Netflix, Inc. Q1 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2026. Netflix operates as a single operating segment providing global streaming entertainment services. The financial statements reflect a ten-for-one stock split completed in November 2025, with all share and per-share data retroactively adjusted.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 | Change |
|---|---|---|---|
| Revenues | $12.25 billion | $10.54 billion | +16% |
| Operating Income | $3.96 billion | $3.35 billion | +18% |
| Operating Margin | 32.3% | 31.7% | +0.6 pts |
| Net Income | $5.28 billion | $2.89 billion | +83% |
| Diluted EPS | $1.23 | $0.66 | +86% |
| Operating Cash Flow | $5.29 billion | $2.79 billion | +90% |
| Cash & Equivalents | $12.26 billion | $7.20 billion | +70% |
| Total Debt | $14.36 billion | $14.46 billion | -1% |
Material Changes vs. Prior Period
- Unusual Item (Termination Fee): Net income and operating cash flow were significantly boosted by a $2.8 billion termination fee received from Warner Bros. Discovery (WBD) following the termination of a proposed merger. This amount is recorded in "Interest and other income."
- Revenue Growth: Revenue increased 16% year-over-year, driven by membership growth, price increases, and advertising revenue. Constant currency revenue growth was 14%.
- Expense Increases:
- Cost of Revenues: Increased 12% ($625 million), primarily due to higher content amortization ($395 million increase).
- General & Administrative: Increased 43% ($181 million), driven by higher legal fees and transaction costs related to the WBD deal.
- Sales & Marketing: Increased 22% ($154 million) due to marketing spend and advertising sales headcount growth.
- Acquisitions: The company completed an acquisition in March 2026 for approximately $587 million in cash.
- Share Repurchases: The company repurchased 13.5 million shares for $1.3 billion. Approximately $6.8 billion remains available under current authorization.
Guidance, Outlook, and Risks
- Outlook: Management continues to focus on growing the business globally within operating margin targets. The company expects to continue significant investment in global content, particularly original programming.
- Liquidity: Cash and cash equivalents increased to $12.26 billion. The company maintains a $3 billion revolving credit facility and a $3 billion commercial paper program, with no borrowings outstanding as of March 31, 2026.
- Content Obligations: Total content obligations are $24.1 billion, with $11.8 billion due within the next 12 months. An additional $18.5 billion of obligations are not yet on the balance sheet as they do not meet recognition criteria.
- Risks:
- Foreign Currency: 58% of revenue is denominated in non-U.S. currencies. A weakening of foreign currencies relative to the U.S. dollar could negatively impact reported revenue.
- Legal & Tax: The company faces routine audits and litigation. Non-income tax assessments in Brazil resulted in $729 million in non-routine payments during the quarter.
Key Facts for Investor Verification
- Quality of Earnings: Verify the sustainability of net income growth by excluding the one-time $2.8 billion WBD termination fee, which accounts for the majority of the 83% net income increase.
- Content Spend vs. Amortization: Monitor the ratio of cash spent on content assets ($4.85 billion in Q1) versus amortization ($4.22 billion) to assess future cost pressures.
- Debt Maturities: Confirm the company's ability to refinance or repay $1.69 billion in debt principal and interest due within the next 12 months.
- Unknown Content Obligations: Note the disclosure of potential unknown content obligations estimated between $1 billion and $4 billion over the next three years, which are not currently reflected in contractual obligation tables.