Exhibit 99.1
Oct 21, 2013
Fellow Shareholders,
We are very pleased to have over 40 million members, up from less than 30 million just one year ago.
The Netflix original series Orange is the New Black is a critical and popular success, and our earlier series House of Cards is the first Internet TV series to win a Primetime Emmy Award. We launched our 41st country and the Dutch seem to like Netflix.
Our summary results and Q4 guidance midpoints are below:
|
| | | | | | | | | | | | | | | | | | |
| (in millions except per share data) | Q3 '12 | Q4 '12 | Q1 '13 | Q2 '13 | Q3 '13 | Q4 '13 Guidance Midpoint |
| Domestic: | | | | | | |
| Net Additions | 1.16 |
| 2.05 |
| 2.03 |
| 0.63 |
| 1.29 |
| 2.01 |
|
| Total Members | 25.10 |
| 27.15 |
| 29.17 |
| 29.81 |
| 31.09 |
| 33.10 |
|
| Paid Members | 23.80 |
| 25.47 |
| 27.91 |
| 28.62 |
| 29.93 |
| 31.45 |
|
| Revenue | $ | 556 |
| $ | 589 |
| $ | 639 |
| $ | 671 |
| $ | 701 |
| $ | 736 |
|
| Contribution Profit | $ | 96 |
| $ | 113 |
| $ | 131 |
| $ | 151 |
| $ | 166 |
| $ | 171 |
|
| Contribution Margin | 17.2 | % | 19.2 | % | 20.6 | % | 22.5 | % | 23.7 | % | 23.2 | % |
| | | | | | | |
| International: | | | | | | |
| Net Additions | 0.69 |
| 1.81 |
| 1.02 |
| 0.61 |
| 1.44 |
| 1.31 |
|
| Total Members | 4.31 |
| 6.12 |
| 7.14 |
| 7.75 |
| 9.19 |
| 10.50 |
|
| Paid Members | 3.69 |
| 4.89 |
| 6.33 |
| 7.01 |
| 8.08 |
| 9.40 |
|
| Revenue | $ | 78 |
| $ | 101 |
| $ | 142 |
| $ | 166 |
| $ | 183 |
| $ | 217 |
|
| Contribution Profit (Loss) | $ | (92 | ) | $ | (105 | ) | $ | (77 | ) | $ | (66 | ) | $ | 74 |
| $ | (65 | ) |
| Contribution Margin | -118.8 | % | -103.2 | % | -54.2 | % | -39.7 | % | -40.6 | % | -30.0 | % |
| | | | | | | |
| Total (including DVD): | | | | | | |
| Revenue | $ | 905 |
| $ | 945 |
| $ | 1,024 |
| $ | 1,069 |
| $ | 1,106 |
| |
| Operating Income | $ | 16 |
| $ | 20 |
| $ | 32 |
| $ | 57 |
| $ | 57 |
| |
| Net Income | $ | 8 |
| $ | 8 |
| $ | 3 |
| $ | 29 |
| $ | 32 |
| $ | 37 |
|
| EPS | $ | 0.13 |
| $ | 0.13 |
| $ | 0.05 |
| $ | 0.49 |
| $ | 0.52 |
| $ | 0.60 |
|
| | | | | | | |
| Free Cash Flow | $ | (20 | ) | $ | (51 | ) | $ | (42 | ) | $ | 13 |
| $ | 7 |
| |
| Shares (FD) | 58.7 |
| 59.1 |
| 60.1 |
| 60.6 |
| 61.0 |
| |
Domestic
Domestic net additions of 1.3 million were 11% higher than prior year Q3 due to the growing strength of our content offering, aided by the great press coverage and social buzz generated by Orange is the New Black and our Emmy nominations, and the softer comp in Q3 2012 from the impact of the summer Olympics. We expect Q4 net additions to be approximately equal to Q4 of the prior year and to expand our contribution margin about 400 basis points year over year to about 23%, assuming the midpoint of our guidance. This means that sequentially our target contribution margin is slightly down Q3 to Q4. As a reminder, we shifted our contribution margin target a few months ago from “100 basis points of quarterly sequential improvement” to “400 basis points Q over prior year Q” so we are right on target with our articulated margin growth strategy. Our $7.99 price is working very well for us for both membership growth and contribution margin growth.
While our original series get most of the headlines, a bigger percentage of overall Netflix viewing is generated by our exclusive complete season-after series. During the quarter, we launched new seasons of The New Girl, The Walking Dead, Scandal, Breaking Bad, Revolution and Pretty Little Liars. We also announced that Netflix will be the exclusive home to high quality first-run Pay1 films from The Weinstein Company beginning in 2016. Our kids offering was strengthened during the quarter by adding top rated and award winning Scholastic TV shows, Goosebumps and The Magic School Bus. We also announced an expanded list of PBS shows including Super Why!, Wild Kratts, Caillou and Arthur, as well as all seasons of the critically-acclaimed mystery The Bletchley Circle.
International
International net additions were way up from the prior year at 1.4 million new members, driven by our expansion to the Nordics and the Netherlands since last Q3, as well as growth in our existing markets from our steadily improving service, content and marketing. In addition, there was a surge in low quality free trials in September in Latin America that temporarily boosted the total member number. The paid net adds remain a reliable indicator of progress.
Our Q3 international contribution loss was $74 million, as we saw flat to slight sequential improvements in contribution profits in all international markets during the quarter, offset by the Netherlands launch expense.
In Q4, assuming the midpoint of our guidance, we expect continued momentum to result in about 1.3 million net additions, to end 2013 with 10.5 million international members. This compares to 1.8 million net additions in Q4 a year ago, which was our Nordics launch quarter. In all our other markets (Canada, Latin America, UK/IE, Netherlands), we expect net additions to be steady or up on a Q4 over Q4 basis.
Sequentially, we expect international total member net adds in Q4 to be flat to down (1.4 million in Q3 to 1.3 million) as we work through the low-quality Latin America free trials from Q3, but paid net adds in Q4 are forecasted to rise (1.1 million in Q3 to 1.3 million).
For Q4, we expect our contribution losses to improve to $65 million, assuming the midpoint of our guidance.
We plan to launch in new markets next year, executing on the strategy outlined in our long term view letter. Our success this year in increasing international net additions to nearly the level of our domestic net additions shows substantial momentum and confirms our belief there is a big international opportunity for Netflix.
Original Content
An excellent summary of our early progress in original content is this two-minute video1.
Over the next few years we aspire to support creation of some of the most compelling and remarkable content ever produced. Coupled with the flexibility of our Internet viewing and power of our personal recommendations we will keep changing television for the better.
Orange is the New Black has been a tremendous success for us. It will end the year as our most watched original series ever and, as with each of our other previously launched originals, enjoys an audience comparable with successful shows on cable and broadcast TV. We have seen sustained social media buzz in the months after its debut and it is also one of the most critically well received TV shows of 2013. Orange is the New Black was not eligible for the Emmys in 2013, but Season 1 will be eligible next year and we believe the audience for Season 2 will grow substantially.
Speaking of Emmys, we were thrilled to be a part of TV history in the quarter by winning 3 Emmy awards (3 of our original series received 14 total nominations). David Fincher’s win for Outstanding Director in a Drama Series made House of Cards the first TV series to win a major primetime Emmy without ever airing on a broadcast network or cable channel. We were delighted for David as well as Laray Mayfield and Julie Schubert who won for Outstanding Casting in a Drama Series and Eigil Bryld who picked up an Emmy for Outstanding Cinematography for a Single Camera Series.
In addition to Orange is the New Black, during Q3, we launched the new Ricky Gervais series Derek and broadened our original content offering with the acquisition of high profile stand up comedy specials from Russell Peters and Aziz Ansari, premiering exclusively on Netflix in October and November, respectively. We also rolled out a second set of episodes of Mako Mermaids, our original series directed at the teen audience, and will soon expand into original documentaries, a category that does well on the Netflix service.
This quarter we will premiere our inaugural second season of a Netflix original series with the return of Lilyhammer starring Steven Van Zandt. We will also be launching our first animated original series with Dreamworks Animation, Turbo F.A.S.T.
In 2014, we expect to double our investment in original content (though still representing less than 10% of our overall global content expense). Coming to Netflix next year will be second seasons of House of Cards, Orange is the New Black, Derek and Hemlock Grove as well as the just announced project from Todd and Glenn Kessler and Daniel Zelman, the Emmy and Golden Globe nominated creators of Damages. We’ll also roll out a number of new animated series from DreamWorks Animation. Expect more news on additional new original projects in the months to come.
When we started with original content we didn’t have specific data about viewing patterns over time for content that premieres on Netflix. We decided to use straight line amortization based on our experience with TV series from other networks. Now we have more specific viewing data for original content which shows more viewing in the early months of a show’s debut, so we are accelerating the amortization of such content commensurately. We’ll continue to monitor the viewing patterns and adjust the amortization schedule as appropriate.
____________________
1 http://www.youtube.com/watch?v=_kOvUuMowVs
Marketing
Our global marketing campaigns promote compelling content, unique product features and the joy of the Netflix experience. These messages are adapted market by market to form deeper brand connections with our customers wherever they live.
Q3 saw the launch of our Netherlands ‘All You Can Watch’ campaign and new advertising in the Nordic2 countries and Brazil3, all of which communicate our brand proposition nuanced for local tastes.
We continue to feature our content in advertising. Our goal is to shape customer perceptions of our catalog through an always-on layer of content marketing targeted at specific demographic groups. Last month we launched “TV Too”4 in which we are promoting the wealth of TV series on Netflix, taking advantage of the tremendous influx of new seasons coming into the service with the message ‘Discover, Relive, Start from the Beginning’.
With regard to online advertising, we continue to improve our global efficiency and targeting with investments in programmatic and online video advertising. Our aim is to target consumers with the right message at the right stage of their consumer journey in both direct response and brand messages.
Product
During Q3, we launched profiles, offering individual personalization for each member of a household and “My List” to help all members save titles to watch later in a more organized and adaptive manner than our prior Instant Queue, which was available only to U.S. members. Both of these features help members find and engage with films and TV series matched to their individual tastes.
The growth of smart TVs and Internet TV devices, such as AppleTV, Roku, and Chromecast, are increasing the availability of TV streaming platforms. Tablets and phones also are rapidly growing as Netflix viewing platforms.
We launched with Virgin Media, the UK’s leading cable company, a world first: Netflix on a major cable set-top box. It is rolling out over this quarter to Virgin Media’s subscribers. The integration of search and suggestions between broadband and cable is great for customers, and we want this superior experience to help Virgin Media gain market share in the UK.
Cable operators like Virgin Media believe that by enabling their subscribers to do more with their cable set-top and remote, they can increase satisfaction, relative to their subscribers using a separate Internet set-top box or smart TV to enjoy Netflix. We are open to more of these integrations with cable set-tops around the world, but given the fragmented technology footprints, we think it will be many years before cable set-top boxes match Internet set-top boxes for Netflix streaming volume. As a general rule, we’re happy to support devices from other video providers as long as we get application placement commensurate with our popularity.
____________________
2 http://www.youtube.com/watch?v=QF7o62RwZYM
3 http://www.youtube.com/watch?v=eq3YaVvYpF0&feature=youtu.be
4 http://www.youtube.com/watch?v=iwrK1Mqao34
DVD
The huge selection we offer on DVD, including all the HBO and other Pay TV series, continues to be a source of satisfaction for 7.15 million domestic households, and we generated $107 million of contribution profit, as expected. With the USPS rate announcement in September, we anticipate a postal rate increase in January of 3 cents each way or $3-4 million per quarter of additional expense in 2014.
Profitability
We were pleased with our global profitability for Q3. We delivered on our targets despite the faster amortization of original content, which pulled forward into Q3 about $27 million in expense from future quarters, due to more members and revenue than expected and by adjusting spending in Q3 on other items. The effect of the faster amortization of original content is small enough that we are not changing our domestic contribution margin targets (400 basis points Q over prior year Q) or our global profitability targets (stay profitable despite international investments).
Stock Volatility
In calendar year 2003 we were the highest performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003.
Despite the huge swings in our stock price since our 2002 IPO ($8 to $3 to $39 to $8 to $300 to $55 to $330), we’ve continued to grow our membership every year fairly steadily. We do our best to ignore the volatility in our stock. The progress we’ve made over the last 10 years is stunning. We want to make the next 10 years even more remarkable.
Business Outlook
We have also updated our long term view letter5.
|
| |
| (in millions except per share data) | Q4 2013 Guidance |
| Domestic Streaming: | |
| Total members | 32.7 to 33.5 |
| Paid members | 31.1 to 31.8 |
| Revenue | $731 to $741 |
| Contribution Profit | $165 to $177 |
| | |
| International Streaming: | |
| Total members | 10.1 to 10.9 |
| Paid members | 9.1 to 9.7 |
| Revenue | $210 to $224 |
| Contribution Profit (Loss) | ($73 ) to ($57) |
| | |
| Domestic DVD: | |
| Contribution Profit | $96 to $110 |
| | |
| Consolidated Global: | |
| Net Income | $29 to $45 |
| EPS | $0.47 to $0.73 |
Summary
We have done well but we have a long way to go to match HBO’s 114 million6 global member count or their well-deserved Emmy award leadership. Title by title, device by device, member by member, award by award, country by country, we are making progress.
____________________
5 http://ir.netflix.com/long-term-view.cfm
6 http://www.timewarner.com/our-content/home-box-office/
Sincerely,
|
| |
| |
| Reed Hastings, CEO | David Wells, CFO |
| |
Third Quarter 2013 Earnings Interview
Reed Hastings, David Wells and Ted Sarandos will participate in a live video interview at 2 p.m. Pacific Time at youtube.com/netflixir. The interview will be conducted by Rich Greenfield, BTIG Research and Doug Anmuth, JP Morgan. Questions that investors would like to see asked should be sent to rgreenfield@btig.com or douglas.anmuth@jpmorgan.com.
|
| |
| IR Contact: | PR Contact: |
Erin Kasenchak
| Jonathan Friedland
|
Director, Investor Relations
| Chief Communications Officer
|
408 540-3691
| 310 734-2958 |
Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measures of free cash flow. Management believes that free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities. However, this non-GAAP measure should be considered in addition to, not as a substitute for or superior to, net income, operating income, diluted earnings per share and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. Reconciliation to the GAAP equivalent of this non-GAAP measure is contained in tabular form on the attached unaudited financial statements.
Forward-Looking Statements
This shareholder letter contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding meeting domestic contribution margin targets; international contribution losses; expansion into new geographic markets and the impact of international expansion; investments in content, particularly original content, including second seasons of original content and new categories of original content; business outlook for our DVD segment, including contribution profit and the impact of a USPS rate increase; the rate and impact of integration on cable set-top boxes; member growth domestically and internationally, including total and paid; revenue and contribution profit (loss) for both domestic (streaming and DVD) and international operations as well as net income and earnings per share for the fourth quarter of 2013. The forward-looking statements in this letter are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms for instant streaming; fluctuations in consumer usage of our service; disruption in service on our website and systems or with third-party computer systems that help us operate our service; competition; and, widespread consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 1, 2013. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.
Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2013 | | June 30, 2013 | | September 30, 2012 (1) | | September 30, 2013 | | September 30, 2012 (1) |
| Revenues | $ | 1,105,999 |
| | $ | 1,069,372 |
| | $ | 905,089 |
| | $ | 3,199,332 |
| | $ | 2,664,043 |
|
| Cost of revenues | 791,019 |
| | 753,525 |
| | 662,638 |
| | 2,271,407 |
| | 1,929,999 |
|
| Marketing | 116,109 |
| | 121,760 |
| | 108,448 |
| | 367,044 |
| | 352,340 |
|
| Technology and development | 95,540 |
| | 93,126 |
| | 82,521 |
| | 280,641 |
| | 246,869 |
|
| General and administrative | 46,211 |
| | 43,844 |
| | 35,347 |
| | 134,181 |
| | 104,481 |
|
| Operating income | 57,120 |
| | 57,117 |
| | 16,135 |
| | 146,059 |
| | 30,354 |
|
| Other income (expense): | | | | | | | | | |
| Interest expense | (7,436 | ) | | (7,528 | ) | | (4,990 | ) | | (21,704 | ) | | (14,970 | ) |
| Interest and other income (expense) | (193 | ) | | (2,940 | ) | | 801 |
| | (2,156 | ) | | 192 |
|
| Loss on extinguishment of debt | — |
| | — |
| | — |
| | (25,129 | ) | | — |
|
| Income before income taxes | 49,491 |
| | 46,649 |
| | 11,946 |
| | 97,070 |
| | 15,576 |
|
| Provision for income taxes | 17,669 |
| | 17,178 |
| | 4,271 |
| | 33,088 |
| | 6,321 |
|
| Net income | $ | 31,822 |
| | $ | 29,471 |
| | $ | 7,675 |
| | $ | 63,982 |
| | $ | 9,255 |
|
| Earnings per share: | | | | | | | | | |
| Basic | $ | 0.54 |
| | $ | 0.51 |
| | $ | 0.14 |
| | $ | 1.11 |
| | $ | 0.17 |
|
| Diluted | $ | 0.52 |
| | $ | 0.49 |
| | $ | 0.13 |
| | $ | 1.06 |
| | $ | 0.16 |
|
| Weighted average common shares outstanding: | | | | | | | | | |
| Basic | 59,108 |
| | 58,192 |
| | 55,541 |
| | 57,769 |
| | 55,508 |
|
| Diluted | 60,990 |
| | 60,590 |
| | 58,729 |
| | 60,578 |
| | 58,829 |
|
(1) Certain prior period amounts have been reclassified from "Marketing" to "General and administrative" to conform to current period presentation.
Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share and par value data)
|
| | | | | | | |
| | As of |
| | September 30,
2013 | | December 31,
2012 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 439,056 |
| | $ | 290,291 |
|
| Short-term investments | 695,931 |
| | 457,787 |
|
| Current content library, net | 1,577,514 |
| | 1,368,162 |
|
| Prepaid content | 30,522 |
| | 59,929 |
|
| Other current assets | 106,255 |
| | 64,622 |
|
| Total current assets | 2,849,278 |
| | 2,240,791 |
|
| Non-current content library, net | 1,808,387 |
| | 1,506,008 |
|
| Property and equipment, net | 127,263 |
| | 131,681 |
|
| Other non-current assets | 116,397 |
| | 89,410 |
|
| Total assets | $ | 4,901,325 |
| | $ | 3,967,890 |
|
| Liabilities and Stockholders' Equity | | | |
| Current liabilities: | | | |
| Current content liabilities | $ | 1,591,981 |
| | $ | 1,366,847 |
|
| Accounts payable | 100,899 |
| | 86,468 |
|
| Accrued expenses | 46,433 |
| | 53,139 |
|
| Deferred revenue | 195,823 |
| | 169,472 |
|
| Total current liabilities | 1,935,136 |
| | 1,675,926 |
|
| Non-current content liabilities | 1,179,055 |
| | 1,076,622 |
|
| Long-term debt | 500,000 |
| | 200,000 |
|
| Long-term debt due to related party | — |
| | 200,000 |
|
| Other non-current liabilities | 82,764 |
| | 70,669 |
|
| Total liabilities | 3,696,955 |
| | 3,223,217 |
|
| Stockholders' equity: | | | |
| Common stock, $0.001 par value; 160,000,000 shares authorized at September 30, 2013 and December 31, 2012; 59,257,798 and 55,587,167 issued and outstanding at September 30, 2013 and December 31, 2012, respectively | 59 |
| | 56 |
|
| Additional paid-in capital | 698,677 |
| | 301,616 |
|
| Accumulated other comprehensive income | 1,570 |
| | 2,919 |
|
| Retained earnings | 504,064 |
| | 440,082 |
|
| Total stockholders' equity | 1,204,370 |
| | 744,673 |
|
| Total liabilities and stockholders' equity | $ | 4,901,325 |
| | $ | 3,967,890 |
|
Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2013 | | June 30,
2013 | | September 30,
2012 | | September 30,
2013 | | September 30,
2012 |
| Cash flows from operating activities: | | | | | | | | | |
| Net income | $ | 31,822 |
| | $ | 29,471 |
| | $ | 7,675 |
| | $ | 63,982 |
| | $ | 9,255 |
|
| Adjustments to reconcile net income to net cash provided by (used in)operating activities: | | | | | | | | | |
| Additions to streaming content library | (878,314 | ) | | (593,454 | ) | | (744,714 | ) | | (2,063,709 | ) | | (1,883,859 | ) |
| Change in streaming content liabilities | 310,191 |
| | 7,284 |
| | 274,196 |
| | 327,175 |
| | 631,802 |
|
| Amortization of streaming content library | 553,394 |
| | 510,250 |
| | 410,947 |
| | 1,549,384 |
| | 1,126,680 |
|
| Amortization of DVD content library | 17,546 |
| | 17,709 |
| | 13,132 |
| | 53,492 |
| | 49,482 |
|
| Depreciation and amortization of property, equipment and intangibles | 11,452 |
| | 12,026 |
| | 11,128 |
| | 35,529 |
| | 33,506 |
|
| Stock-based compensation expense | 18,477 |
| | 17,955 |
| | 18,472 |
| | 54,178 |
| | 56,254 |
|
| Excess tax benefits from stock-based compensation | (20,492 | ) | | (20,368 | ) | | (111 | ) | | (52,475 | ) | | (4,173 | ) |
| Other non-cash items | 1,994 |
| | 1,188 |
| | (2,078 | ) | | 4,932 |
| | (5,176 | ) |
| Deferred taxes | (2,424 | ) | | (2,040 | ) | | (15,606 | ) | | (11,212 | ) | | (26,449 | ) |
| Loss on extinguishment of debt | — |
| | — |
| | — |
| | 25,129 |
| | — |
|
| Changes in operating assets and liabilities: | | | | | | | | | |
| Prepaid content | 1,542 |
| | 25,190 |
| | 15,358 |
| | 29,407 |
| | 22,855 |
|
| Other current assets | 8,378 |
| | 8,572 |
| | (3,476 | ) | | 8,548 |
| | 188 |
|
| Accounts payable | (5,877 | ) | | (5,138 | ) | | (9,727 | ) | | 6,004 |
| | (11,167 | ) |
| Accrued expenses | (11,451 | ) | | 10,494 |
| | 15,294 |
| | (5,089 | ) | | 23,931 |
|
| Deferred revenue | 9,252 |
| | 7,693 |
| | 2,356 |
| | 26,351 |
| | 6,350 |
|
| Other non-current assets and liabilities | (10,797 | ) | | 7,111 |
| | 4,229 |
| | 4,760 |
| | 6,112 |
|
| Net cash provided by (used in) operating activities | 34,693 |
| | 33,943 |
| | (2,925 | ) | | 56,386 |
| | 35,591 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Acquisitions of DVD content library | (15,471 | ) | | (14,023 | ) | | (8,586 | ) | | (50,687 | ) | | (30,126 | ) |
| Purchases of property and equipment | (10,828 | ) | | (8,088 | ) | | (10,808 | ) | | (31,034 | ) | | (18,933 | ) |
| Other assets | (1,329 | ) | | 1,087 |
| | 1,857 |
| | 3,808 |
| | 6,323 |
|
| Purchases of short-term investments | (116,116 | ) | | (146,050 | ) | | (67,779 | ) | | (497,789 | ) | | (430,549 | ) |
| Proceeds from sale of short-term investments | 81,185 |
| | 33,979 |
| | 52,172 |
| | 196,392 |
| | 272,680 |
|
| Proceeds from maturities of short-term investments | 48,890 |
| | 5,410 |
| | 2,695 |
| | 58,720 |
| | 23,685 |
|
| Net cash used in investing activities | (13,669 | ) | | (127,685 | ) | | (30,449 | ) | | (320,590 | ) | | (176,920 | ) |
| Cash flows from financing activities: | | | | | | | | | |
| Proceeds from issuance of common stock | 25,561 |
| | 28,846 |
| | 318 |
| | 93,553 |
| | 2,066 |
|
| Proceeds from issuance of debt | — |
| | — |
| | — |
| | 500,000 |
| | — |
|
| Issuance costs | — |
| | — |
| | — |
| | (9,414 | ) | | (759 | ) |
| Redemption of debt | — |
| | — |
| | — |
| | (219,362 | ) | | — |
|
| Excess tax benefits from stock-based compensation | 20,492 |
| | 20,368 |
| | 111 |
| | 52,475 |
| | 4,173 |
|
| Principal payments of lease financing obligations | (258 | ) | | (255 | ) | | (587 | ) | | (916 | ) | | (1,723 | ) |
| Net cash provided by (used in) financing activities | 45,795 |
| | 48,959 |
| | (158 | ) | | 416,336 |
| | 3,757 |
|
| Effect of exchange rate changes on cash and cash equivalents | 1,559 |
| | (2,590 | ) | | 1,579 |
| | (3,367 | ) | | (183 | ) |
| Net increase (decrease) in cash and cash equivalents | 68,378 |
| | (47,373 | ) | | (31,953 | ) | | 148,765 |
| | (137,755 | ) |
| Cash and cash equivalents, beginning of period | 370,678 |
| | 418,051 |
| | 402,251 |
| | 290,291 |
| | 508,053 |
|
| Cash and cash equivalents, end of period | $ | 439,056 |
| | $ | 370,678 |
| | $ | 370,298 |
| | $ | 439,056 |
| | $ | 370,298 |
|
| | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2013 | | June 30,
2013 | | September 30,
2012 | | September 30,
2013 | | September 30,
2012 |
| Non-GAAP free cash flow reconciliation: | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 34,693 |
| | $ | 33,943 |
| | $ | (2,925 | ) | | $ | 56,386 |
| | $ | 35,591 |
|
| Acquisitions of DVD content library | (15,471 | ) | | (14,023 | ) | | (8,586 | ) | | (50,687 | ) | | (30,126 | ) |
| Purchases of property and equipment | (10,828 | ) | | (8,088 | ) | | (10,808 | ) | | (31,034 | ) | | (18,933 | ) |
| Other assets | (1,329 | ) | | 1,087 |
| | 1,857 |
| | 3,808 |
| | 6,323 |
|
| Non-GAAP free cash flow | $ | 7,065 |
| | $ | 12,919 |
| | $ | (20,462 | ) | | $ | (21,527 | ) | | $ | (7,145 | ) |
Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| | As of / Three Months Ended | | As of/ Nine Months Ended |
| | September 30,
2013 | | June 30, 2013 | | September 30, 2012 (1) | | September 30,
2013 | | September 30,
2012 (1) |
| Domestic Streaming | | | | | | | | | |
| Total members at end of period | 31,092 |
| | 29,807 |
| | 25,101 |
| | 31,092 |
| | 25,101 |
|
| Paid members at end of period | 29,925 |
| | 28,624 |
| | 23,801 |
| | 29,925 |
| | 23,801 |
|
| | | | | | | | | | |
| Revenues | $ | 701,083 |
| | $ | 671,089 |
| | $ | 556,027 |
| | $ | 2,010,821 |
| | $ | 1,595,397 |
|
| Cost of revenues | 470,631 |
| | 449,473 |
| | 399,124 |
| | 1,356,610 |
| | 1,138,474 |
|
| Marketing | 63,971 |
| | 70,302 |
| | 61,197 |
| | 205,066 |
| | 201,334 |
|
| Contribution profit | 166,481 |
| | 151,314 |
| | 95,706 |
| | 449,145 |
| | 255,589 |
|
| | | | | | | | | | |
| International Streaming | | | | | | | | | |
| Total members at end of period | 9,188 |
| | 7,747 |
| | 4,311 |
| | 9,188 |
| | 4,311 |
|
| Paid members at end of period | 8,084 |
| | 7,014 |
| | 3,689 |
| | 8,084 |
| | 3,689 |
|
| | | | | | | | | | |
| Revenues | $ | 183,051 |
| | $ | 165,902 |
| | $ | 77,744 |
| | $ | 490,972 |
| | $ | 186,142 |
|
| Cost of revenues | 207,989 |
| | 182,885 |
| | 124,379 |
| | 555,898 |
| | 324,332 |
|
| Marketing | 49,359 |
| | 48,850 |
| | 45,742 |
| | 152,124 |
| | 146,297 |
|
| Contribution profit (loss) | (74,297 | ) | | (65,833 | ) | | (92,377 | ) | | (217,050 | ) | | (284,487 | ) |
| | | | | | | | | | |
| Domestic DVD | | | | | | | | | |
| Total members at end of period | 7,148 |
| | 7,508 |
| | 8,606 |
| | 7,148 |
| | 8,606 |
|
| Paid members at end of period | 7,014 |
| | 7,369 |
| | 8,465 |
| | 7,014 |
| | 8,465 |
|
| | | | | | | | | | |
| Revenues | $ | 221,865 |
| | $ | 232,381 |
| | $ | 271,318 |
| | $ | 697,539 |
| | $ | 882,504 |
|
| Cost of revenues | 112,399 |
| | 121,167 |
| | 139,135 |
| | 358,899 |
| | 467,193 |
|
| Marketing | 2,779 |
| | 2,608 |
| | 1,509 |
| | 9,854 |
| | 4,709 |
|
| Contribution profit | 106,687 |
| | 108,606 |
| | 130,674 |
| | 328,786 |
| | 410,602 |
|
| | | | | | | | | | |
| Consolidated | | | | | | | | | |
| | | | | | | | | | |
| Revenues | $ | 1,105,999 |
| | $ | 1,069,372 |
| | $ | 905,089 |
| | $ | 3,199,332 |
| | $ | 2,664,043 |
|
| Cost of revenues | 791,019 |
| | 753,525 |
| | 662,638 |
| | 2,271,407 |
| | 1,929,999 |
|
| Marketing | 116,109 |
| | 121,760 |
| | 108,448 |
| | 367,044 |
| | 352,340 |
|
| Contribution profit | 198,871 |
| | 194,087 |
| | 134,003 |
| | 560,881 |
| | 381,704 |
|
| Other operating expenses | 141,751 |
| | 136,970 |
| | 117,868 |
| | 414,822 |
| | 351,350 |
|
| Operating income | 57,120 |
| | 57,117 |
| | 16,135 |
| | 146,059 |
| | 30,354 |
|
| Other income (expense) | (7,629 | ) | | (10,468 | ) | | (4,189 | ) | | (23,860 | ) | | (14,778 | ) |
| Loss on extinguishment of debt | — |
| | — |
| | — |
| | (25,129 | ) | | — |
|
| Provision for income taxes | 17,669 |
| | 17,178 |
| | 4,271 |
| | 33,088 |
| | 6,321 |
|
| Net income | $ | 31,822 |
| | $ | 29,471 |
| | $ | 7,675 |
| | $ | 63,982 |
| | $ | 9,255 |
|
(1) Certain prior period amounts have been reclassified from "Marketing" to "General and administrative" to conform to current period presentation.
