Netflix, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results; comparisons are with the corresponding 2020 periods. Netflix reported approximately 214 million paid streaming memberships in more than 190 countries and operates as one segment.
Financial results
| Metric | Q3 2021 | Q3 2020 | Change |
|---|---|---|---|
| Revenue | $7.483 billion | $6.436 billion | +16% |
| Operating income | $1.755 billion | $1.315 billion | +33% |
| Operating margin | 23.5% | 20.4% | +3.1 percentage points |
| Net income | $1.449 billion | $790 million | +84% |
| Diluted EPS | $3.19 | $1.74 | +83% |
| Operating cash flow | $82 million | $1.264 billion | −93% |
| Free cash flow (non-GAAP) | −$106 million | $1.145 billion | Down $1.251 billion |
For the nine months, revenue was $21.989 billion (+20%), operating income $5.563 billion (+53%), net income $4.509 billion (+103%), and diluted EPS $9.90 versus $4.89. Operating cash flow was $796 million versus $2.565 billion; free cash flow was $410 million versus $2.206 billion.
Membership and revenue trends
- Q3 paid net additions were 4.383 million, versus 2.204 million a year earlier; period-end paid memberships reached 213.563 million, up 9% year over year.
- Average monthly revenue per paying membership rose 7% to $11.73, reflecting price changes and favorable foreign exchange. Streaming revenue grew 17%; DVD revenue declined 25%.
- Regional Q3 streaming revenue growth: UCAN +11%, EMEA +20%, LATAM +16%, and APAC +31%. APAC had the fastest membership growth (+28%); UCAN memberships grew 1%.
Cash, debt, and commitments
- Cash, cash equivalents, and restricted cash were $7.553 billion at September 30, down $686 million from year-end 2020. Cash and cash equivalents on the balance sheet were $7.527 billion.
- Debt, net of issuance costs, was $15.493 billion, down $816 million from year-end. Netflix repaid $500 million of notes at maturity in February; $699 million was classified as short-term debt. No borrowings were outstanding under its $1 billion revolving credit facility, extended to June 2026.
- Current assets were $9.416 billion and current liabilities $8.049 billion. Management said available funds, operating cash flow, and financing access should meet cash needs for at least the next 12 months.
- Content assets, net, were $28.974 billion. Total content obligations were $22.466 billion, including $16.1 billion not yet recognized as balance-sheet liabilities; $10.017 billion was scheduled within one year. Management estimated an additional $1–4 billion of significant unknown future-title obligations over the next three years, mostly payable after 12 months.
- Stock repurchases totaled $600 million in the first nine months; $4.4 billion remained under the $5 billion authorization. Total contractual obligations were $48.376 billion, including debt and leases.
Changes, outlook, and risks
- Revenue growth reflected 9% growth in average paying memberships and a 7% increase in average monthly revenue per membership. Higher operating margin primarily reflected slower content amortization growth because COVID-19 delayed content releases; management cautioned that the pandemic continued to disrupt some productions and suppliers.
- Operating cash flow and free cash flow fell sharply as content cash payments rose faster than amortization. In Q3, content payments were $4.695 billion, up 55%, while content amortization increased 8%. Management attributed the higher payments partly to production-payment timing shifts from the pandemic-affected prior year.
- Management expects to continue significantly increasing investment in global content, particularly originals, which require cash earlier than licensed content. It anticipated more limited future debt-market needs than in prior years. No specific earnings or revenue guidance is provided in the supplied filing text.
- Foreign exchange materially affected results: nine-month revenue would have been about $485 million lower at prior-year exchange rates, while a $301 million FX gain—primarily a non-cash gain on euro-denominated debt—benefited reported results. Netflix does not hedge these currency exposures with derivatives.
- Legal matters and indemnification obligations are described generally; the filing says unlisted litigation was not considered material individually or in aggregate at the time. Tax examinations and uncertain tax positions could change; the company could not estimate the range of reasonably possible adjustments. It reported no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Whether content release timing and amortization normalization affect future operating margins after pandemic-related delays.
- Whether content spending and payment timing continue to constrain operating cash flow and free cash flow despite revenue and earnings growth.
- Membership additions, retention, pricing, and regional growth—particularly the comparatively low UCAN net additions.
- The scale and timing of recognized, unrecognized, and unknown future content commitments, alongside debt maturities and liquidity.
- Sensitivity of revenue, earnings, and debt remeasurement to foreign exchange, and developments in tax examinations and legal contingencies.