Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include, but are not limited to, statements regarding: our core strategy; our ability to improve our content offerings and service; our future financial performance, including expectations regarding revenues, deferred revenue, operating income and margin, net income, expenses, and profitability; liquidity, including the sufficiency of our capital resources, net cash provided by (used in) operating

activities, access to financing sources, and free cash flows; capital allocation strategies, including any stock repurchases or repurchase programs; seasonality; stock price volatility; impact of foreign exchange rate fluctuations, including on net income, revenues and average revenues per paying member; impact of interest rate fluctuations; adequacy of existing facilities; future regulatory changes and their impact on our business; intellectual property; price changes and testing; accounting treatment for changes related to content assets; acquisitions; membership growth, including impact of content and pricing changes on membership growth; partnerships; member viewing patterns; dividends; future contractual obligations, including unknown content obligations and timing of payments; our global content and marketing investments, including investments in original programming; impact of work stoppages; content amortization; resolution of tax examinations; tax expense; unrecognized tax benefits; deferred tax assets; and our ability to effectively manage change and growth. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on January 26, 2023, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item 1A.

We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.

Investors and others should note that we announce material financial information to our investors using our investor relations website (ir.netflix.net), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media and blogs to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post on social media and blogs could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the social media channels and blogs listed on our investor relations website.

Overview

We are one of the world’s leading entertainment services with over 247 million paid memberships in over 190 countries enjoying TV series, films and games across a wide variety of genres and languages. Members can play, pause and resume watching as much as they want, anytime, anywhere, and can change their plans at any time.

Our core strategy is to grow our business globally within the parameters of our operating margin target. We strive to continuously improve our members’ experience by offering compelling content that delights them and attracts new members. We seek to drive conversation around our content to further enhance member joy, and we are continuously enhancing our user interface to help our members more easily choose content that they will find enjoyable.

Our membership growth exhibits a seasonal pattern that reflects variations when consumers buy internet-connected screens and when they tend to increase their viewing. Historically, the fourth quarter represents our greatest streaming membership growth. In addition, our membership growth can be impacted by our content release schedule and changes to pricing.

Results of Operations

The following represents our consolidated performance highlights:

			As of/ Three Months Ended												Change
			September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
			(in thousands, except revenue per membership and percentages)
Financial Results:
Streaming revenues			$	8,519,306					$	7,890,361					$	628,945					8		%
DVD revenues (1)			22,362						35,228						(12,866)						(37)		%
Total revenues			$	8,541,668					$	7,925,589					$	616,079					8		%
Operating income			$	1,916,394					$	1,533,018					$	383,376					25		%
Operating margin			22		%				19		%				3		%
Global Streaming Memberships:
Paid net membership additions			8,763						2,413						6,350						263		%
Paid memberships at end of period			247,153						223,085						24,068						11		%
Average paying memberships			242,772						221,879						20,893						9		%
Average monthly revenue per paying membership			$	11.70					$	11.85					$	(0.15)					(1)		%

(1) In April 2023, we announced our plans to discontinue our DVD-by-mail service, and we ceased providing our mailing services to customers on September 29, 2023. The discontinuance of our DVD business had an immaterial impact on our operations and financial results.

Consolidated revenues for the three months ended September 30, 2023 increased 8% as compared to the three months ended September 30, 2022. Operating margin for the three months ended September 30, 2023 increased three percentage points, primarily due to revenues growing at a faster rate as compared to the growth in cost of revenues and decreased marketing and technology and development expenses, partially offset by higher growth in general and administrative expenses as compared to the growth in revenues.

Streaming Revenues

We primarily derive revenues from monthly membership fees for services related to streaming content to our members. We offer a variety of streaming membership plans, the price of which varies by country and the features of the plan. As of September 30, 2023, pricing on our paid plans ranged from the U.S. dollar equivalent of $1 to $28 per month, and pricing on our extra member sub accounts ranged from the U.S. dollar equivalent of $2 to $8 per month. We expect that from time to time the prices of our membership plans in each country may change and we may test other plan and price variations.

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

						Three Months Ended												Change
						September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
						(in thousands, except percentages)
Streaming revenues						$	8,519,306					$	7,890,361					$	628,945					8		%

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

						Nine Months Ended												Change
						September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
						(in thousands, except percentages)
Streaming revenues						$	24,807,633					$	23,651,369					$	1,156,264					5		%

Streaming revenues for the three months ended September 30, 2023 increased 8% as compared to the three months ended September 30, 2022, primarily due to the 9% growth in average paying memberships, partially offset by a 1% decrease in average monthly revenue per paying membership. The decrease in average monthly revenue per paying membership was primarily due to higher membership growth in regions with lower average monthly revenue per paying membership, changes in plan mix, and limited price increases. Streaming revenues for the nine months ended September 30, 2023 increased 5% as compared to the nine months ended September 30, 2022, primarily due to the 7% growth in average paying memberships, partially offset by a 2% decrease in average monthly revenue per paying membership. The decrease in average monthly revenue per paying membership was primarily due to higher membership growth in regions with lower average monthly revenue per paying membership and changes in plan mix. Additionally, streaming revenues for the nine months ended September 30, 2023 were further impacted by unfavorable fluctuations in foreign exchange rates. We also earn revenue from advertisements presented on our streaming service, consumer products and various other sources. Revenues earned from sources other than monthly membership fees were not material for the three and nine months ended September 30, 2023 and September 30, 2022.

The following tables summarize streaming revenue and other streaming membership information by region for the three and nine months ended September 30, 2023 and 2022.

United States and Canada (UCAN)

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

						As of/ Three Months Ended												Change
						September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
						(in thousands, except revenue per membership and percentages)
Revenues						$	3,735,133					$	3,601,565					$	133,568					4		%
Paid net membership additions (losses)						1,750						104						1,646						1,583		%
Paid memberships at end of period						77,321						73,387						3,934						5		%
Average paying memberships						76,446						73,335						3,111						4		%
Average monthly revenue per paying membership						$	16.29					$	16.37					$	(0.08)					—		%
Constant currency change (1)																								—		%

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

						As of/ Nine Months Ended												Change
						September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
						(in thousands, except revenue per membership and percentages)
Revenues						$	10,943,226					$	10,489,852					$	453,374					4		%
Paid net membership additions (losses)						3,025						(1,828)						4,853						265		%
Paid memberships at end of period						77,321						73,387						3,934						5		%
Average paying memberships						75,259						74,054						1,205						2		%
Average monthly revenue per paying membership						$	16.16					$	15.74					$	0.42					3		%
Constant currency change (1)																								3		%

Europe, Middle East, and Africa (EMEA)

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

						As of/ Three Months Ended												Change
						September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
						(in thousands, except revenue per membership and percentages)
Revenues						$	2,693,146					$	2,375,814					$	317,332					13		%
Paid net membership additions (losses)						3,953						568						3,385						596		%
Paid memberships at end of period						83,760						73,534						10,226						14		%
Average paying memberships						81,784						73,250						8,534						12		%
Average monthly revenue per paying membership						$	10.98					$	10.81					$	0.17					2		%
Constant currency change (1)																								(2)		%

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

						As of/ Nine Months Ended												Change
						September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
						(in thousands, except revenue per membership and percentages)
Revenues						$	7,772,957					$	7,394,880					$	378,077					5		%
Paid net membership additions (losses)						7,031						(502)						7,533						1,501		%
Paid memberships at end of period						83,760						73,534						10,226						14		%
Average paying memberships						79,142						73,495						5,647						8		%
Average monthly revenue per paying membership						$	10.91					$	11.18					$	(0.27)					(2)		%
Constant currency change (1)																								(1)		%

Latin America (LATAM)

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

						As of/ Three Months Ended												Change
						September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
						(in thousands, except revenue per membership and percentages)
Revenues						$	1,142,811					$	1,023,945					$	118,866					12		%
Paid net membership additions (losses)						1,179						312						867						278		%
Paid memberships at end of period						43,645						39,936						3,709						9		%
Average paying memberships						43,056						39,780						3,276						8		%
Average monthly revenue per paying membership						$	8.85					$	8.58					$	0.27					3		%
Constant currency change (1)																								8		%

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

						As of/ Nine Months Ended												Change
						September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
						(in thousands, except revenue per membership and percentages)
Revenues						$	3,290,438					$	3,053,127					$	237,311					8		%
Paid net membership additions (losses)						1,946						(25)						1,971						7,884		%
Paid memberships at end of period						43,645						39,936						3,709						9		%
Average paying memberships						42,129						39,728						2,401						6		%
Average monthly revenue per paying membership						$	8.68					$	8.54					$	0.14					2		%
Constant currency change (1)																								8		%

Asia-Pacific (APAC)

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

						As of/ Three Months Ended												Change
						September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
						(in thousands, except revenue per membership and percentages)
Revenues						$	948,216					$	889,037					$	59,179					7		%
Paid net membership additions (losses)						1,881						1,429						452						32		%
Paid memberships at end of period						42,427						36,228						6,199						17		%
Average paying memberships						41,487						35,514						5,973						17		%
Average monthly revenue per paying membership						$	7.62					$	8.34					$	(0.72)					(9)		%
Constant currency change (1)																								(6)		%

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

						As of/ Nine Months Ended												Change
						September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
						(in thousands, except revenue per membership and percentages)
Revenues						$	2,801,012					$	2,713,510					$	87,502					3		%
Paid net membership additions (losses)						4,404						3,596						808						22		%
Paid memberships at end of period						42,427						36,228						6,199						17		%
Average paying memberships						40,083						34,316						5,767						17		%
Average monthly revenue per paying membership						$	7.76					$	8.79					$	(1.03)					(12)		%
Constant currency change (1)																								(6)		%

(1) We believe constant currency information is useful in analyzing the underlying trends in average monthly revenue per paying membership. In order to exclude the effect of foreign currency rate fluctuations on average monthly revenue per paying membership, we estimate current period revenue assuming foreign exchange rates had remained constant with foreign exchange rates from each of the corresponding months of the prior-year period. For the three and nine months ended September 30, 2023, our revenues would have been approximately $9 million lower and $568 million higher, respectively, had foreign currency exchange rates remained constant with those for the three and nine months ended September 30, 2022.

Cost of Revenues

Amortization of content assets makes up the majority of cost of revenues. Expenses associated with the acquisition, licensing and production of content (such as payroll, stock-based compensation, facilities, and other related personnel expenses, costs associated with obtaining rights to music included in our content, overall deals with talent, miscellaneous production related costs and participations and residuals), streaming delivery costs and other operations costs make up the remainder of cost of revenues. We have built our own global content delivery network (“Open Connect”) to help us efficiently stream a high volume of content to our members over the internet. Delivery expenses, therefore, include equipment costs related to Open Connect, payroll and related personnel expenses and all third-party costs, such as cloud computing costs, associated with delivering content over the internet. Other operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs incurred in making our content available to members.

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

			Three Months Ended												Change
			September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
			(in thousands, except percentages)
Cost of revenues			$	4,930,788					$	4,788,665					$	142,123					3		%
As a percentage of revenues			58		%				60		%

The increase in cost of revenues for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 is primarily due to a $222 million increase in other content expenses, partially offset by an $80 million decrease in content amortization due to the timing of content releases.

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

			Nine Months Ended												Change
			September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
			(in thousands, except percentages)
Cost of revenues			$	14,407,883					$	13,764,125					$	643,758					5		%
As a percentage of revenues			58		%				58		%

The increase in cost of revenues for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily due to a $362 million increase in content amortization relating to our existing and new content, including more exclusive and original programming. Other costs of revenues increased $282 million primarily due to an increase in other content expenses.

Marketing

Marketing expenses consist primarily of advertising expenses and certain payments made to our marketing and advertising sales partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators, and internet service providers (“ISPs”). Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll, stock-based compensation, facilities, and other related expenses for personnel that support marketing activities.

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

			Three Months Ended												Change
			September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
			(in thousands, except percentages)
Marketing			$	558,736					$	567,954					$	(9,218)					(2)		%
As a percentage of revenues			7		%				7		%

The decrease in marketing expenses was primarily due to a $37 million decrease in advertising expenses and an $8 million decrease in payments to our marketing partners, partially offset by a $36 million increase in personnel-related costs.

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

			Nine Months Ended												Change
			September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
			(in thousands, except percentages)
Marketing			$	1,741,266					$	1,698,892					$	42,374					2		%
As a percentage of revenues			7		%				7		%

The increase in marketing expenses was primarily due to a $70 million increase in advertising expenses, partially offset by a $28 million decrease in payments to our marketing partners.

Technology and Development

Technology and development expenses consist primarily of payroll, stock-based compensation, facilities, and other related expenses for technology personnel responsible for making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendations, merchandising and infrastructure. Technology and development expenses also include costs associated with general use computer hardware and software.

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

			Three Months Ended												Change
			September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
			(in thousands, except percentages)
Technology and development			$	657,159					$	662,739					$	(5,580)					(1)		%
As a percentage of revenues			8		%				8		%

Technology and development expenses for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 remained relatively flat.

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

			Nine Months Ended												Change
			September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
			(in thousands, except percentages)
Technology and development			$	2,002,417					$	2,037,115					$	(34,698)					(2)		%
As a percentage of revenues			8		%				9		%

The decrease in technology and development expenses was primarily due to a $50 million decrease in personnel-related costs, partially offset by an increase in expenses related to continued improvements in our streaming service.

General and Administrative

General and administrative expenses consist primarily of payroll, stock-based compensation, facilities, and other related expenses for corporate personnel. General and administrative expenses also include professional fees and other general corporate expenses.

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

			Three Months Ended												Change
			September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
			(in thousands, except percentages)
General and administrative			$	478,591					$	373,213					$	105,378					28		%
As a percentage of revenues			6		%				5		%

The increase in general and administrative expenses was primarily due to a $52 million increase in personnel-related costs and a $40 million increase in third-party expenses.

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

			Nine Months Ended												Change
			September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
			(in thousands, except percentages)
General and administrative			$	1,281,012					$	1,180,438					$	100,574					9		%
As a percentage of revenues			5		%				5		%

The increase in general and administrative expenses was primarily due to a $59 million increase in personnel-related costs and a $53 million increase in third-party expenses.

Interest Expense

Interest expense consists primarily of the interest associated with our outstanding debt obligations, including the amortization of debt issuance costs. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further detail on our debt obligations.

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

						Three Months Ended												Change
						September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
						(in thousands, except percentages)
Interest expense						$	175,563					$	172,575					$	2,988					2		%
As a percentage of revenues						2		%				2		%

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

						Nine Months Ended												Change
						September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
						(in thousands, except percentages)
Interest expense						$	524,614					$	535,609					$	(10,995)					(2)		%
As a percentage of revenues						2		%				2		%

Interest expense primarily consists of interest on our Notes of $175 million and $524 million for the three and nine months ended September 30, 2023. Interest expense for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 remained relatively flat. The decrease in interest expense for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was due to the lower average aggregate principal of interest bearing notes outstanding.

Interest and Other Income

Interest and other income consists primarily of foreign exchange gains and losses on foreign currency denominated balances and interest earned on cash, cash equivalents and short-term investments.

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

						Three Months Ended												Change
						September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
						(in thousands, except percentages)
Interest and other income						$	168,218					$	261,404					$	(93,186)					(36)		%
As a percentage of revenues						2		%				3		%

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

						Nine Months Ended												Change
						September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
						(in thousands, except percentages)
Interest and other income						$	123,975					$	677,275					$	(553,300)					(82)		%
As a percentage of revenues						—		%				3		%

Interest and other income decreased in the three and nine months ended September 30, 2023 primarily due to foreign exchange gains of $89 million and foreign exchange losses of $41 million, respectively, compared to gains of $249 million and $680 million, respectively, for the corresponding periods in 2022. In the three months ended September 30, 2023, the foreign exchange gains were primarily driven by the non-cash gains of $173 million from the remeasurement of our €5,170 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies. In the nine months ended September 30, 2023, the foreign exchange losses were primarily driven by the remeasurement of cash and content liability positions in currencies other than the functional currencies, partially offset by the non-cash gains of $63 million from the remeasurement of our €5,170 million Senior Notes. In the three and nine months ended September 30, 2022, the foreign exchange gains were primarily driven by the non-cash gains of $348 million and $815 million, respectively, from the remeasurement of our €5,170 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies. The change in foreign currency gains and losses was partially

offset by higher interest income earned in the three and nine months ended September 30, 2023 as compared to the corresponding periods in 2022.

Provision for Income Taxes

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

						Three Months Ended												Change
						September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
						(in thousands, except percentages)
Provision for income taxes						$	231,627					$	223,605					$	8,022		4		%
Effective tax rate						12		%				14		%

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

						Nine Months Ended												Change
						September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
						(in thousands, except percentages)
Provision for income taxes						$	587,103					$	787,953					$	(200,850)		(25)		%
Effective tax rate						12		%				15		%

The effective tax rates for the three and nine months ended September 30, 2023 differed from the Federal statutory rate primarily due to the impact of international provisions of the Tax Cuts and Jobs Act, research and development credits, and the recognition of excess tax benefits of stock-based compensation.

The decrease in the effective tax rates for the three and nine months ended September 30, 2023, as compared to the same period in 2022 was primarily due to the impact of foreign taxes and the recognition of excess tax benefits of stock-based compensation.

Liquidity and Capital Resources

			As of												Change
			September 30, 2023						December 31, 2022						September 30, 2023 vs. December 31, 2022
			(in thousands, except percentages)
Cash, cash equivalents, restricted cash and short-term investments			$	7,871,037					$	6,081,858					$	1,789,179					29		%
Short-term and long-term debt			14,300,368						14,353,076						(52,708)						—		%

Cash, cash equivalents, restricted cash and short-term investments increased $1,789 million in the nine months ended September 30, 2023 primarily due to cash provided by operations, partially offset by the repurchase of stock.

Debt, net of debt issuance costs, decreased $53 million primarily due to the remeasurement of our euro-denominated notes. The amount of principal and interest on our outstanding notes due in the next twelve months is $1,068 million. As of September 30, 2023, no amounts had been borrowed under the $1 billion Revolving Credit Agreement. See Note 6 Debt in the accompanying notes to our consolidated financial statements.

We anticipate that our future capital needs from the debt market will be more limited compared to prior years. Our ability to obtain this or any additional financing that we may choose or need, including for potential strategic acquisitions and investments, will depend on, among other things, our development efforts, business plans, operating performance, and the condition of the capital markets at the time we seek financing. We may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.

In March 2021, our Board of Directors authorized the repurchase of up to $5 billion of our common stock, with no expiration date, and in September 2023, the Board of Directors increased the share repurchase authorization by an additional $10 billion, also with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may

discontinue any repurchases of our common stock at any time without prior notice. During the nine months ended September 30, 2023, the Company repurchased 9,036,182 shares of common stock for an aggregate amount of $3,545 million. As of September 30, 2023, $10.9 billion remains available for repurchases.

Our primary uses of cash include the acquisition, licensing and production of content, marketing programs, streaming delivery and personnel-related costs, as well as strategic acquisitions and investments. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. For example, production costs are paid as the content is created, well in advance of when the content is available on the service and amortized. We expect to continue to significantly invest in global content, particularly in original content, which will impact our liquidity. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for the next twelve months and beyond.

Our material cash requirements from known contractual and other obligations primarily relate to our content, debt and lease obligations. As of September 30, 2023, the expected timing of those payments are as follows:

						Payments due by Period
Contractual obligations (in thousands):						Total						Next 12 Months						Beyond 12 Months
Content obligations (1)						$	19,650,049					$	9,512,081					$	10,137,968
Debt (2)						17,781,751						1,068,072						16,713,679
Operating lease obligations (3)						3,111,308						491,894						2,619,414
Total						$	40,543,108					$	11,072,047					$	29,471,061

(1)As of September 30, 2023, content obligations were comprised of $4.3 billion included in “Current content liabilities” and $2.7 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and $12.7 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition.

The material cash requirements above do not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $1 billion to $4 billion over the next three years, with the payments for the vast majority of such amounts expected to occur after the next twelve months. The foregoing range is based on considerable management judgments and the actual amounts may differ. Once we know the title that we will receive and the license fees, we include the amount in the contractual obligations table above.

(2)Debt obligations include our Notes consisting of principal and interest payments. See Note 6 Debt to the consolidated financial statements for further details.

(3)Operating lease obligations are comprised of operating lease liabilities included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Consolidated Balance Sheets, inclusive of imputed interest. Operating lease obligations also include additional obligations that are not reflected on the Consolidated Balance Sheets as they did not meet the criteria for recognition. See Note 5 Balance Sheet Components in the accompanying notes to our consolidated financial statements for further details regarding leases.

As of September 30, 2023, we had gross unrecognized tax benefits of $213 million. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

Free Cash Flow

We define free cash flow as cash provided by (used in) operating activities less purchases of property and equipment and change in other assets. We believe free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make strategic acquisitions and investments and for certain other activities like stock repurchases. Free cash flow is considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net income, operating income, net cash provided by operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP.

In assessing liquidity in relation to our results of operations, we compare free cash flow to net income, noting that the major recurring differences are the timing impact between content payments and amortization, non-cash stock-based compensation expense, non-cash remeasurement gain/loss on our euro-denominated debt, and other working capital differences. Working capital differences include deferred revenue, excess property and equipment purchases over depreciation, taxes and semi-annual interest payments on our outstanding debt. Our receivables from members generally settle quickly.

Three months ended September 30, 2023 as compared to the three months ended September 30, 2022

			Three Months Ended												Change
			September 30, 2023						September 30, 2022						Q3'23 vs. Q3'22
			(in thousands, except percentages)
Net cash provided by operating activities			$	1,992,315					$	556,810					$	1,435,505					258		%
Net cash provided by (used in) investing activities			296,071						(84,960)						381,031						448		%
Net cash provided by (used in) financing activities			(2,475,108)						4,113						(2,479,221)						(60,278)		%
Non-GAAP reconciliation of free cash flow:
Net cash provided by operating activities			1,992,315						556,810						1,435,505						258		%
Purchases of property and equipment			(103,929)						(84,960)						18,969						22		%
Free cash flow			$	1,888,386					$	471,850					$	1,416,536					300		%

Net cash provided by operating activities increased $1,436 million to $1,992 million for the three months ended September 30, 2023. The increase in net cash provided by operating activities was primarily driven by a decrease in payments for content assets, coupled with a $616 million or 8% increase in revenues. The payments for content assets decreased $1,312 million, from $4,522 million to $3,210 million, or 29%. On May 1, 2023, the collective bargaining agreement between the Writers Guild of America (“WGA”) and the Alliance of Motion Picture and Television Producers (“AMPTP”) expired, and on May 2, 2023, the WGA commenced an industry-wide strike, which ended on September 27, 2023. On July 12, 2023, the collective bargaining agreement between the Screen Actors Guild - American Federation of Television and Radio Artists (“SAG-AFTRA”) and the AMPTP expired, and on July 14, 2023, the SAG-AFTRA commenced an industry-wide strike. While the WGA strike has ended, the SAG-AFTRA strike continues, and we have paused and expect to pause additional productions in response to the strike. As a result, the timing of certain production payments will be delayed until productions can resume and may increase the variability in payments for content assets in future periods.

Net cash provided by (used in) investing activities increased $381 million for the three months ended September 30, 2023, primarily due to proceeds from maturities of short-term investments, partially offset by an increase in purchases of property and equipment.

Net cash provided by (used in) financing activities decreased $2,479 million for the three months ended September 30, 2023, primarily due to the repurchases of common stock for an aggregate amount of $2,500 million in the three months ended September 30, 2023, as compared to no repurchases of common stock in the three months ended September 30, 2022.

Free cash flow was $211 million higher than net income for the three months ended September 30, 2023, primarily due to $364 million of amortization expense exceeding cash payments for content assets and $80 million of non-cash stock-based compensation expense, partially offset by $173 million of non-cash remeasurement gain on our euro-denominated debt and $60 million in other non-favorable working capital differences.

Free cash flow was $926 million lower than net income for the three months ended September 30, 2022, primarily due to $868 million of cash payments for content assets exceeding amortization expense and $348 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $152 million of non-cash stock-based compensation expense and $138 million in other favorable working capital differences.

Nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022

			Nine Months Ended												Change
			September 30, 2023						September 30, 2022						YTD'23 vs. YTD'22
			(in thousands, except percentages)
Net cash provided by operating activities			$	5,611,287					$	1,582,399					$	4,028,888					255		%
Net cash provided by (used in) investing activities			130,155						(489,533)						619,688						127		%
Net cash used in financing activities			(3,498,530)						(670,959)						2,827,571						421		%
Non-GAAP reconciliation of free cash flow:
Net cash provided by operating activities			5,611,287						1,582,399						4,028,888						255		%
Purchases of property and equipment			(266,920)						(296,136)						(29,216)						(10)		%
Free cash flow			$	5,344,367					$	1,286,263					$	4,058,104					315		%

Net cash provided by operating activities increased $4,029 million to $5,611 million for the nine months ended September 30, 2023. The increase in net cash provided by operating activities was primarily driven by a decrease in payments for content assets, coupled with a $1,127 million or 5% increase in revenues. The payments for content assets decreased $3,289 million, from $12,949 million to $9,660 million, or 25%.

Net cash provided by (used in) investing activities increased $620 million for the nine months ended September 30, 2023, primarily due to proceeds from the maturities of short-term investments and there being no acquisitions in the nine months ended September 30, 2023, as compared to acquisitions for an aggregate amount of $193 million in the nine months ended September 30, 2022, partially offset by purchases of short-term investments.

Net cash used in financing activities increased $2,828 million for the nine months ended September 30, 2023, primarily due to repurchases of common stock for an aggregate amount of $3,545 million in the nine months ended September 30, 2023, as compared to no repurchases of common stock in the nine months ended September 30, 2022, partially offset by there being no repayment of debt in the nine months ended September 30, 2023 as compared to the repayment upon maturity of the $700 million aggregate principal amount of our 5.500% Senior Notes in February 2022.

Free cash flow was $874 million higher than net income for the nine months ended September 30, 2023, primarily due to $783 million of amortization expense exceeding cash payments for content assets and $257 million of non-cash stock-based compensation expense, partially offset by $103 million in other non-favorable working capital differences and $63 million of non-cash remeasurement gain on our euro-denominated debt.

Free cash flow was $3,150 million lower than net income for the nine months ended September 30, 2022, primarily due to $2,868 million of cash payments for content assets exceeding amortization expense and $815 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $422 million of non-cash stock-based compensation expense and $111 million in other favorable working capital differences.

Indemnification

The information set forth under Note 8 Commitments and Contingencies to the consolidated financial statements under the caption “Indemnification” is incorporated herein by reference.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022, describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates included in our Annual Report on Form 10-K for the year ended December 31, 2022.