Netflix, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Netflix operates one segment, centered on subscription streaming, and also offers DVD-by-mail in the U.S. At quarter-end, it had 209.2 million paid streaming memberships across more than 190 countries.
Key financial metrics
Amounts below are in U.S. dollars; figures are rounded.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $7.342 billion | $6.148 billion | $14.505 billion | $11.916 billion |
| Operating income | $1.848 billion | $1.358 billion | $3.807 billion | $2.316 billion |
| Operating margin | 25.2% | 22.1% | Not stated in the filing text | Not stated in the filing text |
| Net income | $1.353 billion | $720 million | $3.060 billion | $1.429 billion |
| Diluted EPS | $2.97 | $1.59 | $6.72 | $3.15 |
| Operating cash flow | $(64) million | $1.041 billion | $714 million | $1.301 billion |
| Free cash flow (non-GAAP) | $(175) million | $899 million | $517 million | $1.061 billion |
At June 30, cash, cash equivalents and restricted cash totaled $7.805 billion; cash and cash equivalents on the balance sheet were $7.778 billion. Current assets were $9.604 billion and current liabilities $7.833 billion. Debt, net of issuance costs, totaled $15.626 billion ($699 million current); the company also had $1 billion of undrawn revolving-credit capacity. Total assets were $40.971 billion and stockholders’ equity $13.864 billion. The company repaid $500 million of notes upon maturity in February 2021.
Changes versus prior comparable periods
- Q2 revenue increased 19% year over year, reflecting 11% growth in average paying memberships and an 8% increase in average monthly revenue per paying membership. Streaming revenue rose 20%; DVD revenue fell 25%.
- Quarter-end paid memberships increased 8% to 209.2 million, but Q2 net additions fell 85%, to 1.5 million from 10.1 million. UCAN recorded a net loss of 433,000 memberships; APAC added 1.0 million.
- Q2 operating income rose 36% and operating margin expanded 3.1 percentage points. Management attributed the margin increase partly to content amortization growing more slowly than revenue amid pandemic-related content-release delays.
- Six-month revenue rose 22%, while operating cash flow fell 45% and free cash flow fell 51%. Content cash payments increased faster than content amortization, weighing on cash generation.
- Q2 net income benefited from a lower effective tax rate (15% versus 30%); six-month rates were 16% versus 22%. Six-month interest and other income included a $198 million foreign-exchange gain, primarily from remeasurement of euro-denominated notes.
Outlook, commentary and risks
- Netflix described its core strategy as global streaming membership growth while operating within its operating-margin target. It expects to continue significantly increasing global content investment, particularly original content.
- Management said operating cash flow, available funds and financing sources were expected to meet cash needs for at least the next 12 months. It also anticipated more limited future debt-market needs than in prior years; these are forward-looking statements, not guarantees.
- Content obligations totaled $21.9 billion, including $15.4 billion not yet recognized on the balance sheet. The contractual-obligations disclosure excludes unknown future-title commitments, which management expects to be significant and estimates could add approximately $1–4 billion over the next three years.
- COVID-19 continued to disrupt some company and supplier productions and delay releases. Management cautioned that the pandemic’s full effects were uncertain. Delayed releases also affected the timing of content amortization and cash flows.
- Foreign currencies represented 57% of six-month revenue; Netflix does not hedge its foreign-currency exposure with derivatives. A weaker foreign currency could reduce reported revenue and operating income. The filing reported no material change in risk factors from the 2020 Form 10-K.
- Routine litigation and claims were disclosed, but the company did not consider unlisted matters material individually or in aggregate at the time. Tax examinations and uncertain tax positions remain; the possible range of changes in unrecognized tax benefits could not be estimated.
- The board authorized up to $5 billion of stock repurchases in March 2021. Netflix repurchased $500 million in Q2 and had $4.5 billion remaining under the authorization at quarter-end.
Most important facts for investors to verify
- Whether membership additions recover after Q2’s sharp year-over-year decline, particularly in UCAN, and how growth varies by region.
- Whether revenue and margin growth can persist as delayed content releases resume and content amortization and production spending change.
- How content cash commitments—including unrecognized and unknown future-title obligations—affect operating cash flow, free cash flow and liquidity.
- Debt maturities, interest costs, foreign-exchange sensitivity and the company’s continued compliance with debt covenants.
- The assumptions behind management’s 12-month liquidity outlook, future content investment plans and ongoing share repurchases.