Exhibit 99.1
January 17, 2019

Fellow shareholders,

We grew annual revenue 35% to $16 billion in 2018, and nearly doubled operating profits to $1.6 billion. Fueling this growth was our high member satisfaction, which propelled us to finish 2018 with 139 million paying memberships, up 9 million from quarter start and up 29 million from the beginning of the year.
 (in millions except per share data and Streaming Content Obligations)
Q4'17
Q1'18
Q2'18
Q3'18
Q4'18
Q1'19 Forecast
Revenue
$
3,286

$
3,701

$
3,907

$
3,999

$
4,187

$
4,494

Y/Y % Growth
32.6
%
40.4
%
40.3
%
34.0
%
27.4
%
21.4
%
Operating Income
$
245

$
447

$
462

$
481

$
216

$
400

Operating Margin
7.5
%
12.1
%
11.8
%
12.0
%
5.2
%
8.9
%
Net Income
$
186

$
290

$
384

$
403

$
134

$
253

Diluted EPS
$
0.41

$
0.64

$
0.85

$
0.89

$
0.30

$
0.56

 
 
 
 
 
 
 
Global Streaming Paid Memberships
110.64

118.90

124.35

130.42

139.26

148.16

Y/Y % Growth
24.2
%
26.0
%
25.6
%
25.4
%
25.9
%
24.6
%
Global Streaming Paid Net Additions
6.62

8.26

5.45

6.07

8.84

8.90

 
 
 
 
 
 
 
Net cash (used in) operating activities
$
(488
)
$
(237
)
$
(518
)
$
(690
)
$
(1,235
)
 
Free Cash Flow
$
(524
)
$
(287
)
$
(559
)
$
(859
)
$
(1,315
)
 
EBITDA
$
313

$
534

$
563

$
584

$
328

 
Shares (FD)
448.1

450.4

451.6

451.9

451.1

 
Streaming Content Obligations* ($B)
17.7

17.9

18.4

18.6

19.3

 
Note: Figures are consolidated, including DVD.
 
 
 
 
 
 
*Corresponds to our total known streaming content obligations as defined in our financial statements and related notes in our most recently filed SEC Form 10-K

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1


Q4 Results and Q1 Forecast
Average paid memberships and ASP rose 26% and 3% year over year, respectively. Excluding the impact of F/X, international ASP increased 6% year over year and 1% sequentially. Foreign exchange headwinds continued to move against us in the quarter, similar to the trend we saw in Q3’18.
As expected, Q4 operating margin dipped to 5.2% vs. 7.5% prior year due to so many titles launching in the quarter. Our full year 2018 operating margin of 10% was in-line with our target. EPS of $0.30 vs. $0.41 included a $22 million non-cash unrealized gain from F/X remeasurement on our Euro denominated debt.
We added a record 8.8m paid memberships (1.5m in the US and 7.3m internationally), higher than our beginning-of-quarter expectation for 7.6m paid net adds and up 33% year over year. For the full year, paid net adds grew 33% to 29m vs. the 22m we added in 2017.
globalpaidnetaddsyeartodate.jpg
As discussed in our last letter, we reclassified1 certain personnel costs from G&A to Cost of Revenues and Marketing, and from Technology & Development to Other Cost of Revenues. This change has no impact on operating profit or margin or total operating expenses and historical quarterly pro forma financial statements for 2016-2018 can be found here2.
The quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy. For Q1’19, we forecast global paid net additions of 8.9m, +8% year over year, with 1.6m in the US and 7.3m internationally. Our Q1’19 revenue forecast represents 21% year over year growth (27% FX neutral). Our paid member growth is fairly consistent. Quarter to quarter, revenue growth varies due to factors like FX changes and timing of price changes across different markets. For example, we forecast Q1’19 international ASP will be up year over year, excluding FX.

___________________________________
1 https://d18rn0p25nwr6d.cloudfront.net/CIK-0001065280/d11fdb4f-97b7-4ff1-b3b0-9ddc7df9e73c.pdf
2 https://www.netflixinvestor.com/financials/financial-statements/default.aspx

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2



We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience. We want to ensure that Netflix is a good value for the money and that our entry price is affordable. We just increased our US prices for new members, as we did in Q4 in Canada and Argentina, and in Japan in Q3. The new pricing in the US will be phased in for existing members over Q1 and Q2, which we anticipate will lift ASP.
Our multi-year plan is to keep significantly growing our content while increasing our revenue faster to expand our operating margins. We’re targeting a 9% operating margin in Q1’19, which we expect will grow over the course of the year and our full year operating margin target for 2019 remains 13% vs. 10% in 2018. A majority of our revenue is not in dollars, so when there are material FX moves, investors know to expect proportionate top line changes. In such FX cases, we’ll seek to adjust our prices and costs over time, but since that will lag the revenue changes, and since we don’t hedge FX, this would lead to short-term margin variations from our steady progression.
Content
In its first 4 weeks on Netflix, we estimate that Bird Box from director Susanne Bier will be enjoyed by over 80 million member households, and we are seeing high repeat viewing. In combination with our other movie hits such as: Dumplin’ from director Anne Fletcher, Chris Columbus-produced The Christmas Chronicles,3 Alfonso Cuarón’s critically acclaimed ROMA,4 Paul Greengrass’ 22 July, Tamara Jenkins’ Private Life5 and the Coen brothers’ The Ballad of Buster Scruggs,6 we are beginning to have our original movie7 offering mirror the success of our series offering for consumer enjoyment. The global reach of our audience and the quality of the experience producing for Netflix continues to attract the world’s top directors. We are expanding the film market: while our films drew bigger and bigger audiences in Q4, the North American box office also set records. Today, five weeks after its Netflix debut, ROMA is still being exhibited in theaters and has played on over 900 unique screens around the world, including some special 70mm format presentations. People love films...at home and in theaters.
Around the world, our titles are not only pleasing consumers, but they are transforming the careers of our talent. Elite, our Spanish original, has been a huge success with over 20 million member households around the world enjoying the series in its first four weeks on service.8 In addition to being highly watched, social engagement has been phenomenal and the cast’s popularity on social media skyrocketed, continuing to demonstrate our ability to be a launching pad for talent.





___________________________________
3 https://www.hollywoodreporter.com/news/christmas-chronicles-director-chris-columbus-kurt-russell-santa-1163161
4 https://www.rollingstone.com/movies/movie-reviews/roma-movie-review-758113/
5 https://www.rottentomatoes.com/m/private_life_2018
6 https://www.vanityfair.com/hollywood/2018/11/ballad-of-buster-scruggs-movie-review-coen-brothers-netflix
7 https://variety.com/2019/film/opinion/top-10-best-netflix-original-films-of-2018-1203097500/
8 For series, due to their highly variable length, we count a viewer if they substantially complete at least one episode (70%). For a film, it is if they substantially complete the film (70%).


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3


instagram.jpg
We’re making significant investments in productions all over the world because we have seen that great stories transcend borders. For example, Bodyguard (co-produced with BBC One, from ITV Studios) ranks as one of our most enjoyed co-productions. Baby, our second original series from Italy, and The Protector, our first Turkish original series, both saw strong viewing both inside and outside their home countries. All three of these debut seasons from around the world were each enjoyed by over 10 million member households in their first four weeks.
From Hollywood, in Q4 we launched new global scripted series like The Haunting of Hill House,9 Chilling Adventures of Sabrina, and The Kominsky Method (from Chuck Lorre, starring Michael Douglas and Alan Arkin), as well as new seasons of returning shows like adult animation Big Mouth and Narcos: Mexico, the latest installment in the Narcos franchise. We were very pleased with our launch of You10 three weeks ago; we estimate it will be watched by over 40 million member households in its first 4 weeks on Netflix. This binge-worthy show started as a Lifetime linear series in the US, but is now a full Netflix global original. A week ago, we launched Sex Education from the UK and it is also tracking to be a huge hit (estimated over 40 million households watching the title within the first 4 weeks).
Netflix films and TV shows picked up five 2019 Golden Globe wins,11 including Best Comedy Series for The Kominsky Method and Best Actor in a Comedy Series for Michael Douglas and Best Actor in a Drama Series for Richard Madden from Bodyguard. Alfonso Cuarón won the Golden Globe for Best Feature Director and Best Foreign Language Feature for ROMA.



___________________________________
9 https://www.rollingstone.com/tv/tv-features/the-haunting-of-hill-house-review-737658/
10 https://www.theringer.com/tv/2019/1/11/18177643/you-netflix-effect
11 https://variety.com/2019/film/awards/golden-globes-2019-winners-recap-1203100429/

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4


As a result of our success with original content, we’re becoming less focused on 2nd run programming. For example, we launched our originals strategy for the unscripted genre only two years ago. Today, Netflix originals, like Tidying Up with Marie Kondo,12 account for a majority of total unscripted view share on Netflix, while viewing of all unscripted programming has increased meaningfully during that time. We are ready to pay top-of-market prices for second run content when the studios, networks and producers are willing to sell, but we are also prepared to keep our members ecstatic with our incredible original content if others choose to retain their content for their own services.
Looking forward in 2019, we will be launching many new highly-anticipated titles including The Umbrella Academy (February 15th); Triple Frontier from J.C. Chandor (March); The Irishman from Martin Scorsese; 6 Underground from Michael Bay; and The Politician from Ryan Murphy; as well as returning seasons of The Crown led by a new cast including Olivia Colman, Ben Daniels, and Helena Bonham Carter; 13 Reasons Why, La Casa de Papel, Elite, and, of course, Season 3 of the epic Stranger Things, coming to members all around the world on July 4th.
Product and Partnerships
We test many different approaches to our business in order to learn how to grow quickly. We continue to test new plan options (both below and above our existing offers) in certain markets. We are also expanding our bundled offerings which now include: Telefonica in Spain, Comcast and T-Mobile in the US, Sky in the UK and Germany, Free in France, and KDDI in Japan. As discussed in our Q1’18 investor letter, in the case of these hard bundles, we report revenue net of economics we share with our partners.
On December 28, we released Black Mirror: Bandersnatch, our first interactive movie for adults, allowing viewers to make decisions on behalf of the lead character. We’ve created thousands of different pathways to make it through the story, including multiple endings. This level of complexity necessitated the creation of a system to make such storytelling manageable. “Branch Manager” helped series creator and writer Charlie Brooker and our internal teams produce this popular multi-branched movie. We’ll be using Branch Manager to construct additional interactive projects going forward. We’re thrilled with the global excitement that Bandersnatch has created and it serves as a strong example of how we can marry technology and entertainment to evolve video storytelling.
Competition
In the US, we earn around 10% of television screen time13 and less than that of mobile screen time. In other countries, we earn a lower percentage of screen time due to lower penetration of our service. We earn consumer screen time, both mobile and television, away from a very broad set of competitors. We compete with (and lose to) Fortnite more than HBO. When YouTube went down globally for a few minutes in October, our viewing and signups spiked for that time. Hulu is small compared to YouTube for viewing time, and they are successful in the US, but non-existent in Canada, which creates a comparison point: our penetration in the two countries is pretty similar. There are thousands of competitors in this highly-fragmented market vying to entertain consumers and low barriers to entry for those with great experiences. Our growth is based on how good our experience is, compared to all the other screen time experiences from which consumers choose. Our focus is not on Disney+, Amazon or others, but on how we can improve our experience for our members.
___________________________________
12 https://www.theringer.com/tv/2019/1/15/18182690/marie-kondo-tidying-up-netflix-instagram-social-media-phenomenon
13 We serve on average about 100 million hours a day to television screens in the US, and we estimate television screens in the US are on about a billion hours daily (120m homes x 2 TVs x 4 hours, plus hotels, bars, etc).

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5


Free Cash Flow and Capital Structure
Free cash flow in Q4’18 was -$1.3 billion vs. -$0.5 billion in Q4’17, totalling -$3 billion for 2018 (compared to our original forecasted range of -$3 to -$4 billion for the full year). We expect 2019 FCF will be similar to 2018 and then will improve each year thereafter (assuming, as we do, no material transactions). This FCF improvement will be driven by growing operating margin, which will allow us to fund more of our investment needs internally.
During Q4, we raised €1.1 billion 4.625% senior notes and $800 million 6.375% senior notes (weighted average coupon of 5.3%). As long as we judge our marginal after-tax cost of debt to be lower than our marginal cost of equity, we’ll continue to finance our working capital needs through the high yield market. We finished the year with cash of $3.8 billion and our $500 million unsecured credit facility remains undrawn.
Spence Neumann joins as CFO
We’re pleased that Spence Neumann has joined Netflix as our new CFO and we thank David Wells for his many contributions to Netflix. Spence is a veteran entertainment executive who brings a wealth of experience and new perspectives to the company as we expand our original content around the world.

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6


Reference
For quick reference, our eight most recent investor letters are: October 2018,14 July 2018,15 April 2018,16 January 2018,17 October 2017,18 July 2017,19 April 2017,20 January 2017.21
Appendix
 (in millions)
Q4'17
Q1'18
Q2'18
Q3'18
Q4'18
Q1'19 Forecast
US Streaming:
 
 
 
 
 
 
Revenue
$
1,630

$
1,820

$
1,893

$
1,937

$
1,996

$
2,064

Contribution Profit*
$
503

$
633

$
672

$
688

$
590

$
705

Contribution Margin*
30.9
%
34.8
%
35.5
%
35.5
%
29.6
%
34.2
%
Paid Memberships
52.81

55.09

55.96

56.96

58.49

60.09

Paid Net Additions
1.47

2.28

0.87

1.00

1.53

1.60

Free Trials
1.94

1.62

1.42

1.51

2.07

 
 
 
 
 
 
 
 
International Streaming:
 
 
 
 
 
 
Revenue
$
1,550

$
1,782

$
1,921

$
1,973

$
2,106

$
2,350

Contribution Profit*
$
39

$
174

$
188

$
218

$
82

$
230

Contribution Margin*
2.5
%
9.8
%
9.8
%
11.0
%
3.9
%
9.8
%
Paid Memberships
57.83

63.82

68.39

73.46

80.77

88.07

Paid Net Additions
5.16

5.98

4.58

5.07

7.31

7.30

Free Trials
5.00

4.48

4.37

5.17

7.13

 
 
 
 
 
 
 
 
*Certain prior period amounts have been reclassified from G&A to Cost of revenues and Marketing and from Tech & Dev to Cost of revenues to conform to current period presentation





___________________________________
14 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q3/FINAL-Q3-18-Shareholder-Letter.pdf
15 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q2/FINAL-Q2-18-Shareholder-Letter.pdf
16 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2018/q1/FINAL-Q1-18-Shareholder-Letter.pdf
17 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q4/COMBINED-Q4-17-Shareholder-Letter-FINAL.pdf
18 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q3/Q3_17_Shareholder_Letter_COMBINED.pdf
19 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q2/Q2_17_Shareholder_Letter.pdf
20 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2017/q1/Q117ShareholderLetterV2FINAL.pdf
21 https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2016/q4/Q416ShareholderLetter.pdf


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7


January 17, 2019 Earnings Interview, 3pm PST
Our video interview with Eric Sheridan of UBS will be on youtube/netflixir at 3pm PST today. Questions that investors would like to see asked should be sent to eric.sheridan@ubs.com. Reed Hastings, CEO, Spence Neumann, CFO, Ted Sarandos, Chief Content Officer, Greg Peters, Chief Product Officer and Spencer Wang, VP of IR/Corporate Development will all be on the video to answer Eric’s questions.

 
IR Contact: 
PR Contact: 
Spencer Wang
Richard Siklos
VP, Finance/IR & Corporate Development
VP, Corporate Communications
408 809-5360
408 540-2629


























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8



Use of Non-GAAP Measures
This shareholder letter and its attachments include reference to the non-GAAP financial measure of free cash flow and EBITDA. Management believes that free cash flow and EBITDA are important liquidity metrics because they measure, during a given period, the amount of cash generated that is available to repay debt obligations, make investments and for certain other activities or the amount of cash used in operations, including investments in global streaming content. However, these non-GAAP measures 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 these non-GAAP measures are 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 content investment; multi-year business plan; content performance; price changes; reliance on 2nd run programming; future content offerings, including interactive projects; partnerships; effect of competition on growth; free cash flow; future capital raises; domestic and international net and paid subscribers; revenue; contribution profit (loss) and contribution margin for both domestic international operations, as well as consolidated operating income, operating margin; net income, earnings per share and free cash flow. 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 streaming; fluctuations in consumer usage of our service; service disruptions; production risks; actions of internet service providers; changes in government regulation; and, competition, including 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, as amended by Form 10-K/A, filed with the Securities and Exchange Commission on February 5, 2018. The Company provides internal forecast numbers. Investors should anticipate that actual performance will vary from these forecast numbers based on risks and uncertainties discussed above and in our Annual Report on Form 10-K, as amended by Form 10-K/A. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this shareholder letter.














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9



Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Revenues
$
4,186,841

 
$
3,999,374

 
$
3,285,755

 
$
15,794,341

 
$
11,692,713

Cost of revenues
2,733,400

 
2,531,128

 
2,214,334

 
9,967,538

 
8,033,000

Marketing
730,355

 
510,330

 
466,527

 
2,369,469

 
1,436,281

Technology and development
331,789

 
308,620

 
247,132

 
1,221,814

 
953,710

General and administrative
175,530

 
168,628

 
112,459

 
630,294

 
431,043

Operating income
215,767

 
480,668

 
245,303

 
1,605,226

 
838,679

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(128,807
)
 
(108,862
)
 
(75,292
)
 
(420,493
)
 
(238,204
)
Interest and other income (expense)
32,436

 
7,004

 
(38,681
)
 
41,725

 
(115,154
)
Income before income taxes
119,396

 
378,810

 
131,330

 
1,226,458

 
485,321

Provision for (benefit from) income taxes
(14,538
)
 
(24,025
)
 
(54,187
)
 
15,216

 
(73,608
)
Net income
$
133,934

 
$
402,835

 
$
185,517

 
$
1,211,242

 
$
558,929

Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.31

 
$
0.92

 
$
0.43

 
$
2.78

 
$
1.29

Diluted
$
0.30

 
$
0.89

 
$
0.41

 
$
2.68

 
$
1.25

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
436,385

 
435,809

 
433,108

 
435,374

 
431,885

Diluted
451,116

 
451,919

 
448,142

 
451,244

 
446,814




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10



Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands)
 
 
As of
 
December 31,
2018
 
December 31,
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,794,483

 
$
2,822,795

Current content assets, net
5,151,186

 
4,310,934

Other current assets
748,466

 
536,245

Total current assets
9,694,135

 
7,669,974

Non-current content assets, net
14,960,954

 
10,371,055

Property and equipment, net
418,281

 
319,404

Other non-current assets
901,030

 
652,309

Total assets
$
25,974,400

 
$
19,012,742

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current content liabilities
$
4,686,019

 
$
4,173,041

Accounts payable
562,985

 
359,555

Accrued expenses
477,417

 
315,094

Deferred revenue
760,899

 
618,622

Total current liabilities
6,487,320

 
5,466,312

Non-current content liabilities
3,759,026

 
3,329,796

Long-term debt
10,360,058

 
6,499,432

Other non-current liabilities
129,231

 
135,246

Total liabilities
20,735,635

 
15,430,786

Stockholders' equity:
 
 
 
Common stock
2,315,988

 
1,871,396

Accumulated other comprehensive loss
(19,582
)
 
(20,557
)
Retained earnings
2,942,359

 
1,731,117

Total stockholders' equity
5,238,765

 
3,581,956

Total liabilities and stockholders' equity
$
25,974,400

 
$
19,012,742

 


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11



Netflix, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
2018

September 30,
2018

December 31,
2017

December 31,
2018
 
December 31,
2017
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net income
$
133,934

 
$
402,835

 
$
185,517

 
$
1,211,242

 
$
558,929

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
 
 
 
 
 
Additions to streaming content assets
(3,784,252
)
 
(3,238,717
)
 
(2,477,659
)
 
(13,043,437
)
 
(9,805,763
)
Change in streaming content liabilities
266,653

 
65,868

 
53,446

 
999,880

 
900,006

Amortization of streaming content assets
2,053,660

 
1,911,767

 
1,713,863

 
7,532,088

 
6,197,817

Amortization of DVD content assets
8,965

 
9,959

 
12,289

 
41,212

 
60,657

Depreciation and amortization of property, equipment and intangibles
23,219

 
21,161

 
19,073

 
83,157

 
71,911

Stock-based compensation expense
88,714

 
82,316

 
48,530

 
320,657

 
182,209

Other non-cash items
9,336

 
8,962

 
14,126

 
40,428

 
57,207

Foreign currency remeasurement loss (gain) on long-term debt
(21,953
)
 
(7,670
)
 
25,740

 
(73,953
)
 
140,790

Deferred taxes
(14,479
)
 
(39,453
)
 
(104,132
)
 
(85,520
)
 
(208,688
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Other current assets
(88,359
)
 
(30,364
)
 
(87,090
)
 
(200,192
)
 
(234,090
)
Accounts payable
121,831

 
(4,449
)
 
63,969

 
199,198

 
74,559

Accrued expenses
(49,776
)
 
134,000

 
(5,169
)
 
150,422

 
114,337

Deferred revenue
44,176

 
18,983

 
83,197

 
142,277

 
177,974

Other non-current assets and liabilities
(26,741
)
 
(25,609
)
 
(33,657
)
 
2,062

 
(73,803
)
Net cash used in operating activities
(1,235,072
)
 
(690,411
)
 
(487,957
)
 
(2,680,479
)
 
(1,785,948
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of DVD content assets
(7,507
)
 
(7,731
)
 
(10,507
)
 
(38,586
)
 
(53,720
)
Purchases of property and equipment
(70,120
)
 
(39,333
)
 
(21,585
)
 
(173,946
)
 
(173,302
)
Change in other assets
(2,731
)
 
(121,630
)
 
(3,749
)
 
(126,588
)
 
(6,689
)
Purchases of short-term investments

 

 

 

 
(74,819
)
Proceeds from sale of short-term investments

 

 

 

 
320,154

Proceeds from maturities of short-term investments

 

 

 

 
22,705

Net cash provided by (used in) investing activities
(80,358
)
 
(168,694
)
 
(35,841
)
 
(339,120
)
 
34,329

Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of debt
2,061,852

 

 
1,600,000

 
3,961,852

 
3,020,510

Debt issuance costs
(18,879
)
 

 
(16,828
)
 
(35,871
)
 
(32,153
)
Proceeds from issuance of common stock
11,450

 
29,781

 
14,705

 
124,502

 
88,378

Other financing activities
(559
)
 
(544
)
 
66

 
(1,956
)
 
255

Net cash provided by financing activities
2,053,864

 
29,237

 
1,597,943

 
4,048,527

 
3,076,990

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(4,957
)
 
(5,562
)
 
2,181

 
(39,682
)
 
29,848

Net increase (decrease) in cash, cash equivalents, and restricted cash
733,477

 
(835,430
)
 
1,076,326

 
989,246

 
1,355,219

Cash, cash equivalents, and restricted cash at beginning of period
3,078,564

 
3,913,994

 
1,746,469

 
2,822,795

 
1,467,576

Cash, cash equivalents, and restricted cash at end of period
$
3,812,041

 
$
3,078,564

 
$
2,822,795

 
$
3,812,041

 
$
2,822,795

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Non-GAAP free cash flow reconciliation:
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
$
(1,235,072
)
 
$
(690,411
)
 
$
(487,957
)
 
$
(2,680,479
)
 
$
(1,785,948
)
Acquisition of DVD content assets
(7,507
)
 
(7,731
)
 
(10,507
)
 
(38,586
)
 
(53,720
)
Purchases of property and equipment
(70,120
)
 
(39,333
)
 
(21,585
)
 
(173,946
)
 
(173,302
)
Change in other assets
(2,731
)
 
(121,630
)
 
(3,749
)
 
(126,588
)
 
(6,689
)
Non-GAAP free cash flow
$
(1,315,430
)
 
$
(859,105
)
 
$
(523,798
)
 
$
(3,019,599
)
 
$
(2,019,659
)

nflxlogo2015a17.jpg
12



Netflix, Inc.
Segment Information
(unaudited)
(in thousands)
 
As of / Three Months Ended
 
As of/ Twelve Months Ended
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Domestic Streaming
 
 
 
 
 
 
 
 
 
Paid memberships at end of period
58,486

 
56,957

 
52,810

 
58,486

 
52,810

Paid net membership additions
1,529

 
998

 
1,465

 
5,676

 
4,905

Free trials
2,065

 
1,507

 
1,940

 
2,065

 
1,940

 
 
 
 
 
 
 
 
 
 
Revenues
$
1,996,092

 
$
1,937,314

 
$
1,630,274

 
$
7,646,647

 
$
6,153,025

Cost of revenues
1,093,446

 
1,038,473

 
916,100

 
4,038,394

 
3,470,859

Marketing
312,739

 
210,595

 
211,057

 
1,025,351

 
603,746

Contribution profit
589,907

 
688,246

 
503,117

 
2,582,902

 
2,078,420

 
 
 
 
 
 
 
 
 
 
International Streaming
 
 
 
 
 
 
 
 
 
Paid memberships at end of period
80,773

 
73,465

 
57,834

 
80,773

 
57,834

Paid net membership additions
7,308

 
5,070

 
5,156

 
22,939

 
16,649

Free trials
7,131

 
5,170

 
4,998

 
7,131

 
4,998

 
 
 
 
 
 
 
 
 
 
Revenues
$
2,105,592

 
$
1,973,283

 
$
1,550,329

 
$
7,782,105

 
$
5,089,191

Cost of revenues
1,606,275

 
1,455,554

 
1,255,749

 
5,776,047

 
4,359,616

Marketing
417,616

 
299,735

 
255,470

 
1,344,118

 
832,535

Contribution profit (loss)
81,701

 
217,994

 
39,110

 
661,940

 
(102,960
)
 
 
 
 
 
 
 
 
 
 
Domestic DVD
 
 
 
 
 
 
 
 
 
Paid memberships at end of period
2,706

 
2,828

 
3,330

 
2,706

 
3,330

Free trials
25

 
24

 
53

 
25

 
53

 
 
 
 
 
 
 
 
 
 
Revenues
$
85,157

 
$
88,777

 
$
105,152

 
$
365,589

 
$
450,497

Cost of revenues
33,679

 
37,101

 
42,485

 
153,097

 
202,525

Contribution profit
51,478

 
51,676

 
62,667

 
212,492

 
247,972

 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
4,186,841

 
$
3,999,374

 
$
3,285,755

 
$
15,794,341

 
$
11,692,713

Cost of revenues
2,733,400

 
2,531,128

 
2,214,334

 
9,967,538

 
8,033,000

Marketing
730,355

 
510,330

 
466,527

 
2,369,469

 
1,436,281

Contribution profit
723,086

 
957,916

 
604,894

 
3,457,334

 
2,223,432

Other operating expenses
507,319

 
477,248

 
359,591

 
1,852,108

 
1,384,753

Operating income
215,767

 
480,668

 
245,303

 
1,605,226

 
838,679

Other expense
(96,371
)
 
(101,858
)
 
(113,973
)
 
(378,768
)
 
(353,358
)
Provision for (benefit from) income taxes
(14,538
)
 
(24,025
)
 
(54,187
)
 
15,216

 
(73,608
)
Net income
$
133,934

 
$
402,835

 
$
185,517

 
$
1,211,242

 
$
558,929






nflxlogo2015a17.jpg
13



Netflix, Inc.
Reclassification Reconciliation
(unaudited)
(in thousands)

 
Three Months Ended
December 31, 2018
 
Per Previous Classification
 
Reclassifications
 
As Reported
Consolidated
 
 
 
 
 
Revenues
$
4,186,841

 
$

 
$
4,186,841

Cost of revenues
2,599,089

 
134,311

 
2,733,400

Marketing
646,938

 
83,417

 
730,355

Technology and development
350,283

 
(18,494
)
 
331,789

General and administrative
374,764

 
(199,234
)
 
175,530

Operating Income
215,767

 

 
215,767

Operating Margin
5.2
%
 
 %
 
5.2
%
 
 
 
 
 
 
Domestic Streaming
 
 
 
 
 
Revenues
$
1,996,092

 
$

 
$
1,996,092

Cost of revenues
1,041,126

 
52,320

 
1,093,446

Marketing
282,228

 
30,511

 
312,739

Contribution Profit
672,738

 
(82,831
)
 
589,907

Contribution Margin
33.7
%
 
(4.1
)%
 
29.6
%
 
 
 
 
 
 
International Streaming
 
 
 
 
 
Revenues
$
2,105,592

 
$

 
$
2,105,592

Cost of revenues
1,524,284

 
81,991

 
1,606,275

Marketing
364,710

 
52,906

 
417,616

Contribution Profit
216,598

 
(134,897
)
 
81,701

Contribution Margin
10.3
%
 
(6.4
)%
 
3.9
%


nflxlogo2015a17.jpg
14


Netflix, Inc.
Non-GAAP Information
(unaudited)
(in thousands)

 
 
 
December 31,
2017
 
March 31,
2018
 
June 30,
2018
 
September 30,
2018
 
December 31,
2018
Non-GAAP Adjusted EBITDA reconciliation:
 
 
 
 
 
 
 
 
 
GAAP net income
$
185,517

 
$
290,124

 
$
384,349

 
$
402,835

 
$
133,934

Add:
 
 
 
 
 
 
 
 
 
Other expense
113,973

 
146,962

 
33,577

 
101,858

 
96,371

Provision for (benefit from) income taxes
(54,187
)
 
9,492

 
44,287

 
(24,025
)
 
(14,538
)
Depreciation and amortization of property, equipment and intangibles
19,073

 
19,041

 
19,736

 
21,161

 
23,219

Stock-based compensation expense
48,530

 
68,395

 
81,232

 
82,316

 
88,714

Adjusted EBITDA
$
312,906

 
$
534,014

 
$
563,181

 
$
584,145

 
$
327,700


nflxlogo2015a17.jpg
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