Netflix, Inc.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

For the quarterly period ended June 30, 2017

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission File Number: 001-35727

Netflix, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

100 Winchester Circle, Los Gatos, California 95032

(Address and zip code of principal executive offices)

(408) 540-3700

(Registrant's telephone number, including area code)

77-0467272

(I.R.S. Employer Identification Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x

No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required

to be submitted and posted pursuant to Rule 405 of Regulation S-T (?232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x

No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

x

Accelerated filer

o

Non-accelerated filer

o (Do not check if a smaller reporting company)

Smaller reporting company

o

Emerging growth company

o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o

No x

As of June 30, 2017 , there were 431,749,744 shares of the registrant's common stock, par value $0.001, outstanding.

Table of Contents

Item 1.

Item 2. Item 3. Item 4. Item 1. Item 1A. Item 6. Signatures Exhibit Index

Part I. Financial Information Consolidated Financial Statements

Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Cash Flows Consolidated Balance Sheets Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures

Part II. Other Information Legal Proceedings Risk Factors Exhibits

2

Page

3 4 5 6 7 18 31 31 32 32 32 32 33 34

Table of Contents

Revenues Cost of revenues Marketing Technology and development General and administrative

Operating income Other income (expense):

Interest expense Interest and other income (expense) Income before income taxes Provision for (benefit from) income taxes Net income Earnings per share: Basic Diluted Weighted-average common shares outstanding: Basic Diluted

NETFLIX, INC.

Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)

Three Months Ended

June 30, 2017

June 30, 2016

$ 2,785,464 $ 2,105,204

1,902,308

1,473,098

274,323

216,029

267,083

207,300

213,943

138,407

127,807

70,370

Six Months Ended

June 30, 2017

June 30, 2016

$ 5,422,099 $ 4,062,940

3,559,332

2,842,638

545,593

424,039

524,191

410,808

408,234

265,632

384,749

119,823

(55,482)

(35,455)

(102,224)

(70,992)

(58,363)

16,317

(44,771)

42,280

13,962

51,232

237,754

91,111

(51,638)

10,477

(6,068)

22,698

$

65,600 $

40,755 $ 243,822 $

68,413

$

0.15 $

0.10 $

0.57 $

0.16

$

0.15 $

0.09 $

0.55 $

0.16

431,396 446,262

428,483 438,154

431,000 445,862

428,300 438,073

See accompanying notes to the consolidated financial statements. 3

Table of Contents

NETFLIX, INC.

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands)

Net income

$

Other comprehensive income (loss):

Foreign currency translation adjustments

Change in unrealized gains (losses) on available-for-sale securities, net of tax of $89, $388, $166, and $1,222, respectively

Total other comprehensive income (loss)

Comprehensive income

$

Three Months Ended

June 30, 2017

June 30, 2016

65,600 $

40,755

Six Months Ended

June 30, 2017

June 30, 2016

$ 243,822 $ 68,413

14,347

144 14,491 80,091 $

(4,446)

16,926

636 (3,810) 36,945 $

271 17,197 261,019 $

3,096

2,001 5,097 73,510

See accompanying notes to the consolidated financial statements. 4

Table of Contents

NETFLIX, INC.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash used in operating activities:

Additions to streaming content assets Increase in streaming content liabilities Amortization of streaming content assets Amortization of DVD content assets Depreciation and amortization of property, equipment and intangibles Stock-based compensation expense Excess tax benefits from stock-based compensation Other non-cash items Foreign currency remeasurement loss on long-term debt Deferred taxes Changes in operating assets and liabilities:

Other current assets Accounts payable Accrued expenses Deferred revenue Other non-current assets and liabilities

Net cash used in operating activities Cash flows from investing activities: Acquisition of DVD content assets Purchases of property and equipment Change in other assets Purchases of short-term investments Proceeds from sale of short-term investments Proceeds from maturities of short-term investments

Net cash (used in) provided by investing activities Cash flows from financing activities: Proceeds from issuance of debt Debt issuance costs Proceeds from issuance of common stock

Three Months Ended

June 30, 2017

June 30, 2016

Six Months Ended

June 30, 2017

June 30, 2016

$

65,600 $

40,755 $ 243,822 $

68,413

(2,664,421) 514,890

1,550,794 16,511 18,551 44,028 -- 11,519 64,220 (20,702)

(1,791,766) 238,517

1,175,361 20,021 14,131 44,112 (13,323) 9,040 -- (17,876)

(5,013,087) 881,147

2,856,477 35,109 33,600 88,916 -- 33,185 64,220 (47,466)

(4,108,365) 1,144,240 2,233,882

40,462 28,929 86,534 (24,639) 21,797

-- (34,479)

(80,199) (12,439) (48,042) 46,609 (41,447) (534,528)

24,091 8,795 2,099

22,753 (3,003) (226,293)

(105,601) (23,439) 45,500 61,830 (32,597)

(878,384)

38,399 (11,103) 43,331 50,255 (32,539) (454,883)

(7,624) (65,231) (1,064) (14,246) 14,128 17,605 (56,432)

(17,924) (10,814)

907 (18,492) 18,752 24,675 (2,896)

(32,996) (117,754)

(1,833) (72,020) 69,876 22,705 (132,022)

(41,131) (19,239)

551 (53,454) 26,940 87,700

1,367

1,420,510 (15,013) 14,826

-- -- 4,232

1,420,510 (15,013) 39,004

-- -- 7,768

Excess tax benefits from stock-based compensation Other financing activities

Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental disclosure: Change in investing activities included in liabilities

--

13,323

--

24,639

63

57

124

112

1,420,386

17,612

1,444,625

32,519

11,527

(2,742)

16,982

2,592

840,953

(214,319)

451,201

(418,405)

1,077,824

1,605,244

1,467,576

1,809,330

$ 1,918,777 $ 1,390,925 $ 1,918,777 $ 1,390,925

$

(3,493) $

(1,254) $ (20,165) $

(1,757)

See accompanying notes to the consolidated financial statements. 5

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