortization relating to our existing and new content, including more exclusive and original programming. We also incurred $218 million in incremental content costs due to paused productions and hardship fund commitments due to the COVID-19 pandemic and expect to continue to incur additional incremental costs in

~~future periods.~~ Other content costs increased ~~$152~~$33 million primarily due to increases in expenses associated with ~~the acquisition, licensing~~streaming delivery costs and ~~production of content as well as increased~~ payment processing fees driven by our growing member base.

Marketing

Marketing expenses consist primarily of advertising expenses and certain payments made to our marketing partners, including consumer electronics ~~("CE"~~(“CE”) manufacturers, multichannel video programming distributors ~~("MVPDs"~~(“MVPDs”), mobile operators and internet service providers ~~("ISPs"~~(“ISPs”). Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll and related expenses for personnel that support marketing activities.


	Three Months Ended						Change
	March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20
	(in thousands, except percentages)
Marketing	$	512,512		$	503,830		$	8,682	2	%
As a percentage of revenues	7		%	9		%

Three Months Ended Change
March 31,
2020 March 31,
2019 Q1'20 vs. Q1'19
(in thousands, except percentages)
Marketing $ 503,830
$ 616,578
$ (112,748 ) (18 )%
As a percentage of revenues 9 % 14 %

The ~~decrease~~increase in marketing expenses was primarily due to a ~~$126~~$11 million ~~decrease~~increase in ~~advertising expenses,~~personnel-related costs, primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service, partially offset by ~~increased payments to our marketing partners.~~decreased advertising expenses.

Technology and Development

Technology and development expenses consist of payroll and related expenses for all technology personnel, as well as other costs incurred in making improvements to our service offerings, including testing, maintaining and modifying our user interface, our ~~recommendation,~~recommendations, merchandising and streaming delivery technology and infrastructure. Technology and development expenses also include costs associated with computer hardware and software.


	Three Months Ended						Change
	March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20
	(in thousands, except percentages)
Technology and development	$	525,207		$	453,817		$	71,390	16	%
As a percentage of revenues	7		%	8		%

Three Months Ended Change
March 31,
2020 March 31,
2019 Q1'20 vs. Q1'19
(in thousands, except percentages)
Technology and development $ 453,817
$ 372,764
$ 81,053
22 %
As a percentage of revenues 8 % 8 %

The increase in technology and development expenses was primarily due to a ~~$78~~$61 million increase in personnel-related costs, ~~including increases in compensation for existing employees and~~primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service.

General and Administrative

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


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

Table of Contents

Three Months Ended Change
March 31,
2020 March 31,
2019 Q1'20 vs. Q1'19
(in thousands, except percentages)
General and administrative $ 252,087
$ 201,952
$ 50,135
25 %
As a percentage of revenues 4 % 4 %

~~General~~The increase in general and administrative expenses ~~increased~~was primarily due to a ~~$46~~$24 million increase in third-party expenses, including costs for contractors and consultants. In addition, personnel-related costs ~~including increases in compensation for existing employees and~~increased by $19 million, primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service.

Interest Expense

Interest expense consists primarily of the interest associated with our outstanding debt obligations, including the amortization of debt issuance costs. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further detail on our debt obligations.


	Three Months Ended						Change					Three Months Ended						Change
	March 31, 2020			March 31, 2019			Q1'20 vs. Q1'19					March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20
	(in thousands, except percentages)											(in thousands, except percentages)
Interest expense	$	184,083		$	135,529		$	48,554	36	%	Interest expense	$	194,440		$	184,083		$	10,357	6	%
As a percentage of revenues	3		%	3		%					As a percentage of revenues	3		%	3		%

Interest expense primarily consists of interest on our Notes of ~~$180~~$190 million for the three months ended March 31, ~~2020.~~2021. The increase in interest expense for the three months ended March 31, ~~2020~~2021 as compared to the three months ended March 31, ~~2019~~2020 was due to the increase in debt.

Interest and Other Income ~~(Expense)~~

Interest and other income ~~(expense)~~ consists primarily of foreign exchange gains ~~and losses~~ on foreign currency denominated balances and interest earned on cash and cash equivalents.


	Three Months Ended						Change
	March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20
	(in thousands, except percentages)
Interest and other income	$	269,086		$	21,697		$	247,389	1,140	%
As a percentage of revenues	4		%	—		%

Three Months Ended Change
March 31,
2020 March 31,
2019 Q1'20 vs. Q1'19
(in thousands, except percentages)
Interest and other income (expense) $ 21,697
$ 76,104
$ (54,407 ) (71 )%
As a percentage of revenues — % 2 %

Interest and other income ~~(expense) decreased~~increased in the three months ended March 31, ~~2020~~2021 primarily due to foreign exchange gains of $9$258 million, compared to gains of ~~$62~~$9 million for the corresponding period in ~~2019.~~2020. In the three months ended March 31, 2021, the foreign exchange gains were primarily driven by the $253 million non-cash gain 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. In the three months ended March 31, 2020, the foreign exchange gains were primarily driven by the $93 million non-cash gain from the remeasurement of our €4,700 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies. ~~In the three months ended March 31, 2019, the foreign exchange gains were primarily driven by the $58 million gain from the remeasurement~~

Table of ~~our €2,400 million Senior Notes, coupled with the remeasurement of cash and content liability positions in currencies other than the functional currencies.~~Contents

Provision for Income Taxes


	Three Months Ended						Change
	March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20
	(in thousands, except percentages)
Provision for income taxes	$	327,787		$	86,803		$	240,984	278	%
Effective tax rate	16		%	11		%

Three Months Ended
March 31,
2020 March 31,
2019
(in thousands, except percentages)
Provision for income taxes $ 86,803
$ 55,607
Effective tax rate 11 % 14 %

In connection with the Tax Cuts and Jobs Act of 2017 the Company simplified its global corporate structure, effective April 1, 2019. The tax impacts of such simplifications were not material to the financial statements taken as a whole.

The effective tax rate for the three months ended March 31, ~~2020~~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 of stock-based compensation, Federal and California research and development (“R&D”) credits, and the international provisions of U.S. tax reform that became effective in 2018, partially offset by state taxes, foreign taxes, and non-deductible expenses.

compensation.

The ~~decrease~~increase in our effective tax rate for the three months ended March 31, ~~2020,~~2021, as compared to the same period in ~~2019~~2020 was primarily due to ~~changes from the global corporate structure simplification, offset by a lower benefit on a percentage basis for~~recognizing less excess tax benefits ofrelated to stock-based ~~compensation and Federal and California R&D credits due to higher pre-tax income.~~compensation.

Liquidity and Capital Resources


	As of				Change
	March 31, 2021		December 31, 2020		March 31, 2021 vs. December 31, 2020
	(in thousands, except percentages)
Cash, cash equivalents and restricted cash	$	8,436,453	$	8,238,870	$	197,583	2	%
Short-term and long-term debt	15,559,340		16,308,973		(749,633)		(5)	%

As of
March 31,
2020 December 31,
2019
(in thousands)
Cash, cash equivalents and restricted cash $ 5,178,187
$ 5,043,786
Debt 14,669,501
14,759,260

Cash, cash equivalents and restricted cash increased ~~$134~~$198 million in the three months ended March 31, ~~2020~~2021 primarily due to cash provided by ~~operations.~~operations, partially offset by the repayment of debt.

Debt, net of debt issuance costs, decreased ~~$90~~$750 million primarily due to the repayment upon maturity of the $500 million aggregate principal amount of our 5.375% Senior Notes in February 2021, coupled with the remeasurement of our euro-denominated notes. The amount of principal and interest on our outstanding notes due in the next twelve months is ~~$1,233~~$1,454 million. As of March 31, ~~2020,~~2021, no amounts had been borrowed under the $750 million Revolving Credit Agreement. See Note 6 Debt in the accompanying notes to our consolidated financial statements.

We anticipate ~~continuing to finance~~that our future capital needs infrom the debt ~~market.~~market 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. ~~In addition, the recent COVID-19 pandemic has caused disruption in the capital markets. It could make financing more difficult and/or expensive and we~~We may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.

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

Our primary uses of cash include the acquisition, licensing and production of content, streaming delivery, marketing programs and personnel-related costs. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. 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 increase our investments in global content, particularly in original content, which will impact our ~~liquidity and result in future net cash used in operating activities and negative free cash flow.~~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 at least the next twelve months. ~~During the period~~

Table of ~~uncertainty of volatility related to the COVID-19 pandemic, we will continue to monitor our liquidity.~~Contents

Free Cash Flow

We define free cash flow as cash provided by (used in) operating activities less purchases of property and ~~investing activities.~~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 ~~or the amount of cash used in operations, including investments in global content.~~like stock repurchases. Free cash flow is considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net income, operating income, net cash ~~flow~~ provided by (used in) 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 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. Membership fees due are generally collected quickly.


	Three Months Ended				Change
	March 31, 2021		March 31, 2020		Q1'21 vs. Q1'20
	(in thousands, except percentages)
Net cash provided by operating activities	$	777,266	$	259,912	$	517,354	199	%
Net cash used in investing activities	(85,616)		(98,303)		(12,687)		(13)	%
Net cash provided by (used in) financing activities	(451,929)		43,694		(495,623)		(1,134)	%

Non-GAAP reconciliation of free cash flow:
Net cash provided by operating activities	777,266		259,912		517,354		199	%
Purchases of property and equipment	(81,001)		(98,015)		(17,014)		(17)	%
Change in other assets	(4,615)		(288)		(4,327)		(1,502)	%
Free cash flow	$	691,650	$	161,609	$	530,041	328	%

Three Months Ended
March 31,
2020 March 31,
2019
(in thousands)
Net cash provided by (used in) operating activities $ 259,912
$ (379,799 )
Net cash used in investing activities (98,303 ) (80,103 )
Net cash provided by financing activities 43,694
22,972

Non-GAAP reconciliation of free cash flow:
Net cash provided by (used in) operating activities 259,912
(379,799 )
Net cash used in investing activities (98,303 ) (80,103 )
Free cash flow $ 161,609
$ (459,902 )

Net cash provided by operating activities increased ~~$640~~$517 million to ~~$260~~$777 million for the three months ended March 31, ~~2020.~~2021. The increase in cash provided by operating activities was primarily driven by a ~~$1,247~~$1,396 million or ~~28%~~24% increase in revenues, partially offset by an increase in investments in content that require more upfront cash payments. The payments for content assets increased ~~$23~~$515 million, from ~~$3,012~~$3,035 million to ~~$3,035~~$3,551 million, or 1%17%, as compared to the increase in the amortization of content assets of ~~$359~~$236 million, from ~~$2,125~~$2,483 million to ~~$2,483~~$2,719 million, or ~~17%~~9%. At the end of the three months ended March 31, 2020, due to the global COVID-19 pandemic, we have paused most of our productions in response to government lockdowns and guidance from local health officials. As a result, the timing of certain production payments will be delayed until productions can resume and may be shifted to future years. 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 and increased content production activities.~~expansion.

Net cash used in investing activities ~~increased $18~~decreased $13 million for the three months ended March 31, ~~2020,~~2021, primarily due to ~~the increase~~a decrease in purchases of property and equipment.

Net cash provided by (used in) financing activities ~~increased $21~~decreased $496 million for the three months ended March 31, ~~2020,~~2021, primarily due to ~~an increase~~the repayment of debt.

Free cash flow was $1,015 million lower than net income for the three months ended March 31, 2021 primarily due to $831 million of cash payments for content assets over amortization expense, $253 million of non-cash remeasurement gain on our euro-denominated debt, and $38 million in ~~the proceeds from the issuance~~other non-favorable working capital differences, partially offset by $107 million of ~~common stock.~~non-cash stock-based compensation expense.

Free cash flow was $547 million lower than net income for the three months ended March 31, 2020, primarily due to $552 million of cash payments for content assets over amortization expense and ~~$92~~$93 million ~~in other non-favorable working capital differences,~~of non-cash remeasurement gain on our euro-denominated debt, partially offset by $97 million of non-cash stock-based compensation ~~expense.~~

~~Free cash flow was $804 million lower than net income for the three months ended March 31, 2019, primarily due to $888 million of cash payments for content assets over amortization~~ expense and ~~$17~~$1 million in ~~other non-favorable~~favorable working capital ~~differences, partially offset by $101 million~~differences.

Table of ~~non-cash stock-based compensation expense.~~Contents

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 March 31, ~~2020.~~2021. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. The following table summarizes our contractual obligations as of March 31, ~~2020:~~2021:


	Payments due by Period
Contractual obligations (in thousands):	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Content obligations (1)	$	20,725,165	$	9,456,342	$	8,241,022	$	2,259,821	$	767,980
Debt (2)	21,000,783		1,453,690		1,804,714		3,161,269		14,581,110
Operating lease obligations (3)	2,825,470		357,900		655,591		576,630		1,235,349
Other purchase obligations (4)	1,067,747		679,340		383,349		5,058		—
Total	$	45,619,165	$	11,947,272	$	11,084,676	$	6,002,778	$	16,584,439

Payments due by Period
Contractual obligations (in thousands): Total Less than
1 year 1-3 years 3-5 years More than
5 years
Content obligations (1) $ 19,174,038
$ 8,618,185
$ 8,064,206
$ 1,974,855
$ 516,792
Debt (2) 20,587,654
1,233,206
2,060,732
2,502,066
14,791,650
Operating lease obligations (3) 2,739,071
285,784
587,752
533,605
1,331,930
Other purchase obligations (4) 1,000,138
716,792
254,922
28,060
364
Total $ 43,500,901

$ 10,853,967
$ 10,967,612
$ 5,038,586
$ 16,640,736

(1)As of March 31, 2021, content obligations were comprised of $4.3 billion included in “Current content liabilities” and $2.5 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and $13.9 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.


~~(1)~~	As of March 31, 2020, content obligations were comprised of $4.8 billion included in "Current content liabilities" and $3.2 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $11.2 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.

Content obligations include amounts related to the acquisition, licensing and production of content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. The contractual obligations table above does not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $1 billion to $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 6 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)~~	~~See Note 5 to the consolidated financial statements for further details regarding leases.~~

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


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

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

As of March 31, ~~2020,~~2021, we had gross unrecognized tax benefits of ~~$71 million which was classified in “Other non-current liabilities” and a reduction to deferred tax assets which was classified as "Other non-current assets" in the Consolidated Balance Sheets.~~$160 million. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

Off-Balance Sheet Arrangements

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

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Indemnification

The information set forth under Note 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 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.

Content

We acquire, license and produce content, including original ~~programing,~~programming, in order to offer our members unlimited viewing of 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 content assets and the changes in related liabilities, are classified within "Net cash 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 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. For produced content, we capitalize costs associated with the production, including development cost, direct costs and production overhead. 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 is on an accelerated basis, as we typically expect more upfront viewing, for instance due to additional merchandising and marketing efforts, and film amortization is more accelerated than TV series amortization. On average, over 90% of a licensed or produced content asset is expected to be amortized within four years after its month of first availability. We review factors that impact the amortization of the content assets on a regular basis. Our estimates related to these factors require considerable management judgment.

Our business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed at 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 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 or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

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 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.

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. However, we believe that it is more likely than not that most of the deferred tax assets recorded on our Consolidated Balance Sheets will ultimately be realized. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. As of March 31, ~~2020,~~2021, the valuation allowance of ~~$132~~$298 million was related to the California research and

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development credits and certain foreign tax ~~credits~~attributes that we ~~are~~do not ~~expected~~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 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 March 31, ~~2020,~~2021, our estimated gross unrecognized tax benefits were ~~$71~~$160 million of which ~~$60~~$99 million, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. See Note 9 Income Taxes to the consolidated financial statements for further information regarding income taxes.

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, ~~2019.~~2020. Our exposure to market risk has not changed significantly since December 31, ~~2019.~~2020.

Foreign Currency Risk

Revenues denominated in currencies other than the U.S. dollar account for ~~53%~~56% of the consolidated amount for the three months ended March 31, ~~2020.~~2021. We therefore have foreign currency risk related to these currencies, which are primarily the euro, the British pound, the Brazilian real, the Canadian dollar, ~~the Australian dollar, the Japanese yen,~~ the Mexican Peso, the ~~Argentine peso,~~Australian dollar, and the ~~Brazilian real.~~Japanese yen.

~~Volatile market conditions arising from the COVID-19 pandemic may result in significant~~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 operating income as expressed in U.S. dollars. In the three months ended March 31, ~~2020,~~2021, our revenues would have been approximately ~~$115~~$80 million ~~higher~~lower had foreign currency exchange rates remained consistent with those in same period of ~~2019.~~2020.

We have also experienced and will continue to experience fluctuations in our net income as a result of gains (losses) on the settlement and the remeasurement of monetary assets and liabilities denominated in currencies that are not the functional currency. In the three months ended March 31, ~~2020,~~2021, we recognized a $9$258 million foreign exchange gain primarily due to the non-cash remeasurement of our Senior Notes denominated in euros, ~~partially offset by~~coupled with the remeasurement of cash and content liabilities denominated in currencies other than the functional currencies.

In addition, the effect of exchange rate changes on cash, cash equivalents and restricted cash as disclosed on the Consolidated Statements of Cash Flow for the three months ended March 31, ~~2020~~2021 was a decrease of ~~$71~~$42 million.

We do not use foreign exchange contracts or derivatives to hedge any foreign currency exposures. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued international expansion increases our exposure to exchange rate fluctuations and, as a result, such fluctuations could have a significant impact on our future results of operations.


~~Item 4.~~	~~Controls and Procedures~~

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our ~~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)~~ 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 March 31, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

Item 1.Legal Proceedings

The information set forth under Note 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~~

~~The following risk factor is provided to update~~Item 1A.Risk Factors

There have been no material changes from the risk factors 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, ~~2019.~~2020.

~~The recent coronavirus (COVID-19) pandemic~~

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

Company Purchases of Equity Securities

In March 2021, our Board of Directors authorized the ~~global attempt~~repurchase of up to ~~contain it may harm our industry, business, results of operations and ability to raise additional capital.~~

The global spread of the coronavirus (COVID-19) and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. In response to government mandates, health care advisories and otherwise responding to employee and vendor concerns, we have altered certain aspects$5 billion of our ~~operations. Our workforce has had~~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 ~~spend a significant amount of time working from home, which impacts their productivity. International travel has been severely curtailed~~qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and ~~virtually all of our productions~~in such amounts as management deems appropriate. We are paused, as are productions of third-parties who supply us with content. Other partners have similarly had their operations altered or temporarily suspended, including those partners that we use for our operations as well as development, production and post-production of content. To the extent the resulting economic disruption is severe, we could see some vendors go out of business, resulting in supply constraints and increased costs or delaysnot obligated to our productions. Such production pauses may cause us temporarily to have less new content available on our service in subsequent quarters, which could negatively impact consumer demand for and member retention to our service and therepurchase any specific number of ~~paid memberships. Temporary production pauses or permanent shutdowns in production could result in content asset impairments or other charges~~shares, and ~~will change~~ the timing and ~~amount~~actual number of ~~cash outflows associated with production activity.~~

~~The full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results~~shares repurchased will depend on ~~numerous evolving~~a variety of factors, ~~that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental,~~including our stock price, general economic, business and ~~individuals’ actions that have been~~market conditions, and continue to be taken in response to the pandemic; the availability and cost to access the capital markets; the effect on our customers and customer demand for and ability to pay for our services; disruptions or restrictions on our employees’ ability to work and travel; interruptions or restrictions related to the provision of streaming services over the internet, including impacts on content delivery networks and streaming quality; andalternative investment opportunities. We may discontinue any stoppages, disruptions or increased costs associated with our development, production, post-production, marketing and distribution of original programming. During the COVID-19 crisis, we may not be able to provide the same level of customer service and product features, such as dubbing, that our members are used to which could negatively impact their perceptionrepurchases of our service resulting in an increase in cancellations. Furthermore, given increased government expenditures associated with their COVID-19 response, we could see increased government obligations which could negatively impact our resultscommon stock at any time without prior notice. As of ~~operations. If we need to access the capital markets, there can be~~March 31, 2021, no assurance that financing may be available on attractive terms, if at all. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations, including content production, as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.stock has been repurchased under this program.

The COVID-19 pandemic has also led to an increase in our net paid membership additions relative to our quarterly forecast and historic trends. These results, as well as those of other metrics such as revenues, operating margins, net income and other financial and operating data, may not be indicative of results for future periods. Our increase in net paid membership additions may reflect the acceleration of growth that we would have seen in subsequent periods, and membership growth may slow or reverse, due to slower acquisition and/or higher cancellations, as government and other restrictions are relaxed. In addition to the potential direct impacts to our business, the global economy is likely to be significantly weakened as a result of the actions taken in response to COVID-19. To the extent that such a weakened global economy impacts consumers’ ability or willingness to pay for our service or vendors’ ability to provide services to us, especially those related to our content productions, we could see our business and results of operation negatively impacted.


~~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

10-Q

001-35727

3.1

July 17, 2015

3.2

Amended and Restated Bylaws

8-K

001-35727

3.1

December 18, 2020

10.1†

Executive Severance and Retention Incentive Plan, as amended and restated as of April 1, 2021

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 March 31, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Balance Sheets, (v) Consolidated Statements of Stockholders' Equity and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags

104

The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL

~~Exhibit Number~~

~~Exhibit Description~~

~~Incorporated by Reference~~

Filed
Herewith

~~Form~~

~~File No.~~

~~Exhibit~~

~~Filing Date~~

~~31.1~~

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

~~31.2~~

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

32.1*

~~Certifications of Chief Executive Officer 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 March 31, 2020, 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 March 31, 2020, 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.

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

† Indicates a management contract or compensatory plan

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						NETFLIX, INC.
Dated:			April 22, 2021			By:	/s/ Reed Hastings
							Reed Hastings Co-Chief Executive Officer (Principal executive officer)

Dated:			April 22, 2021			~~NETFLIX, INC.~~
~~Dated:~~By:	~~April 21, 2020~~			~~By:~~	~~/s/ Reed Hastings~~
			~~Reed Hastings~~ ~~Chief Executive Officer~~ ~~(Principal executive officer)~~

~~Dated:~~	~~April 21, 2020~~	~~By:~~	/s/ Spencer Neumann
							Spencer Neumann Chief Financial Officer (Principal financial and accounting officer)



	As of
	March 31, 2020			December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	5,151,884		$	5,018,437
Other current assets	1,295,897			1,160,067
Total current assets	6,447,781			6,178,504
Content assets, net	25,266,889			24,504,567
Property and equipment, net	650,455			565,221
Other non-current assets	2,694,785			2,727,420
Total assets	$	35,059,910		$	33,975,712
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities	$	4,761,585		$	4,413,561
Accounts payable	545,488			674,347
Accrued expenses and other liabilities	1,061,090			843,043
Deferred revenue	986,753			924,745
Short-term debt	498,809			—
Total current liabilities	7,853,725			6,855,696
Non-current content liabilities	3,206,051			3,334,323
Long-term debt	14,170,692			14,759,260
Other non-current liabilities	1,420,148			1,444,276
Total liabilities	26,650,616			26,393,555
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2020 and December 31, 2019; 439,780,618 and 438,806,649 issued and outstanding at March 31, 2020 and December 31, 2019, respectively	2,935,532			2,793,929
Accumulated other comprehensive loss	(47,054		)	(23,521		)
Retained earnings	5,520,816			4,811,749
Total stockholders’ equity	8,409,294			7,582,157
Total liabilities and stockholders’ equity	$	35,059,910		$	33,975,712



	As of/ Three Months Ended
	March 31, 2020		March 31, 2019
	(in thousands)
Revenues	$	2,702,776	$	2,256,851
Paid net membership additions	2,307		1,876
Paid memberships at end of period (1)	69,969		66,633



	As of March 31, 2020
	Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
	(in thousands)
Cash	$	3,100,789	$	2,514	$	23,536	$	3,126,839
Level 1 securities:
Money market funds	1,751,095		—		253		1,751,348
Level 2 securities:
Foreign Time Deposits	300,000		—		—		300,000

	$	5,151,884	$	2,514	$	23,789	$	5,178,187



	As of December 31, 2019
	Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
	(in thousands)
Cash	$	3,103,525	$	1,863	$	22,161	$	3,127,549
Level 1 securities:
Money market funds	1,614,912		—		1,325		1,616,237
Level 2 securities:
Foreign Time Deposits	300,000		—		—		300,000

	$	5,018,437	$	1,863	$	23,486	$	5,043,786



	As of
	March 31, 2020		December 31, 2019
	(in thousands)
Less than one year	$	1,233,206	$	736,969
Due after one year and through three years	2,060,732		2,581,471
Due after three years and through five years	2,502,066		1,705,201
Due after five years	14,791,650		15,699,800
Total debt obligations	$	20,587,654	$	20,723,441


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