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, and access to financing sources; capital allocation strategies, including any stock repurchases or repurchase programs; seasonality; impact of foreign exchange rate fluctuations, including on net income, revenues and average revenues per paying member; expectations regarding hedging activity; 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; member viewing patterns; future contractual obligations, including unknown content obligations and timing of payments; our global content and marketing investments, including investments in original programming; 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, 2023 filed with the Securities and Exchange Commission (“SEC”) on January 26, 2024, 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 and other 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 269 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 and plans.

Results of Operations

The following represents our consolidated performance highlights:

			As of/Three Months Ended												Change
			March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
			(in thousands, except revenue per membership and percentages)
Financial Results:
Streaming revenues			$	9,370,440					$	8,130,001					$	1,240,439					15		%
DVD revenues (1)			—						31,502						(31,502)						(100)		%
Total revenues			$	9,370,440					$	8,161,503					$	1,208,937					15		%
Operating income			$	2,632,534					$	1,714,317					$	918,217					54		%
Operating margin			28		%				21		%				7		%
Global Streaming Memberships:
Paid net membership additions			9,326						1,751						7,575						433		%
Paid memberships at end of period			269,602						232,498						37,104						16		%
Average paying memberships			264,939						231,623						33,316						14		%
Average monthly revenue per paying membership			$	11.79					$	11.70					$	0.09					1		%
Constant currency change (2)																					4		%

(1) We discontinued our DVD-by-mail service in September 2023. The discontinuance of our DVD business had an immaterial impact on our operations and

financial results.

(2) We believe the non-GAAP financial measure of constant currency revenue is useful in analyzing the underlying trends in average monthly revenue per paying membership (ARM) absent foreign currency fluctuations. However, this non-GAAP financial measure should be considered in addition to, not as a substitute for, or superior to other financial measures prepared in accordance with GAAP.

In order to exclude the effect of foreign currency rate fluctuations on ARM, we calculate 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 and exclude the impact of hedging gains or losses realized as revenues. Constant currency percentage change in ARM is calculated as the percentage change between current period constant currency ARM and the prior comparative period ARM. The impact of hedging gains or losses is excluded from both the current and prior periods. For the three months ended March 31, 2024, our revenues would have been approximately $271 million higher excluding the impact of hedging and had foreign currency exchange rates remained constant with those for the three months ended March 31, 2023.

Operating margin for the three months ended March 31, 2024 increased seven percentage points as compared to the prior comparative period, primarily due to revenues growing at a faster rate as compared to the growth in cost of revenues, general and administrative expenses, and technology and development expenses, partially offset by higher growth in marketing 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 March 31, 2024, 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.

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 months ended March 31, 2024 and March 31, 2023.

						Three Months Ended												Change
						March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
						(in thousands, except percentages)
Streaming revenues						$	9,370,440					$	8,130,001					$	1,240,439					15		%

Streaming revenues for the three months ended March 31, 2024 increased 15% as compared to the three months ended March 31, 2023, primarily due to the growth in average paying memberships and price increases, partially offset by unfavorable changes in foreign exchange rates.

The following tables summarize streaming revenue and other streaming membership information by region for the three months ended March 31, 2024 and 2023. Hedging gains and losses are included in “Streaming revenues” for the three months ended March 31, 2024. No hedging gains and losses were recognized as “Streaming revenues” in the comparative prior year period.

United States and Canada (UCAN)

						As of/Three Months Ended												Change
						March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
						(in thousands, except revenue per membership and percentages)
Streaming revenues						$	4,224,315					$	3,608,645					$	615,670					17		%
Paid net membership additions						2,530						102						2,428						2,380		%
Paid memberships at end of period						82,658						74,398						8,260						11		%
Average paying memberships						81,393						74,347						7,046						9		%
Average monthly revenue per paying membership						$	17.30					$	16.18					$	1.12					7		%
Constant currency change																								7		%

Europe, Middle East, and Africa (EMEA)

						As of/Three Months Ended												Change
						March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
						(in thousands, except revenue per membership and percentages)
Streaming revenues						$	2,958,193					$	2,517,641					$	440,552					17		%
Paid net membership additions						2,916						644						2,272						353		%
Paid memberships at end of period						91,729						77,373						14,356						19		%
Average paying memberships						90,271						77,051						13,220						17		%
Average monthly revenue per paying membership						$	10.92					$	10.89					$	0.03					—		%
Constant currency change																								—		%

Latin America (LATAM)

						As of/Three Months Ended												Change
						March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
						(in thousands, except revenue per membership and percentages)
Streaming revenues						$	1,165,008					$	1,070,192					$	94,816					9		%
Paid net membership additions (losses)						1,723						(450)						2,173						483		%
Paid memberships at end of period						47,720						41,249						6,471						16		%
Average paying memberships						46,859						41,474						5,385						13		%
Average monthly revenue per paying membership						$	8.29					$	8.60					$	(0.31)					(4)		%
Constant currency change																								16		%

Asia-Pacific (APAC)

						As of/Three Months Ended												Change
						March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
						(in thousands, except revenue per membership and percentages)
Streaming revenues						$	1,022,924					$	933,523					$	89,401					10		%
Paid net membership additions						2,157						1,455						702						48		%
Paid memberships at end of period						47,495						39,478						8,017						20		%
Average paying memberships						46,417						38,751						7,666						20		%
Average monthly revenue per paying membership						$	7.35					$	8.03					$	(0.68)					(8)		%
Constant currency change																								(4)		%

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												Change
			March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
			(in thousands, except percentages)
Cost of revenues			$	4,977,073					$	4,803,625					$	173,448					4		%
As a percentage of revenues			53		%				59		%

The increase in cost of revenues for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 is primarily due to a $211 million increase in content amortization relating to our existing and new content, partially offset by a $38 million decrease in other cost of revenues.

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 sales and marketing activities.

			Three Months Ended												Change
			March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
			(in thousands, except percentages)
Marketing			$	654,340					$	555,362					$	98,978					18		%
As a percentage of revenues			7		%				7		%

The increase in marketing expenses was primarily due to a $65 million increase in advertising expenses due to the timing of content releases, coupled with a $27 million increase in personnel-related costs.

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												Change
			March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
			(in thousands, except percentages)
Technology and development			$	702,473					$	687,275					$	15,198					2		%
As a percentage of revenues			7		%				8		%

Technology and development expenses for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 remained relatively flat.

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												Change
			March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
			(in thousands, except percentages)
General and administrative			$	404,020					$	400,924					$	3,096					1		%
As a percentage of revenues			4		%				5		%

General and administrative expenses for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 remained relatively flat.

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												Change
						March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
						(in thousands, except percentages)
Interest expense						$	173,314					$	174,239					$	(925)					(1)		%
As a percentage of revenues						2		%				2		%

Interest expense primarily consists of interest on our Notes of $173 million for the three months ended March 31, 2024. Interest expense for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 remained relatively flat.

Interest and Other Income (Expense)

Interest and other income (expense) 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												Change
						March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
						(in thousands, except percentages)
Interest and other income (expense)						$	155,359					$	(71,204)					$	226,563					318		%
As a percentage of revenues						2		%				(1)		%

Interest and other income (expense) increased in the three months ended March 31, 2024 primarily due to foreign exchange gains of $94 million, compared to losses of $107 million for the corresponding period in 2023. In the three months ended March 31, 2024, the foreign exchange gains were primarily driven by the non-cash gain of $131 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 three months ended March 31, 2023, the foreign exchange losses were primarily driven by the non-cash loss of $81 million from the remeasurement of our €5,170 million Senior Notes, coupled with the remeasurement of cash and content liability positions in currencies other than the functional currencies. The change in foreign currency gains and losses was coupled with a $19 million increase in interest income earned due to higher average interest rates for the three months ended March 31, 2024 as compared to the corresponding period in 2023.

Provision for Income Taxes

						Three Months Ended												Change
						March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
						(in thousands, except percentages)
Provision for income taxes						$	282,370					$	163,754					$	118,616		72		%
Effective tax rate						11		%				11		%

The effective tax rate for the three months ended March 31, 2024 remained relatively flat as compared to the same period in 2023.

Liquidity and Capital Resources

			As of												Change
			March 31, 2024						December 31, 2023						March 31, 2024 vs. December 31, 2023
			(in thousands, except percentages)
Cash, cash equivalents, restricted cash and short-term investments			$	7,047,562					$	7,139,488					$	(91,926)					(1)		%
Short-term and long-term debt			14,015,974						14,543,261						(527,287)						(4)		%

Cash, cash equivalents, restricted cash and short-term investments decreased $92 million in the three months ended March 31, 2024 primarily due to the repurchase of stock and repayment of debt, partially offset by cash provided by operations.

Debt, net of debt issuance costs, decreased $527 million primarily due to the repayment upon maturity of the $400 million aggregate principal amount of our 5.750% Senior Notes in the three months ended March 31, 2024, coupled with the remeasurement of our euro-denominated notes. The amount of principal and interest on our outstanding notes due in the next twelve months is $1,476 million. As of March 31, 2024, 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 we may periodically raise additional debt capital. Our ability to obtain this or any additional financing that we may choose or need, including for the refinancing of upcoming maturities or 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 three months ended March 31, 2024, the Company repurchased 3,566,965 shares of common stock for an aggregate amount of $2.0 billion. As of March 31, 2024, $6.4 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 March 31, 2024, 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)						$	24,195,000					$	11,066,048					$	13,128,952
Debt (2)						17,171,547						1,476,407						15,695,140
Operating lease obligations (3)						2,977,341						500,327						2,477,014
Total						$	44,343,888					$	13,042,782					$	31,301,106

(1)As of March 31, 2024, content obligations were comprised of $4.4 billion included in “Current content liabilities” and $2.4 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and $17.4 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.

Cash Flows

The following table summarizes our cash flows:

			Three Months Ended												Change
			March 31, 2024						March 31, 2023						Q1'24 vs. Q1'23
			(in thousands, except percentages)
Net cash provided by operating activities			$	2,212,522					$	2,178,740					$	33,782					2		%
Net cash used in investing activities			(75,714)						(263,653)						(187,939)						(71)		%
Net cash used in financing activities			(2,132,944)						(374,073)						1,758,871						470		%

Net cash provided by operating activities increased $34 million from the three months ended March 31, 2023 to $2,213 million for the three months ended March 31, 2024. The increase in net cash provided by operating activities was primarily driven by a $1,027 million or 79% increase in net income and favorable changes in working capital, partially offset by an increase in payments for content assets. The payments for content assets increased $1,105 million, from $2,813 million to $3,918 million, or 39%.

Net cash used in investing activities decreased $188 million from the three months ended March 31, 2023 to $76 million for the three months ended March 31, 2024. The decrease in net cash used in investing activities is primarily due to there being no purchases of short-term investments in the three months ended March 31, 2024, as compared to purchases of short-term investments for an aggregate amount of $202 million in the three months ended March 31, 2023, partially offset by an increase in purchases of property and equipment.

Net cash used in financing activities increased $1,759 million from the three months ended March 31, 2023 to $2,133 million for the three months ended March 31, 2024. The increase in net cash used in financing activities is primarily due to repurchases of common stock for an aggregate amount of $2.0 billion in the three months ended March 31, 2024 as compared to repurchases of common stock for an aggregate amount of $400 million in the three months ended March 31, 2023, coupled with the repayment upon maturity of the $400 million aggregate principal amount of our 5.750% Senior Notes in the three months ended March 31, 2024 as compared to no repayments of debt in the corresponding period in 2023. The increase in net cash used in financing activities was partially offset by the $243 million increase in proceeds from the issuance of common stock in the three months ended March 31, 2024 as compared to the corresponding period in 2023, due to an increase in employee stock options exercised.

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, 2023, 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, 2023.