Business context and reporting period
Netflix, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2022. The company operates one segment, offering streaming entertainment globally and DVD-by-mail service in the U.S. Management’s stated strategy is global streaming growth within its operating-margin target. Netflix reported approximately 223.1 million paid streaming memberships at quarter-end.
Financial performance and key metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $7.926B | $7.483B | $23.763B | $21.989B |
| Operating income | $1.533B | $1.755B | $5.083B | $5.563B |
| Operating margin | 19% | 23% | Not stated | Not stated |
| Net income | $1.398B | $1.449B | $4.437B | $4.509B |
| Diluted EPS | $3.10 | $3.19 | $9.83 | $9.90 |
| Operating cash flow | $557M | $82M | $1.582B | $796M |
| Free cash flow (non-GAAP) | $472M | ($106M) | $1.286B | $410M |
At September 30, cash, cash equivalents and restricted cash were $6.140B; cash and cash equivalents on the balance sheet were $6.114B. Total debt, net of issuance costs, was $13.888B, down from $15.393B at December 31, 2021. Current assets were $8.817B and current liabilities were $7.766B. Net content assets were $32.777B. Netflix had no borrowings on its $1B revolving credit facility.
Changes versus comparable periods
- Q3 revenue rose 6%, driven by 5% growth in average paying memberships and a 1% increase in average monthly revenue per paying membership. Paid net additions were 2.413M, down 45% from 4.383M; ending paid memberships rose 4% year over year.
- Q3 operating income fell 13% and operating margin declined four percentage points. Cost of revenue rose 14%, including a 23% increase in content amortization; marketing expense fell 11%, while technology and development and general and administrative costs increased 18% and 16%, respectively.
- Nine-month revenue increased 8%, while operating income decreased 9% and net income decreased 2%. Free cash flow increased to $1.286B from $410M.
- Foreign exchange materially affected reported results: revenue would have been about $548M higher for Q3 and $1.167B higher for the nine-month period at prior-year exchange rates. Foreign exchange gains, including non-cash remeasurement gains on euro-denominated debt, contributed to interest and other income.
Outlook, risks and unusual items
The filing gives no specific forward revenue, earnings or membership forecast. Management expects operating cash flows, available funds and financing access to meet cash needs for the next 12 months and beyond, while continuing significant investment in global and original content. Management notes Q4 has historically been the strongest period for membership growth, but results depend on seasonality, content timing and pricing.
Known content obligations totaled $21.6B, including $14.4B not yet recognized on the balance sheet; management said unknown future-title obligations are expected to be significant and estimated approximately $1B–$4B over the next three years. Total disclosed content, debt and operating lease obligations were $42.9B. The filing cites foreign-exchange exposure, content production disruption and costs, competition and other previously disclosed risks; it reports no material change in risk factors. The company does not hedge foreign-currency exposures. It was in compliance with debt covenants.
Netflix repaid $700M of notes at maturity in February 2022. On October 3, 2022, after quarter-end, it completed its acquisition of Animal Logic, funded from existing cash. There were no share repurchases during the first nine months of 2022; $4.4B remained authorized. The IRS was examining tax years 2016–2018, and the company said unrecognized tax benefits could change significantly within 12 months, though the range could not be estimated.
Important facts for investors to verify
- Whether revenue and membership trends improve, particularly in UCAN and EMEA, and how pricing and foreign exchange affect average revenue per member.
- Whether content amortization, spending and cash-payment timing continue to pressure operating margins and free cash flow.
- The scale and timing of disclosed and unknown content commitments, including the estimated $1B–$4B of unknown obligations over three years.
- The effect of currency movements on reported revenue, debt and earnings, given the absence of currency hedges.
- Animal Logic acquisition accounting and cash impact, and any developments in tax examinations or litigation.