UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, ~~2021~~2022

☐ 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			77-0467272
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

100 Winchester Circle,	Los Gatos,	California	95032
(Address of principal executive offices)			(Zip Code)

(408) 540-3700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	NFLX	NASDAQ Global Select Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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 the 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

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 31, ~~2021,~~2022, there were ~~443,383,732~~444,273,850 shares of the registrant’s common stock, par value $0.001, outstanding.

Table of Contents


		Page
	Part I. Financial Information
Item 1.	Consolidated Financial Statements

	Consolidated Statements of Operations	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Cash Flows	5
	Consolidated Balance Sheets	6
	Consolidated Statements of Stockholders' Equity	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1918
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3028
Item 4.	Controls and Procedures	3028
	Part II. Other Information
Item 1.	Legal Proceedings	3028
Item 1A.	Risk Factors	3129
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3129
Item 6.	Exhibits	3129
Exhibit Index		3230
Signatures		3230

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NETFLIX, INC.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)


		Three Months Ended				Three Months Ended
		March 31, 2021		March 31, 2020				March 31, 2022		March 31, 2021
Revenues	Revenues	$	7,163,282	$	5,767,691		Revenues	$	7,867,767	$	7,163,282
Cost of revenues	Cost of revenues	3,868,511		3,599,701			Cost of revenues	4,284,705		3,868,511
Marketing	Marketing	512,512		503,830			Marketing	555,978		512,512
Technology and development	Technology and development	525,207		453,817			Technology and development	657,530		525,207
General and administrative	General and administrative	297,196		252,087			General and administrative	397,928		297,196
Operating income	Operating income	1,959,856		958,256			Operating income	1,971,626		1,959,856
Other income (expense):	Other income (expense):						Other income (expense):
Interest expense	Interest expense	(194,440)		(184,083)			Interest expense	(187,579)		(194,440)
Interest and other income	Interest and other income	269,086		21,697			Interest and other income	195,645		269,086
Income before income taxes	Income before income taxes	2,034,502		795,870			Income before income taxes	1,979,692		2,034,502
Provision for income taxes	Provision for income taxes	(327,787)		(86,803)			Provision for income taxes	(382,245)		(327,787)
Net income	Net income	$	1,706,715	$	709,067		Net income	$	1,597,447	$	1,706,715

Earnings per share:	Earnings per share:						Earnings per share:
Basic	Basic	$	3.85	$	1.61		Basic	$	3.60	$	3.85
Diluted	Diluted	$	3.75	$	1.57		Diluted	$	3.53	$	3.75
Weighted-average common shares outstanding:
Weighted-average shares of common stock outstanding:							Weighted-average shares of common stock outstanding:
Basic	Basic	443,224		439,352			Basic	444,146		443,224
Diluted	Diluted	455,641		452,494			Diluted	452,984		455,641

See accompanying notes to the consolidated financial statements.

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NETFLIX, INC.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)


		Three Months Ended				Three Months Ended
		March 31, 2021		March 31, 2020				March 31, 2022		March 31, 2021
Net income	Net income	$	1,706,715	$	709,067		Net income	$	1,597,447	$	1,706,715
Other comprehensive loss:	Other comprehensive loss:						Other comprehensive loss:
Foreign currency translation adjustments	Foreign currency translation adjustments	(40,261)		(23,533)			Foreign currency translation adjustments	(33,675)		(40,261)

Comprehensive income	Comprehensive income	$	1,666,454	$	685,534		Comprehensive income	$	1,563,772	$	1,666,454

See accompanying notes to the consolidated financial statements.

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NETFLIX, INC.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


		Three Months Ended				Three Months Ended
		March 31, 2021		March 31, 2020				March 31, 2022		March 31, 2021
Cash flows from operating activities:	Cash flows from operating activities:						Cash flows from operating activities:
Net income	Net income	$	1,706,715	$	709,067		Net income	$	1,597,447	$	1,706,715
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Additions to content assets	Additions to content assets	(3,284,576)		(3,294,275)			Additions to content assets	(3,584,164)		(3,284,576)
Change in content liabilities	Change in content liabilities	(266,040)		258,945			Change in content liabilities	(347,149)		(266,040)
Amortization of content assets	Amortization of content assets	2,719,196		2,483,385			Amortization of content assets	3,166,365		2,719,196
Depreciation and amortization of property, equipment and intangibles	Depreciation and amortization of property, equipment and intangibles	35,741		28,517			Depreciation and amortization of property, equipment and intangibles	74,602		35,741
Stock-based compensation expense	Stock-based compensation expense	107,230		97,019			Stock-based compensation expense	119,209		107,230
Foreign currency remeasurement gain on debt	Foreign currency remeasurement gain on debt	(253,330)		(93,060)			Foreign currency remeasurement gain on debt	(161,821)		(253,330)
Other non-cash items	Other non-cash items	72,657		65,448			Other non-cash items	101,968		72,657
Deferred income taxes	Deferred income taxes	159,733		46,619			Deferred income taxes	(68,906)		159,733
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Other current assets	Other current assets	(221,555)		(127,353)			Other current assets	41,157		(221,555)
Accounts payable	Accounts payable	(137,313)		(149,153)			Accounts payable	(215,444)		(137,313)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	177,897		214,191			Accrued expenses and other liabilities	350,763		177,897
Deferred revenue	Deferred revenue	22,279		62,008			Deferred revenue	16,743		22,279
Other non-current assets and liabilities	Other non-current assets and liabilities	(61,368)		(41,446)			Other non-current assets and liabilities	(167,931)		(61,368)
Net cash provided by operating activities	Net cash provided by operating activities	777,266		259,912			Net cash provided by operating activities	922,839		777,266
Cash flows from investing activities:	Cash flows from investing activities:						Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(81,001)		(98,015)			Purchases of property and equipment	(121,158)		(81,001)
Change in other assets	Change in other assets	(4,615)		(288)			Change in other assets	—		(4,615)
Acquisitions							Acquisitions	(124,521)		—
Net cash used in investing activities	Net cash used in investing activities	(85,616)		(98,303)			Net cash used in investing activities	(245,679)		(85,616)
Cash flows from financing activities:	Cash flows from financing activities:						Cash flows from financing activities:

Repayments of debt	Repayments of debt	(500,000)		0			Repayments of debt	(700,000)		(500,000)
Proceeds from issuance of common stock	Proceeds from issuance of common stock	48,071		43,694			Proceeds from issuance of common stock	13,678		48,071
Net cash provided by (used in) financing activities		(451,929)		43,694
Net cash used in financing activities							Net cash used in financing activities	(686,322)		(451,929)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(42,138)		(70,902)			Effect of exchange rate changes on cash, cash equivalents and restricted cash	(11,448)		(42,138)
Net increase in cash, cash equivalents and restricted cash		197,583		134,401
Net increase (decrease) in cash, cash equivalents and restricted cash							Net increase (decrease) in cash, cash equivalents and restricted cash	(20,610)		197,583
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	8,238,870		5,043,786			Cash, cash equivalents and restricted cash at beginning of period	6,055,111		8,238,870
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	8,436,453	$	5,178,187		Cash, cash equivalents and restricted cash at end of period	$	6,034,501	$	8,436,453

See accompanying notes to the consolidated financial statements.

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NETFLIX, INC.

Consolidated Balance Sheets

(in thousands, except share and par value data)


		As of					As of
		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(unaudited)					(unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	8,403,705	$	8,205,550	Cash and cash equivalents	$	6,008,946	$	6,027,804
Other current assets	Other current assets	1,703,803		1,556,030		Other current assets	2,089,069		2,042,021
Total current assets	Total current assets	10,107,508		9,761,580		Total current assets	8,098,015		8,069,825
Content assets, net	Content assets, net	26,043,991		25,383,950		Content assets, net	31,191,920		30,919,539
Property and equipment, net	Property and equipment, net	1,015,419		960,183		Property and equipment, net	1,383,763		1,323,453
Other non-current assets	Other non-current assets	2,956,096		3,174,646		Other non-current assets	4,657,206		4,271,846
Total assets	Total assets	$	40,123,014	$	39,280,359	Total assets	$	45,330,904	$	44,584,663
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Current content liabilities	Current content liabilities	$	4,297,957	$	4,429,536	Current content liabilities	$	4,066,289	$	4,292,967
Accounts payable	Accounts payable	532,942		656,183		Accounts payable	617,202		837,483
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,291,812		1,102,196		Accrued expenses and other liabilities	1,817,117		1,449,351
Deferred revenue	Deferred revenue	1,140,271		1,117,992		Deferred revenue	1,239,048		1,209,342
Short-term debt	Short-term debt	698,788		499,878		Short-term debt	—		699,823
Total current liabilities	Total current liabilities	7,961,770		7,805,785		Total current liabilities	7,739,656		8,488,966
Non-current content liabilities	Non-current content liabilities	2,465,626		2,618,084		Non-current content liabilities	2,945,221		3,094,213
Long-term debt	Long-term debt	14,860,552		15,809,095		Long-term debt	14,534,561		14,693,072
Other non-current liabilities	Other non-current liabilities	1,950,986		1,982,155		Other non-current liabilities	2,567,427		2,459,164
Total liabilities	Total liabilities	27,238,934		28,215,119		Total liabilities	27,786,865		28,735,415
Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)	0		0		Commitments and contingencies (Note 7)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2021 and December 31, 2020; 443,383,732 and 442,895,261 issued and outstanding at March 31, 2021 and December 31, 2020, respectively		3,600,084		3,447,698
Accumulated other comprehensive income		4,137		44,398
Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2022 and December 31, 2021; 444,273,850 and 443,963,107 issued and outstanding at March 31, 2022 and December 31, 2021, respectively						Common stock, $0.001 par value; 4,990,000,000 shares authorized at March 31, 2022 and December 31, 2021; 444,273,850 and 443,963,107 issued and outstanding at March 31, 2022 and December 31, 2021, respectively	4,155,580		4,024,561
Treasury stock at cost (1,564,478 shares at March 31, 2022)						Treasury stock at cost (1,564,478 shares at March 31, 2022)	(824,190)		(824,190)
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(74,170)		(40,495)
Retained earnings	Retained earnings	9,279,859		7,573,144		Retained earnings	14,286,819		12,689,372
Total stockholders’ equity	Total stockholders’ equity	12,884,080		11,065,240		Total stockholders’ equity	17,544,039		15,849,248
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	40,123,014	$	39,280,359	Total liabilities and stockholders’ equity	$	45,330,904	$	44,584,663

See accompanying notes to the consolidated financial statements.

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NETFLIX, INC.

Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands)

Three Months Ended
March 31,
2021 March 31,
2020
Total stockholders' equity, beginning balances $ 11,065,240 $ 7,582,157
Common stock and additional paid-in capital:
Beginning balances $ 3,447,698 $ 2,793,929
Issuance of common stock upon exercise of options 45,156 44,584
Stock-based compensation expense 107,230 97,019
Ending balances $ 3,600,084 $ 2,935,532
Accumulated other comprehensive income (loss):
Beginning balances $ 44,398 $ (23,521)
Other comprehensive loss (40,261) (23,533)
Ending balances $ 4,137 $ (47,054)
Retained earnings:
Beginning balances $ 7,573,144 $ 4,811,749
Net income 1,706,715 709,067
Ending balances $ 9,279,859 $ 5,520,816
Total stockholders' equity, ending balances $ 12,884,080 $ 8,409,294


	Three Months Ended
	March 31, 2022		March 31, 2021
Total stockholders' equity, beginning balances	$	15,849,248	$	11,065,240

Common stock and additional paid-in capital:
Beginning balances	$	4,024,561	$	3,447,698
Issuance of common stock upon exercise of options	11,810		45,156
Stock-based compensation expense	119,209		107,230
Ending balances	$	4,155,580	$	3,600,084

Treasury stock:
Beginning balances	$	(824,190)	$	—
Repurchases of common stock to be held as treasury stock	—		—
Ending balances	$	(824,190)	$	—

Accumulated other comprehensive loss
Beginning balances	$	(40,495)	$	44,398
Other comprehensive loss	(33,675)		(40,261)
Ending balances	$	(74,170)	$	4,137

Retained earnings:
Beginning balances	$	12,689,372	$	7,573,144
Net income	1,597,447		1,706,715
Ending balances	$	14,286,819	$	9,279,859

Total stockholders' equity, ending balances	$	17,544,039	$	12,884,080

See accompanying notes to the consolidated financial statements.

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NETFLIX, INC.

Notes to Consolidated Financial Statements

(unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim consolidated financial statements of Netflix, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the Securities and Exchange Commission (the “SEC”) on January ~~28, 2021.~~27, 2022. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the content asset amortization policy and the recognition and measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Interim results are not necessarily indicative of the results for a full year.

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Recently adopted accounting pronouncements

In ~~December 2019,~~October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2019-12,~~2021-08, ~~Simplifying the~~Business Combinations (Topic 805): Accounting for ~~Income Taxes (Topic 740)~~Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2019-12 removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result, which requires an acquirer in a ~~step-up~~business combination to recognize and measure contract assets and contract liabilities in ~~the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods.~~accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. The Company adopted ASU ~~2019-12~~2021-08 in the first quarter of ~~2021~~2022 and the adoption had no material impact to the Company’s consolidated financial statements.

2. Revenue Recognition

The Company's primary source of revenues is from monthly membership fees. Members are billed in advance of the start of their monthly membership and revenues are recognized ratably over each monthly membership period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. The Company is the principal in all its relationships where partners, including consumer electronics (“CE”) manufacturers, multichannel video programming distributors (“MVPDs”), mobile operators and internet service providers (“ISPs”), provide access to the service as the Company retains control over service delivery to its members. Typically, payments made to the partners, such as for marketing, are expensed. However, if there is no distinct service provided in exchange for the payments made to the partners or if the price that the member pays is established by the partners and there is no standalone price for the Netflix service (for instance, in a bundle), these payments are recognized as a reduction of revenues.

The following tables summarize streaming revenue, paid net membership additions, and paid memberships at end of period by region for the three months ended March 31, ~~2021~~2022 and ~~March 31, 2020,~~2021, respectively:

United States and Canada (UCAN)


		As of/ Three Months Ended					As of/ Three Months Ended
		March 31, 2021		March 31, 2020					March 31, 2022		March 31, 2021
		(in thousands)				(in thousands)
Revenues	Revenues	$	3,170,972	$	2,702,776			Revenues	$	3,350,424	$	3,170,972
Paid net membership additions		448		2,307
Paid net membership additions (losses)								Paid net membership additions (losses)	(636)		448
Paid memberships at end of period (1)	Paid memberships at end of period (1)	74,384		69,969				Paid memberships at end of period (1)	74,579		74,384

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Europe, Middle East, and Africa (EMEA)


		As of/ Three Months Ended					As of/ Three Months Ended
		March 31, 2021		March 31, 2020					March 31, 2022		March 31, 2021
		(in thousands)				(in thousands)
Revenues	Revenues	$	2,343,674	$	1,723,474			Revenues	$	2,561,831	$	2,343,674
Paid net membership additions		1,810		6,956
Paid net membership additions (losses)								Paid net membership additions (losses)	(303)		1,810
Paid memberships at end of period (1)	Paid memberships at end of period (1)	68,508		58,734				Paid memberships at end of period (1)	73,733		68,508

Latin America (LATAM)


		As of/ Three Months Ended					As of/ Three Months Ended
		March 31, 2021		March 31, 2020					March 31, 2022		March 31, 2021
		(in thousands)				(in thousands)
Revenues	Revenues	$	836,647	$	793,453			Revenues	$	998,948	$	836,647
Paid net membership additions		357		2,901
Paid net membership additions (losses)								Paid net membership additions (losses)	(351)		357
Paid memberships at end of period (1)	Paid memberships at end of period (1)	37,894		34,318				Paid memberships at end of period (1)	39,610		37,894

Asia-Pacific (APAC)


		As of/ Three Months Ended					As of/ Three Months Ended
		March 31, 2021		March 31, 2020					March 31, 2022		March 31, 2021
		(in thousands)				(in thousands)
Revenues	Revenues	$	762,414	$	483,660			Revenues	$	916,754	$	762,414
Paid net membership additions	Paid net membership additions	1,361		3,602				Paid net membership additions	1,087		1,361
Paid memberships at end of period (1)	Paid memberships at end of period (1)	26,853		19,835				Paid memberships at end of period (1)	33,719		26,853


(1) A paid membership (also referred to as a paid subscription) is defined as a membership that has the right to receive Netflix service following sign-up and a method of payment being provided, and that is not part of a free trial or certain other promotions that may be offered by the Company to new or rejoining members. A membership is canceled and ceases to be reflected in the above metrics as of the effective cancellation date. Voluntary cancellations generally become effective at the end of the prepaid membership period. Involuntary cancellations, as a result of a failed method of payment, become effective immediately. Memberships are assigned to territories based on the geographic location used at time of sign-up as determined by the Company’s internal systems, which utilize industry standard geo-location technology.

Total U.S. revenues, inclusive of DVD revenues not reported in the tables above, were ~~$3.0~~$3.1 billion and ~~$2.5~~$3.0 billion for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. DVD revenues were ~~$50~~$40 million and ~~$64~~$50 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

Deferred revenue consists of membership fees billed that have not been recognized, as well as gift cards and other prepaid memberships that have not been fully redeemed. As of March 31, ~~2021,~~2022, total deferred revenue was ~~$1,140~~$1,239 million, the vast majority of which was related to membership fees billed that are expected to be recognized as revenue within the next month. The remaining deferred revenue balance, which is related to gift cards and other prepaid memberships, will be recognized as revenue over the period of service after redemption, which is expected to occur over the next 12 months. The ~~$22~~$30 million increase in deferred revenue as compared to the balance of ~~$1,118~~$1,209 million ~~for the year ended~~as of December 31, ~~2020~~2021 is a result of the increase in ~~membership fees billed due to increased members and~~ average monthly revenue per paying ~~member.~~member and acquisition-related deferred revenue.

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3. Earnings Per Share

Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential outstanding shares of common ~~shares outstanding~~stock during the period. Potential shares of common ~~shares~~stock consist of incremental shares issuable upon the assumed exercise of stock options. The computation of earnings per share is as follows:


		Three Months Ended					Three Months Ended
		March 31, 2021		March 31, 2020					March 31, 2022		March 31, 2021
		(in thousands, except per share data)				(in thousands, except per share data)
Basic earnings per share:	Basic earnings per share:							Basic earnings per share:
Net income	Net income	$	1,706,715	$	709,067			Net income	$	1,597,447	$	1,706,715
Shares used in computation:	Shares used in computation:							Shares used in computation:
Weighted-average common shares outstanding		443,224		439,352
Weighted-average shares of common stock outstanding								Weighted-average shares of common stock outstanding	444,146		443,224
Basic earnings per share	Basic earnings per share	$	3.85	$	1.61			Basic earnings per share	$	3.60	$	3.85

Diluted earnings per share:	Diluted earnings per share:							Diluted earnings per share:
Net income	Net income	$	1,706,715	$	709,067			Net income	$	1,597,447	$	1,706,715
Shares used in computation:	Shares used in computation:							Shares used in computation:
Weighted-average common shares outstanding		443,224		439,352
Weighted-average shares of common stock outstanding								Weighted-average shares of common stock outstanding	444,146		443,224
Employee stock options	Employee stock options	12,417		13,142				Employee stock options	8,838		12,417
Weighted-average number of shares	Weighted-average number of shares	455,641		452,494				Weighted-average number of shares	452,984		455,641
Diluted earnings per share	Diluted earnings per share	$	3.75	$	1.57			Diluted earnings per share	$	3.53	$	3.75

Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential shares of common ~~shares~~stock excluded from the diluted calculation:

Three Months Ended
March 31,
2021 March 31,
2020
(in thousands)
Employee stock options 257 1,516

Three Months Ended

March 31,
2022

March 31,
2021

(in thousands)

Employee stock options

2,749

257

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4. Cash, Cash Equivalents and Restricted Cash

The following tables summarize the Company's cash, cash equivalents, and restricted cash as of March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:


		As of March 31, 2021									As of March 31, 2022
		Cash and cash equivalents		Other Current Assets		Non-current Assets		Total			Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
		(in thousands)									(in thousands)
Cash	Cash	$	4,019,585	$	2,159	$	30,443	$	4,052,187	Cash	$	4,568,719	$	955	$	24,454	$	4,594,128
Level 1 securities:	Level 1 securities:									Level 1 securities:
Money market funds	Money market funds	4,083,887		0		146		4,084,033		Money market funds	1,440,227		—		146		1,440,373
Level 2 securities:
Foreign Time Deposits		300,233		0		0		300,233

		$	8,403,705	$	2,159	$	30,589	$	8,436,453		$	6,008,946	$	955	$	24,600	$	6,034,501


		As of December 31, 2020									As of December 31, 2021
		Cash and cash equivalents		Other Current Assets		Non-current Assets		Total			Cash and cash equivalents		Other Current Assets		Non-current Assets		Total
		(in thousands)									(in thousands)
Cash	Cash	$	3,331,860	$	1,783	$	31,284	$	3,364,927	Cash	$	4,103,613	$	3,189	$	23,972	$	4,130,774
Level 1 securities:	Level 1 securities:									Level 1 securities:
Money market funds	Money market funds	4,573,690		0		253		4,573,943		Money market funds	1,924,191		—		146		1,924,337
Level 2 securities:
Foreign Time Deposits		300,000		0		0		300,000

		$	8,205,550	$	1,783	$	31,537	$	8,238,870		$	6,027,804	$	3,189	$	24,118	$	6,055,111

Other current assets include restricted cash for deposits related to self insurance. Non-current assets include restricted cash related to letter of credit agreements. The fair value of cash equivalents included in the Level 2 category is based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.

~~See Note 6~~ ~~Debt~~ ~~to the consolidated financial statements for further information regarding the fair value of the Company’s senior notes.~~

There were no material gross realized gains or losses in the three months ended March 31, ~~2021 and 2020, respectively.~~2022 or 2021.

5. Balance Sheet Components

Content Assets, Net

Content assets consisted of the following:


		As of					As of
		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)
Licensed content, net	Licensed content, net	$	13,351,416	$	13,747,607	Licensed content, net	$	12,923,692	$	13,799,221

Produced content, net	Produced content, net					Produced content, net
Released, less amortization	Released, less amortization	5,671,182		5,809,681		Released, less amortization	7,111,245		6,877,743
In production	In production	6,030,349		4,827,455		In production	10,175,960		9,235,975
In development and pre-production	In development and pre-production	991,044		999,207		In development and pre-production	981,023		1,006,600
		12,692,575		11,636,343			18,268,228		17,120,318

Content assets, net	Content assets, net	$	26,043,991	$	25,383,950	Content assets, net	$	31,191,920	$	30,919,539

As of March 31, ~~2021,~~2022, approximately $5,606 million, ~~$3,376~~$2,963 million, and ~~$2,013~~$1,815 million of the ~~$13,351~~$12,924 million unamortized cost of the licensed content is expected to be amortized in each of the next three years. As of March 31, ~~2021,~~2022, approximately ~~$2,130~~$2,807 million, ~~$1,633~~$1,933 million, and ~~$1,038~~$1,182 million of the ~~$5,671~~$7,111 million unamortized cost of the produced content that has been released is expected to be amortized in each of the next three years.

As of March 31, ~~2021,~~2022, the amount of accrued participations and residuals was not material.

The following ~~table represents~~tables represent the amortization of content assets:


		Three Months Ended					Three Months Ended
		March 31, 2021		March 31, 2020			March 31, 2022		March 31, 2021
		(in thousands)					(in thousands)
Licensed content	Licensed content	$	1,829,246	$	1,860,170	Licensed content	$	1,884,438	$	1,829,246
Produced content	Produced content	889,950		623,215		Produced content	1,281,927		889,950
Total	Total	$	2,719,196	$	2,483,385	Total	$	3,166,365	$	2,719,196

Property and Equipment, Net

Property and equipment and accumulated depreciation consisted of the following:


		As of						As of
		March 31, 2021		December 31, 2020		Estimated Useful Lives		March 31, 2022		December 31, 2021		Estimated Useful Lives
		(in thousands)						(in thousands)
Land	Land	$	51,154	$	50,700		Land	$	82,381	$	82,381
Buildings	Buildings	43,840		42,717		30 years	Buildings	48,625		48,123		30 years
Leasehold improvements	Leasehold improvements	531,507		524,537		Over life of lease	Leasehold improvements	983,209		863,342		Over life of lease
Furniture and fixtures	Furniture and fixtures	108,495		110,185		3-15 years	Furniture and fixtures	147,059		139,809		3 years
Information technology	Information technology	289,813		283,014		3 years	Information technology	448,608		380,452		3 years
Corporate aircraft	Corporate aircraft	110,862		110,629		8 years	Corporate aircraft	110,978		110,978		8 years
Machinery and equipment	Machinery and equipment	34,236		34,633		3-5 years	Machinery and equipment	32,613		32,426		3-5 years
Capital work-in-progress	Capital work-in-progress	366,056		298,558			Capital work-in-progress	220,422		282,248
Property and equipment, gross	Property and equipment, gross	1,535,963		1,454,973			Property and equipment, gross	2,073,895		1,939,759
Less: Accumulated depreciation	Less: Accumulated depreciation	(520,544)		(494,790)			Less: Accumulated depreciation	(690,132)		(616,306)
Property and equipment, net	Property and equipment, net	$	1,015,419	$	960,183		Property and equipment, net	$	1,383,763	$	1,323,453

Leases

The Company has entered into operating leases primarily for real estate. ~~These operating~~Operating leases are included in "Other non-current assets" on the Company's Consolidated Balance Sheets, and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligations to make lease payments are included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Company's Consolidated Balance Sheets. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of twelve months or less. These leases are not recorded on the Company's Consolidated Balance Sheets. All operating lease expense is recognized on a straight-line basis over the lease term. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

Information related to the Company's operating right-of-use assets and related operating lease liabilities were as follows:

Three Months Ended
March 31, 2021 March 31, 2020
(in thousands)
Cash paid for operating lease liabilities $ 82,439 $ 57,490
Right-of-use assets obtained in exchange for new operating lease obligations 49,445 51,824

As of
March 31, 2021 December 31, 2020
(in thousands)
Operating lease right-of-use assets, net $ 2,007,729 $ 2,037,726
Current operating lease liabilities 268,087 256,222
Non-current operating lease liabilities 1,911,892 1,945,631
Total operating lease liabilities $ 2,179,979 $ 2,201,853


	Three Months Ended
	March 31, 2022		March 31, 2021
	(in thousands)
Cash paid for operating lease liabilities	$	103,141	$	82,439
Right-of-use assets obtained in exchange for new operating lease obligations	141,298		49,445

1312


	As of
	March 31, 2022		December 31, 2021
	(in thousands)
Operating lease right-of-use assets, net	$	2,483,778	$	2,446,573

Current operating lease liabilities	330,936		315,189
Non-current operating lease liabilities	2,434,078		2,408,486
Total operating lease liabilities	$	2,765,014	$	2,723,675

Other Current Assets

Other current assets consisted of the following:


		As of					As of
		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)
Trade receivables	Trade receivables	$	807,036	$	610,819	Trade receivables	$	824,650	$	804,320
Prepaid expenses	Prepaid expenses	273,527		203,042		Prepaid expenses	419,134		323,818
Other	Other	623,240		742,169		Other	845,285		913,883
Total other current assets	Total other current assets	$	1,703,803	$	1,556,030	Total other current assets	$	2,089,069	$	2,042,021

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6. Debt

As of March 31, ~~2021,~~2022, the Company had aggregate outstanding notes of ~~$15,559~~$14,535 million, net of ~~$103~~$88 million of issuance costs, with varying maturities (the "Notes"). ~~Of the outstanding balance, $699 million, net of issuance costs, is classified as short-term debt on the Consolidated Balance Sheets.~~ As of December 31, ~~2020,~~2021, the Company had aggregate outstanding notes of ~~$16,309~~$15,393 million, net of ~~$107~~$92 million of issuance costs. Each of the Notes were issued at par and are senior unsecured obligations of the Company. Interest is payable semi-annually at fixed rates. A portion of the outstanding Notes is denominated in foreign currency (comprised of €5,170 million) and is remeasured into U.S. dollars at each balance sheet date (with remeasurement gain totaling ~~$253~~$162 million for the three months ended March 31, ~~2021)~~2022).

The following table provides a summary of the Company's outstanding debt and the fair values based on quoted market prices in less active markets as of March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:


		Principal Amount at Par						Level 2 Fair Value as of					Principal Amount at Par						Level 2 Fair Value as of
		March 31, 2021		December 31, 2020		Issuance Date	Maturity	March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021		Issuance Date	Maturity	March 31, 2022		December 31, 2021
		(in millions)						(in millions)					(in millions)						(in millions)
5.375% Senior Notes		$	0	$	500	February 2013	February 2021	$	0	$	502
5.500% Senior Notes	5.500% Senior Notes	700		700		February 2015	February 2022	729		735		5.500% Senior Notes	—		700		February 2015	February 2022	—		704
5.750% Senior Notes	5.750% Senior Notes	400		400		February 2014	March 2024	449		449		5.750% Senior Notes	400		400		February 2014	March 2024	419		437
5.875% Senior Notes	5.875% Senior Notes	800		800		February 2015	February 2025	917		921		5.875% Senior Notes	800		800		February 2015	February 2025	855		899
3.000% Senior Notes (1)	3.000% Senior Notes (1)	551		574		April 2020	June 2025	600		616		3.000% Senior Notes (1)	520		535		April 2020	June 2025	545		581
3.625% Senior Notes	3.625% Senior Notes	500		500		April 2020	June 2025	534		535		3.625% Senior Notes	500		500		April 2020	June 2025	502		529
4.375% Senior Notes	4.375% Senior Notes	1,000		1,000		October 2016	November 2026	1,119		1,110		4.375% Senior Notes	1,000		1,000		October 2016	November 2026	1,039		1,111
3.625% Senior Notes (1)	3.625% Senior Notes (1)	1,524		1,588		May 2017	May 2027	1,748		1,776		3.625% Senior Notes (1)	1,439		1,480		May 2017	May 2027	1,539		1,702
4.875% Senior Notes	4.875% Senior Notes	1,600		1,600		October 2017	April 2028	1,812		1,807		4.875% Senior Notes	1,600		1,600		October 2017	April 2028	1,671		1,829
5.875% Senior Notes	5.875% Senior Notes	1,900		1,900		April 2018	November 2028	2,302		2,280		5.875% Senior Notes	1,900		1,900		April 2018	November 2028	2,096		2,293
4.625% Senior Notes (1)	4.625% Senior Notes (1)	1,290		1,344		October 2018	May 2029	1,605		1,630		4.625% Senior Notes (1)	1,218		1,252		October 2018	May 2029	1,376		1,565
6.375% Senior Notes	6.375% Senior Notes	800		800		October 2018	May 2029	997		995		6.375% Senior Notes	800		800		October 2018	May 2029	907		999
3.875% Senior Notes (1)	3.875% Senior Notes (1)	1,407		1,466		April 2019	November 2029	1,680		1,700		3.875% Senior Notes (1)	1,328		1,366		April 2019	November 2029	1,444		1,651
5.375% Senior Notes	5.375% Senior Notes	900		900		April 2019	November 2029	1,065		1,061		5.375% Senior Notes	900		900		April 2019	November 2029	977		1,068
3.625% Senior Notes (1)	3.625% Senior Notes (1)	1,290		1,344		October 2019	June 2030	1,513		1,533		3.625% Senior Notes (1)	1,218		1,252		October 2019	June 2030	1,291		1,493
4.875% Senior Notes	4.875% Senior Notes	1,000		1,000		October 2019	June 2030	1,152		1,155		4.875% Senior Notes	1,000		1,000		October 2019	June 2030	1,068		1,169
		$	15,662	$	16,416			$	18,222	$	18,805		$	14,623	$	15,485			$	15,729	$	18,030

(1) The following Senior Notes have a principal amount denominated in euro: 3.000% Senior Notes for €470 million, 3.625% Senior Notes for €1,300 million, 4.625% Senior Notes for €1,100 million, 3.875% Senior Notes for €1,200 million, and 3.625% Senior Notes for €1,100 million.

~~Table of Contents~~

In February ~~2021,~~2022, the Company repaid upon maturity the ~~$500~~$700 million aggregate principal amount of its ~~5.375%~~5.500% Senior ~~Notes due February 2021.~~

~~The expected timing of principal and interest payments for the Company’s outstanding Notes are as follows:~~

As of
March 31,
2021 December 31,
2020
(in thousands)
Less than one year $ 1,453,690 $ 1,264,020
Due after one year and through three years 1,804,714 2,136,997
Due after three years and through five years 3,161,269 3,614,906
Due after five years 14,581,110 14,841,164
Total debt obligations $ 21,000,783 $ 21,857,087
Notes.

Each of the Notes are repayable in whole or in part upon the occurrence of a change of control, at the option of the holders, at a purchase price in cash equal to 101% of the principal plus accrued interest. The Company may redeem the Notes prior to maturity in whole or in part at an amount equal to the principal amount thereof plus accrued and unpaid interest and an applicable premium. The Notes include, among other terms and conditions, limitations on the Company's ability to create, incur or allow certain liens; enter into sale and lease-back transactions; create, assume, incur or guarantee additional indebtedness of certain of the Company's subsidiaries; and consolidate or merge with, or convey, transfer or lease all or substantially all of the Company's and its subsidiaries assets, to another person. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company was in compliance with all related covenants.

Revolving Credit Facility

~~As of March 31,~~On June 17, 2021, the Company ~~has a $750 million~~amended its unsecured revolving credit facility ("Revolving Credit Agreement") ~~which matures on~~to, among other things, extend the maturity date from March 29, ~~2024.~~2024 to June 17, 2026 and to increase the size of the facility from $750 million to $1 billion. Revolving loans may be borrowed, repaid and reborrowed until ~~March 29, 2024,~~June 17, 2026, at which time all amounts borrowed must be repaid. The Company may use the proceeds of future borrowings under the Revolving Credit Agreement for working capital and general corporate purposes. As of March 31, ~~2021,~~2022, no amounts have been borrowed under the Revolving Credit Agreement.

The borrowings under the Revolving Credit Agreement bear interest, at the Company’s option, of either (i) a floating rate equal to a base rate (the “Alternate Base Rate”) or (ii) a rate equal to an adjusted London interbank offered rate (the “Adjusted LIBO Rate”), plus a margin of

Table of Contents

0.75%. The Alternate Base Rate is defined as the greatest of (A) the rate of interest published by the Wall Street Journal, from time to time, as the prime rate, (B) the federal funds rate, plus 0.500% and (C) the Adjusted LIBO Rate for a one-month interest period, plus 1.00%. The Adjusted LIBO Rate is defined as the London interbank offered rate for deposits in U.S. dollars, for the relevant interest period, adjusted for statutory reserve requirements, but in no event shall the Adjusted LIBO Rate be less than 0.00% per annum. Regulatory authorities that oversee financial markets have announced that ~~after~~publication of the ~~end of 2021, they would no longer compel banks currently reporting information used to set the~~Adjusted LIBO Rate based upon U.S. Dollars is expected to ~~continue to make rate submissions. As a result, it is possible that beginning in 2022, the LIBO Rate will no longer be available as a reference rate. Under the terms of the Company's~~cease on June 30, 2023. The Revolving Credit Agreement incontains customary provisions for the ~~event~~replacement of the ~~discontinuance of the~~Adjusted LIBO Rate ~~a mutually agreed-upon alternate benchmark rate will be established to replace the LIBO Rate. The Company and Lenders shall in good faith establish~~with an alternate benchmark rate, ~~which places~~including a rate based on the ~~Lenders and~~secured overnight financing rate published by the ~~Company~~Federal Reserve Bank of New York, as the Adjusted LIBO Rate is phased out in the ~~same economic position that existed immediately prior to the discontinuation of the LIBO Rate.~~lending market. The Company does not anticipate that the ~~discontinuance~~replacement of the Adjusted LIBO Rate with such alternative benchmark rate, as provided in the Revolving Credit Agreement, will materially impact its liquidity or financial position.

The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Agreement at an annual rate of 0.10%. The Revolving Credit Agreement requires the Company to comply with certain covenants, including covenants that limit or restrict the ability of the Company’s subsidiaries to incur debt and limit or restrict the ability of the Company and its subsidiaries to grant liens and enter into sale and leaseback transactions; and, in the case of the Company or a guarantor, merge, consolidate, liquidate, dissolve or sell, transfer, lease or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company was in compliance with all related covenants.

7. Commitments and Contingencies

Content

As of March 31, ~~2021,~~2022, the Company had ~~$20.7~~$22.4 billion of obligations comprised of ~~$4.3~~$4.1 billion included in "Current content liabilities" and ~~$2.5~~$2.9 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and ~~$13.9~~$15.4 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

~~Table of Contents~~

As of December 31, ~~2020,~~2021, the Company had ~~$19.2~~$23.2 billion of obligations comprised of ~~$4.4~~$4.3 billion included in "Current content liabilities" and ~~$2.6~~$3.1 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and ~~$12.2~~$15.8 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not yet meet the criteria for asset recognition.

The expected timing of payments for these content obligations is as follows:


		As of					As of
		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)
Less than one year	Less than one year	$	9,456,342	$	8,980,868	Less than one year	$	9,861,979	$	10,019,306
Due after one year and through three years	Due after one year and through three years	8,241,022		7,819,563		Due after one year and through three years	9,089,537		9,238,315
Due after three years and through five years	Due after three years and through five years	2,259,821		1,973,091		Due after three years and through five years	3,072,216		3,238,977
Due after five years	Due after five years	767,980		445,308		Due after five years	341,828		664,762
Total content obligations	Total content obligations	$	20,725,165	$	19,218,830	Total content obligations	$	22,365,560	$	23,161,360

Content obligations include amounts related to the acquisition, licensing and production of content. Obligations that are in non-U.S. dollar currencies are translated to the U.S. dollar at period end rates. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements as well as other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of such license agreements. The Company does not include any estimated obligation for these future titles beyond the known minimum amount. However, the unknown obligations are expected to be significant.

Legal Proceedings

From time to time, in the normal course of its operations, the Company is subject to litigation matters and claims, including claims relating to employee relations, business practices and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.

Table of Contents

The Company is involved in litigation matters not listed herein but does not consider the matters to be material either individually or in the aggregate at this time. The Company's view of the matters not listed may change in the future as the litigation and events related thereto unfold.

Indemnification

In the ordinary course of business, the Company has entered into contractual arrangements under which it has agreed to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract.

The Company's obligations under these agreements may be limited in terms of time or amount, and in some instances, the Company may have recourse against third parties for certain payments. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require it, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations vary.

It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. ~~NaN~~No amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

~~Table of Contents~~

8. Stockholders’ Equity

Stock Option Plan

In June 2020, the Company's stockholders approved the 2020 Stock Plan, which was adopted by the Company’s Board of Directors in March 2020 subject to stockholder approval. The 2020 Stock Plan is the successor to the 2011 Stock Plan and provides for the grant of incentive stock options to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants.

A summary of the activities related to the Company’s stock option plans is as follows:


			Options Outstanding					Options Outstanding
		Shares Available for Grant	Number of Shares	Weighted- Average Exercise Price (per share)			Shares Available for Grant	Number of Shares	Weighted- Average Exercise Price (per share)
Balances as of December 31, 2020		21,702,085	18,676,810	$	170.23
Balances as of December 31, 2021						Balances as of December 31, 2021	20,145,360	17,595,851	$	219.83
Granted	Granted	(400,126)	400,126	537.47		Granted	(523,787)	523,787	460.28
Exercised	Exercised	—	(488,471)	92.45		Exercised	—	(310,743)	38.00
Expired	Expired	—	(4,648)	30.30		Expired	—	(1,246)	16.11
Balances as of March 31, 2021		21,301,959	18,583,817	$	180.22
Vested and exercisable as of March 31, 2021			18,583,817	$	180.22
Balances as of March 31, 2022						Balances as of March 31, 2022	19,621,573	17,807,649	$	230.09

The aggregate intrinsic value of the Company's outstanding stock options as of March 31, ~~2021~~2022 was ~~$6,357~~$3,024 million and represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of ~~2021~~2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of the first quarter of ~~2021.~~2022. This amount changes based on the fair market value of the Company’s common stock. The weighted-average remaining contractual term of the Company's outstanding stock options as of March 31, ~~2021~~2022 included in the table above was ~~5.46~~5.33 years. All options outstanding are vested and exercisable.

A summary of the amounts related to option exercises, is as follows:


		Three Months Ended					Three Months Ended
		March 31, 2021		March 31, 2020					March 31, 2022		March 31, 2021
		(in thousands)				(in thousands)
Total intrinsic value of options exercised	Total intrinsic value of options exercised	$	228,020	$	303,226			Total intrinsic value of options exercised	$	114,762	$	228,020
Cash received from options exercised	Cash received from options exercised	48,071		43,694				Cash received from options exercised	13,678		48,071

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Stock-based Compensation

Stock options granted are exercisable for the full ten year contractual term regardless of employment status. The following table summarizes the assumptions used to value option grants using the lattice-binomial model and the valuation data:


		Three Months Ended						Three Months Ended
		March 31, 2021			March 31, 2020					March 31, 2022			March 31, 2021
Dividend yield	Dividend yield	0		%	0		%		Dividend yield	—		%	—		%
Expected volatility	Expected volatility	41		%	37		%		Expected volatility	38		%	41		%
Risk-free interest rate	Risk-free interest rate	1.08		%	1.71		%		Risk-free interest rate	1.71		%	1.08		%
Suboptimal exercise factor	Suboptimal exercise factor	3.81			3.34				Suboptimal exercise factor	4.71			3.81
Weighted-average fair value (per share)	Weighted-average fair value (per share)	$	268		$	167			Weighted-average fair value (per share)	$	228		$	268
Total stock-based compensation expense (in thousands)	Total stock-based compensation expense (in thousands)	$	107,230		$	97,019			Total stock-based compensation expense (in thousands)	$	119,209		$	107,230
Total income tax impact on provision (in thousands)	Total income tax impact on provision (in thousands)	$	24,079		$	21,309			Total income tax impact on provision (in thousands)	$	26,413		$	24,079

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The Company considers several factors in determining the suboptimal exercise factor, including the historical and estimated option exercise behavior.

The Company calculates expected volatility based solely on implied volatility. The Company believes that implied volatility of publicly traded options in its common stock is more reflective of market conditions, and given consistently high trade volumes of the options, can reasonably be expected to be a better indicator of expected volatility than historical volatility of its common stock.

In valuing shares issued under the Company’s employee stock option plans, the Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with terms similar to the contractual term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of 0zero in the option valuation model. The Company does not use a post-vesting termination rate as options are fully vested upon grant date.

Stock Repurchases

In March 2021, the Company’s Board of Directors authorized the repurchase of up to $5 billion of its common stock, 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. The Company is 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 the Company’s stock price, general economic, business and market conditions, and alternative investment opportunities. The Company may discontinue any repurchases of its common stock at any time without prior notice. There were no repurchases during the three months ended March 31, 2022. As of March 31, ~~2021, 0 stock has been~~2022, $4.4 billion remain available for repurchases. Shares repurchased ~~under this program.~~by the Company are accounted for when the transaction is settled. As of March 31, 2022, there were no unsettled share repurchases. Direct costs incurred to acquire the shares are included in the total cost of the shares.

9. Income Taxes


		Three Months Ended							Three Months Ended
		March 31, 2021			March 31, 2020						March 31, 2022			March 31, 2021
		(in thousands, except percentages)						(in thousands, except percentages)
Provision for income taxes	Provision for income taxes	$	327,787		$	86,803				Provision for income taxes	$	382,245		$	327,787
Effective tax rate	Effective tax rate	16		%	11		%			Effective tax rate	19		%	16		%

The effective tax rate for the three months ended March 31, 2022 differed from the Federal statutory rate primarily due to an increase in foreign taxes, offset by the impact of international provisions of the Tax Cuts and Jobs Act, and the recognition of excess tax benefits of stock-based compensation. The effective tax rate for the three months ended March 31, 2021 differed from the Federal statutory rate primarily due to the impact of international provisions of the Tax Cuts and Jobs Act and recognition of excess tax benefits of stock-based compensation.

The increase in the effective tax rate for the three months ended March 31, ~~2020 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation and the changes from the global corporate structure simplification.~~

~~The increase in effective tax rate for the three months ended March 31, 2021,~~2022, as compared to the same period in ~~2020~~2021 was primarily due to ~~recognizing less~~an increase in foreign taxes and a reduction to excess tax benefits ~~related to~~of stock-based compensation. For the three months ended March 31, ~~2021,~~2022, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of ~~$47~~$25 million, compared to the three months ended March 31, ~~2020~~2021 of ~~$65~~$47 million.

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Gross unrecognized tax benefits were ~~$160~~$215 million and ~~$140~~$203 million as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The gross unrecognized tax benefits as of March 31, 2022, if recognized by the Company, will result in a reduction of approximately ~~$99~~$143 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of March 31, 2021, gross unrecognized tax benefits of $38 million were classified as “Other non-current liabilities” and $64 million as a reduction to deferred tax assets which was classified as "Other non-current assets" in the Consolidated Balance Sheets. The Company includes interest and penalties related to unrecognized tax benefits within the "Provision for income taxes" on the Consolidated Statements of Operations and “Other non-current liabilities” in the Consolidated Balance Sheets. Interest and penalties included in the Company’s “Provision for income taxes” were not material in any of the periods presented.

Deferred tax assets of $427 million and $589 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The Company has a valuation allowance of $298 million and $250 million as of March 31, 2021 and December 31, 2020, respectively. The valuation allowance is related to the California research and development credits and certain foreign tax attributes that the Company does not expect to realize.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for 2016 through 2018 and is subject to examination for ~~2019.~~2019 through 2021. The foreign and state tax returns for years 2015 through ~~2019 state tax returns~~2021 are subject to examination by various ~~state tax authorities. The Company is also currently under examination in the U.K. for 2018~~states and ~~2019. The Company has no other significant~~ foreign ~~jurisdiction audits underway. The years 2015 through 2020 generally remain subject to examination by foreign tax authorities.~~

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jurisdictions.

Given the potential outcome of the current examinations, as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. ~~At this time,~~However, an estimate of the range of reasonably possible adjustments ~~to the balance of unrecognized tax benefits~~ cannot be ~~made.~~made at this time.

10. Segment and Geographic Information

The Company operates as 1 operating segment. The Company's chief operating decision maker ("CODM") is its co-chief executive officers, who review financial information presented on a consolidated basis for the purposes of making operating decisions, assessing financial performance and allocating resources.

Total U.S. revenues were ~~$3.0~~$3.1 billion and ~~$2.5~~$3.0 billion for the three months ended March 31, ~~2021~~2022 and ~~March 31, 2020,~~2021, respectively. See Note 2 Revenue Recognition for additional information about streaming revenue by region.

The Company's long-lived tangible assets, as well as the Company's operating lease right-of-use assets recognized on the Consolidated Balance Sheets as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, were located as follows:


		As of					As of
		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in thousands)					(in thousands)
United States	United States	$	2,269,444	$	2,224,891	United States	$	2,885,860	$	2,833,059
International	International	753,704		773,018		International	981,681		936,967

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 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, adequacy of existing facilities, net cash provided by (used in) operating activities, access to financing sources, and free cash flows; capital allocation strategies, including any stock ~~repurchases;~~repurchases or repurchase programs; seasonality; impact of foreign exchange rate fluctuations; the impact of the discontinuance of the LIBO Rate; future regulatory changes and their impact on our business; price changes and testing; impact of recently adopted accounting pronouncements; accounting treatment for changes related to content assets; 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; content amortization; tax expense; unrecognized tax benefits; deferred tax assets; our ability to effectively manage change and growth; and the impact of the coronavirus (COVID-19) pandemic and our response to it. 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, ~~2020~~2021 filed with the Securities and Exchange Commission (“SEC”) on January ~~28, 2021,~~27, 2022, in particular the risk factors discussed under the heading “Risk Factors” in Part I, Item IA.

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.

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Overview

We are one of the world’s leading entertainment services with approximately ~~208~~222 million paid ~~streaming~~ memberships in over 190 countries enjoying TV series, documentaries, ~~and~~ feature films and mobile games across a wide variety of genres and languages. Members can ~~watch~~engage as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, all without commercials. Additionally, we continue to offer our DVD-by-mail service in the United States (“U.S.”).

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We are a pioneer in the delivery of streaming entertainment, launching our streaming service in 2007. Since this launch, we have developed an ecosystem for internet-connected screens and have added increasing amounts of content that enable consumers to enjoy entertainment directly on their internet-connected screens. As a result of these efforts, we have experienced growing consumer acceptance of, and interest in, the delivery of streaming entertainment.

Our core strategy is to grow our streaming membership business globally within the parameters of our operating margin target. We are continuously improving our members’ experience by expanding our content with a focus on a programming mix of content that delights our members and attracts new members. For example, in 2021 we added mobile games to our service. In addition, we are continuously enhancing our user interface and extending our streaming service to more internet-connected screens. Our members can download a selection of titles for offline viewing.

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 ~~first and~~ fourth ~~quarters (October through March) represent~~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						As of/ Three Months Ended						Change
		March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20						March 31, 2022			March 31, 2021			Q1'22 vs. Q1'21
		(in thousands, except revenue per membership and percentages)												(in thousands, except revenue per membership and percentages)
Financial Results:	Financial Results:												Financial Results:
Streaming revenues	Streaming revenues	$	7,113,707		$	5,703,363		$	1,410,344		25	%	Streaming revenues	$	7,827,957		$	7,113,707		$	714,250		10	%
DVD revenues	DVD revenues	49,575			64,328			(14,753)			(23)	%	DVD revenues	39,810			49,575			(9,765)			(20)	%
Total revenues	Total revenues	$	7,163,282		$	5,767,691		$	1,395,591		24	%	Total revenues	$	7,867,767		$	7,163,282		$	704,485		10	%

Operating income	Operating income	$	1,959,856		$	958,256		$	1,001,600		105	%	Operating income	1,971,626			1,959,856			$	11,770		1	%
Operating margin	Operating margin	27.4		%	16.6		%	10.8		%	65	%	Operating margin	25		%	27		%	(2)		%

Global Streaming Memberships:	Global Streaming Memberships:												Global Streaming Memberships:
Paid net membership additions		3,976			15,766			(11,790)			(75)	%
Paid net membership additions (losses)													Paid net membership additions (losses)	(203)			3,976			(4,179)			(105)	%
Paid memberships at end of period	Paid memberships at end of period	207,639			182,856			24,783			14	%	Paid memberships at end of period	221,641			207,639			14,002			7	%
Average paying memberships	Average paying memberships	205,651			174,973			30,678			18	%	Average paying memberships	221,743			205,651			16,092			8	%
Average monthly revenue per paying membership	Average monthly revenue per paying membership	$	11.53		$	10.87		$	0.66		6	%	Average monthly revenue per paying membership	$	11.77		$	11.53		$	0.24		2	%

Consolidated revenues for the three months ended March 31, ~~2021~~2022 increased ~~24%~~10% as compared to the three months ended March 31, ~~2020. The increase in our consolidated revenues was~~2021 due to the ~~18%~~8% growth in average paying memberships and a 6%2% increase in average monthly revenue per paying membership. The increase in average monthly revenue per paying membership ~~was primarily due to~~resulted from our price changes, ~~and favorable fluctuations in foreign exchange rates. Paid net membership additions for~~partially offset by the three months ended March 31, 2021 decreased 75% as compared to the three months ended March 31, 2020. We believe the decrease in paid net membership additions can primarily be attributed to the COVID-19 pandemic which contributed to significant paid net membership additions in the first quarter of 2020, and resulted in less growth in the first quarter of 2021 as compared to the prior year. While we are unable to accurately predict the impactstrengthening of the ~~pandemic on paid net membership additions, we expect slower paid net membership additions in the first half of 2021 compared~~U.S. dollar relative to ~~comparable periods in 2020.~~certain foreign currencies.

The ~~increase~~decrease in operating margin is primarily due to ~~content amortization~~revenues growing at a slower rate as compared to the ~~24%~~16% increase in ~~revenues~~content amortization. Content amortization increased as a result of delays in content releases due to the COVID-19 ~~pandemic. Marketing, technology and development, and general and administrative expenses also grew at a slower rate as compared to~~pandemic impacting the ~~growth in revenue.~~comparable prior year period.

The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Part I, Item 1A: “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for additional details. In an effort to protect the health and safety of our employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, international travel has been curtailed, and whileWhile most of our productions have resumed, certain of our productions continue to experience disruption, as do the productions of our third-party content suppliers. ~~Our other~~Other partners have similarly had their operations disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. ~~As a result, the pandemic has and continues to affect our ability to produce content,~~Production

2019

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~~which~~disruptions and new health and safety protocols and requirements can result in ~~turn led~~additional costs including additional pay to delays in certain content releases. Many government measures to contain COVID-19 or slow its spread, including orders to close all businesses not deemed “essential,” isolate residents to their homes or placescast and crew and use of ~~residence,~~Personal Protective Equipment (“PPE”) and practice social distancing, continue to remain in effect or may be rescinded, modified, or reinstated. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, will continue to negatively impact business activity across the globe.testing. We will continue to actively monitor the ~~situation~~issues raised by the COVID-19 pandemic and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.

Streaming Revenues

We 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, ~~2021,~~2022, pricing on our paid plans ranged from the U.S. dollar equivalent of $3$1 to ~~$24~~$27 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.

The following tables summarize streaming revenue and other streaming membership information by region for the three months ended March 31, ~~2021~~2022 and ~~March 31, 2020.~~2021.

United States and Canada (UCAN)


		As of/ Three Months Ended				Change					As of/ Three Months Ended				Change
		March 31, 2021		March 31, 2020		Q1'21 vs. Q1'20					March 31, 2022		March 31, 2021		Q1'22 vs. Q1'21
		(in thousands, except revenue per membership and percentages)									(in thousands, except revenue per membership and percentages)
Revenues	Revenues	$	3,170,972	$	2,702,776	$	468,196	17	%	Revenues	$	3,350,424	$	3,170,972	$	179,452	6	%
Paid net membership additions		448		2,307		(1,859)		(81)	%
Paid net membership additions (losses)										Paid net membership additions (losses)	(636)		448		(1,084)		(242)	%
Paid memberships at end of period	Paid memberships at end of period	74,384		69,969		4,415		6	%	Paid memberships at end of period	74,579		74,384		195		—	%
Average paying memberships	Average paying memberships	74,160		68,816		5,344		8	%	Average paying memberships	74,897		74,160		737		1	%
Average monthly revenue per paying membership	Average monthly revenue per paying membership	$	14.25	$	13.09	$	1.16	9	%	Average monthly revenue per paying membership	$	14.91	$	14.25	$	0.66	5	%
Constant currency change (1)	Constant currency change (1)							9	%	Constant currency change (1)							5	%

Europe, Middle East, and Africa (EMEA)


		As of/ Three Months Ended				Change					As of/ Three Months Ended				Change
		March 31, 2021		March 31, 2020		Q1'21 vs. Q1'20					March 31, 2022		March 31, 2021		Q1'22 vs. Q1'21
		(in thousands, except revenue per membership and percentages)									(in thousands, except revenue per membership and percentages)
Revenues	Revenues	$	2,343,674	$	1,723,474	$	620,200	36	%	Revenues	$	2,561,831	$	2,343,674	$	218,157	9	%
Paid net membership additions		1,810		6,956		(5,146)		(74)	%
Paid net membership additions (losses)										Paid net membership additions (losses)	(303)		1,810		(2,113)		(117)	%
Paid memberships at end of period	Paid memberships at end of period	68,508		58,734		9,774		17	%	Paid memberships at end of period	73,733		68,508		5,225		8	%
Average paying memberships	Average paying memberships	67,603		55,256		12,347		22	%	Average paying memberships	73,885		67,603		6,282		9	%
Average monthly revenue per paying membership	Average monthly revenue per paying membership	$	11.56	$	10.40	$	1.16	11	%	Average monthly revenue per paying membership	$	11.56	$	11.56	$	—	—	%
Constant currency change (1)	Constant currency change (1)							4	%	Constant currency change (1)							6	%

Latin America (LATAM)

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~~Latin America (LATAM)~~


	As of/ Three Months Ended				Change
	March 31, 2022		March 31, 2021		Q1'22 vs. Q1'21
	(in thousands, except revenue per membership and percentages)
Revenues	$	998,948	$	836,647	$	162,301	19	%
Paid net membership additions (losses)	(351)		357		(708)		(198)	%
Paid memberships at end of period	39,610		37,894		1,716		5	%
Average paying memberships	39,786		37,716		2,070		5	%
Average monthly revenue per paying membership	$	8.37	$	7.39	$	0.98	13	%
Constant currency change (1)							20	%

As of/ Three Months Ended Change
March 31, 2021 March 31, 2020 Q1'21 vs. Q1'20
(in thousands, except revenue per membership and percentages)
Revenues $ 836,647 $ 793,453 $ 43,194 5 %
Paid net membership additions 357 2,901 (2,544) (88) %
Paid memberships at end of period 37,894 34,318 3,576 10 %
Average paying memberships 37,716 32,868 4,848 15 %
Average monthly revenue per paying membership $ 7.39 $ 8.05 $ (0.66) (8) %
Constant currency change (1) 5 %

Asia-Pacific (APAC)


		As of/ Three Months Ended				Change					As of/ Three Months Ended				Change
		March 31, 2021		March 31, 2020		Q1'21 vs. Q1'20					March 31, 2022		March 31, 2021		Q1'22 vs. Q1'21
		(in thousands, except revenue per membership and percentages)									(in thousands, except revenue per membership and percentages)
Revenues	Revenues	$	762,414	$	483,660	$	278,754	58	%	Revenues	$	916,754	$	762,414	$	154,340	20	%
Paid net membership additions	Paid net membership additions	1,361		3,602		(2,241)		(62)	%	Paid net membership additions	1,087		1,361		(274)		(20)	%
Paid memberships at end of period	Paid memberships at end of period	26,853		19,835		7,018		35	%	Paid memberships at end of period	33,719		26,853		6,866		26	%
Average paying memberships	Average paying memberships	26,173		18,034		8,139		45	%	Average paying memberships	33,176		26,173		7,003		27	%
Average monthly revenue per paying membership	Average monthly revenue per paying membership	$	9.71	$	8.94	$	0.77	9	%	Average monthly revenue per paying membership	$	9.21	$	9.71	$	(0.50)	(5)	%
Constant currency change (1)	Constant currency change (1)							3	%	Constant currency change (1)							1	%

(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 months ended March 31, ~~2021,~~2022, our revenues would have been approximately ~~$80~~$280 million ~~lower~~higher had foreign currency exchange rates remained constant with those for the three months ended March 31, ~~2020.~~2021.

Cost of Revenues

Amortization of content assets makes up the majority of cost of revenues. Expenses directly associated with the acquisition, licensing and production of content (such as payroll and 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 directly incurred in making our content available to members.


		Three Months Ended						Change					Three Months Ended						Change
		March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20					March 31, 2022			March 31, 2021			Q1'22 vs. Q1'21
		(in thousands, except percentages)											(in thousands, except percentages)
Cost of revenues	Cost of revenues	$	3,868,511		$	3,599,701		$	268,810	7	%	Cost of revenues	$	4,284,705		$	3,868,511		$	416,194	11	%
As a percentage of revenues	As a percentage of revenues	54		%	62		%					As a percentage of revenues	54		%	54		%

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The increase in cost of revenues was primarily due to a ~~$236~~$447 million increase in content amortization relating to our existing and new content, including more exclusive and original ~~programming. Other content~~programming, partially offset by a decrease in other costs ~~increased $33 million primarily due to increases in expenses associated with streaming delivery costs and payment processing fees driven by our growing member base.~~

of revenues.

Marketing

Marketing expenses consist primarily of advertising expenses and certain payments made to our marketing 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 and related expenses for personnel that support marketing activities.


		Three Months Ended						Change					Three Months Ended						Change
		March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20					March 31, 2022			March 31, 2021			Q1'22 vs. Q1'21
		(in thousands, except percentages)											(in thousands, except percentages)
Marketing	Marketing	$	512,512		$	503,830		$	8,682	2	%	Marketing	$	555,978		$	512,512		$	43,466	8	%
As a percentage of revenues	As a percentage of revenues	7		%	9		%					As a percentage of revenues	7		%	7		%

The increase in marketing expenses was primarily due to a ~~$11~~$46 million increase in personnel-related costs primarily due to growth in average headcount to support the increase in our production activity.

Technology and Development

Technology and development expenses consist primarily of payroll and 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, 2022			March 31, 2021			Q1'22 vs. Q1'21
	(in thousands, except percentages)
Technology and development	$	657,530		$	525,207		$	132,323	25	%
As a percentage of revenues	8		%	7		%

The increase in technology and development expenses was primarily due to a $113 million increase in personnel-related costs, primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming ~~service, partially offset by decreased advertising expenses.~~

~~Technology and Development~~

Technology and development expenses consist of payroll and related expenses for all technology personnel, as well as other costs incurred in making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendations, merchandising and streaming delivery technology and infrastructure. Technology and development expenses also include costs associated with computer hardware and software.

Three Months Ended Change
March 31,
2021 March 31,
2020 Q1'21 vs. Q1'20
(in thousands, except percentages)
Technology and development $ 525,207 $ 453,817 $ 71,390 16 %
As a percentage of revenues 7 % 8 %

The increase in technology and development expenses was primarily due to a $61 million increase in personnel-related costs, primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service.

General and Administrative

General and administrative expenses consist of payroll and related expenses for corporate personnel. General and administrative expenses also include professional fees and other general corporate expenses.


		Three Months Ended						Change					Three Months Ended						Change
		March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20					March 31, 2022			March 31, 2021			Q1'22 vs. Q1'21
		(in thousands, except percentages)											(in thousands, except percentages)
General and administrative	General and administrative	$	297,196		$	252,087		$	45,109	18	%	General and administrative	$	397,928		$	297,196		$	100,732	34	%
As a percentage of revenues	As a percentage of revenues	4		%	4		%					As a percentage of revenues	5		%	4		%

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The increase in general and administrative expenses was primarily due to a ~~$24~~$80 million increase in ~~third-party expenses, including costs for contractors and consultants. In addition,~~ personnel-related costs, ~~increased by $19 million,~~ primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service.

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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					Three Months Ended						Change
		March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20					March 31, 2022			March 31, 2021			Q1'22 vs. Q1'21
		(in thousands, except percentages)											(in thousands, except percentages)
Interest expense	Interest expense	$	194,440		$	184,083		$	10,357	6	%	Interest expense	$	187,579		$	194,440		$	(6,861)	(4)	%
As a percentage of revenues	As a percentage of revenues	3		%	3		%					As a percentage of revenues	2		%	3		%

Interest expense primarily consists of $178 million of interest on our Notes ~~of $190 million~~ for the three months ended March 31, ~~2021.~~2022. The ~~increase~~decrease in interest expense for the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020~~2021 was due to the ~~increase in debt.~~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 and cash equivalents.


		Three Months Ended						Change					Three Months Ended						Change
		March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20					March 31, 2022			March 31, 2021			Q1'22 vs. Q1'21
		(in thousands, except percentages)											(in thousands, except percentages)
Interest and other income	Interest and other income	$	269,086		$	21,697		$	247,389	1,140	%	Interest and other income	$	195,645		$	269,086		$	(73,441)	(27)	%
As a percentage of revenues	As a percentage of revenues	4		%	—		%					As a percentage of revenues	2		%	4		%

Interest and other income ~~increased~~decreased in the three months ended March 31, ~~2021~~2022 primarily due to foreign exchange gains of ~~$258~~$192 million, compared to gains of $9$258 million for the corresponding period in ~~2020.~~2021. In the three months ended March 31, 2022, the foreign exchange gains were primarily driven by the $162 million non-cash gain 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. In the three months ended March 31, 2021, the foreign exchange gains were primarily driven by the $253 million non-cash gain 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. In the three months ended March 31, 2020, the foreign exchange gains were primarily driven by the $93 million non-cash gain from the remeasurement of our €4,700 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies.

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Provision for Income Taxes


		Three Months Ended						Change					Three Months Ended						Change
		March 31, 2021			March 31, 2020			Q1'21 vs. Q1'20							March 31, 2022				March 31, 2021				Q1'22 vs. Q1'21
		(in thousands, except percentages)										(in thousands, except percentages)
Provision for income taxes	Provision for income taxes	$	327,787		$	86,803		$	240,984	278	%			Provision for income taxes		$	382,245			$	327,787			$	54,458	17	%
Effective tax rate	Effective tax rate	16		%	11		%							Effective tax rate		19		%		16		%

The effective tax rate for the three months ended March 31, ~~2021~~2022 differed from the Federal statutory rate primarily due to an increase in foreign taxes, offset by the impact of international provisions of the Tax Cuts and Jobs Act, and the recognition of excess tax benefits of stock-based compensation.

The increase in ~~our~~the effective tax rate for the three months ended March 31, ~~2021,~~2022, as compared to the same period in ~~2020~~2021 was primarily due to ~~recognizing less~~an increase in foreign taxes and a reduction to excess tax benefits ~~related to~~of stock-based compensation.

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Liquidity and Capital Resources


		As of				Change					As of				Change
		March 31, 2021		December 31, 2020		March 31, 2021 vs. December 31, 2020					March 31, 2022		December 31, 2021		March 31, 2022 vs. December 31, 2021
		(in thousands, except percentages)									(in thousands, except percentages)
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	8,436,453	$	8,238,870	$	197,583	2	%	Cash, cash equivalents and restricted cash	$	6,034,501	$	6,055,111	$	(20,610)	—	%
Short-term and long-term debt	Short-term and long-term debt	15,559,340		16,308,973		(749,633)		(5)	%	Short-term and long-term debt	14,534,561		15,392,895		(858,334)		(6)	%

Cash, cash equivalents and restricted cash ~~increased $198~~decreased $21 million in the three months ended March 31, ~~2021~~2022 primarily due to the repayment of debt, acquisitions and purchases of property and equipment, partially offset by cash provided by ~~operations, partially offset by the repayment of debt.~~operations.

Debt, net of debt issuance costs, decreased ~~$750~~$858 million primarily due to the repayment upon maturity of the ~~$500~~$700 million aggregate principal amount of our ~~5.375%~~5.500% Senior Notes in February ~~2021,~~2022, 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 ~~$1,454~~$689 million. As of March 31, ~~2021,~~2022, no amounts had been borrowed under the ~~$750 million~~$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 to, or need to, obtain 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. 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. There were no repurchases during the three months ended March 31, 2022. As of March 31, ~~2021, no stock has been repurchased under this program.~~2022, $4.4 billion remains available for repurchases.

Our primary uses of cash include the acquisition, licensing and production of content, marketing programs, streaming delivery ~~marketing programs~~ and personnel-related costs. 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 increase our investments 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 ~~at least~~ the next twelve ~~months.~~months and beyond.

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~~Free Cash Flow~~

~~We define free~~Our material cash ~~flow as cash provided by (used in) operating activities less purchases of property~~requirements from known contractual 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 (used in) operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP.

~~In assessing liquidity in relation~~primarily relate to our ~~results of operations, we compare free cash flow to net income, noting that the major recurring differences are excess~~ content, ~~payments over 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. Membership fees due are generally collected quickly.

Three Months Ended Change
March 31,
2021 March 31,
2020 Q1'21 vs. Q1'20
(in thousands, except percentages)
Net cash provided by operating activities $ 777,266 $ 259,912 $ 517,354 199 %
Net cash used in investing activities (85,616) (98,303) (12,687) (13) %
Net cash provided by (used in) financing activities (451,929) 43,694 (495,623) (1,134) %
Non-GAAP reconciliation of free cash flow:
Net cash provided by operating activities 777,266 259,912 517,354 199 %
Purchases of property and equipment (81,001) (98,015) (17,014) (17) %
Change in other assets (4,615) (288) (4,327) (1,502) %
Free cash flow $ 691,650 $ 161,609 $ 530,041 328 %

Net cash provided by operating activities increased $517 million to $777 million for the three months ended March 31, 2021. The increase in cash provided by operating activities was primarily driven by a $1,396 million or 24% increase in revenues, partially offset by an increase in investments in content that require more upfront cash payments. The payments for content assets increased $515 million, from $3,035 million to $3,551 million, or 17%, as compared to the increase in the amortization of content assets of $236 million, from $2,483 million to $2,719 million, or 9%. In addition, we had increased payments associated with higher operating expenses, primarily related to increased headcount to support our continued improvements in our streaming service and our international expansion.

~~Net cash used in investing activities decreased $13 million for the three months ended March 31, 2021, primarily due to a decrease in purchases of property and equipment.~~

~~Net cash provided by (used in) financing activities decreased $496 million for the three months ended March 31, 2021, primarily due to the repayment of debt.~~

Free cash flow was $1,015 million lower than net income for the three months ended March 31, 2021 primarily due to $831 million of cash payments for content assets over amortization expense, $253 million of non-cash remeasurement gain on our euro-denominated debt, and $38 million in other non-favorable working capital differences, partially offset by $107 million of non-cash stock-based compensation expense.

Free cash flow was $547 million lower than net income for the three months ended March 31, 2020, primarily due to $552 million of cash payments for content assets over amortization expense and $93 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $97 million non-cash stock-based compensation expense and $1 million in favorable working capital differences.

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~~Contractual Obligations~~

For the purpose of this table, contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximatelease obligations. Expected timing of ~~the transaction. The expected timing of the payment of the obligations discussed below is estimated based on information available to us~~those payments are as of March 31, 2021. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. The following table summarizes our contractual obligations as of March 31, 2021:follows:


		Payments due by Period											Total		Next 12 Months		Beyond 12 Months
Contractual obligations (in thousands):		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Content obligations (1)	Content obligations (1)	$	20,725,165	$	9,456,342	$	8,241,022	$	2,259,821	$	767,980	Content obligations (1)	$	22,365,560	$	9,861,979	$	12,503,581
Debt (2)	Debt (2)	21,000,783		1,453,690		1,804,714		3,161,269		14,581,110		Debt (2)	19,116,486		689,337		18,427,149
Operating lease obligations (3)	Operating lease obligations (3)	2,825,470		357,900		655,591		576,630		1,235,349		Operating lease obligations (3)	3,615,243		434,730		3,180,513
Other purchase obligations (4)		1,067,747		679,340		383,349		5,058		—
Total	Total	$	45,619,165	$	11,947,272	$	11,084,676	$	6,002,778	$	16,584,439	Total	$	45,097,289	$	10,986,046	$	34,111,243

(1)As of March 31, ~~2021,~~2022, content obligations were comprised of ~~$4.3~~$4.1 billion included in “Current content liabilities” and ~~$2.5~~$2.9 billion of “Non-current content liabilities” on the Consolidated Balance Sheets and ~~$13.9~~$15.4 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition. See Note 7

~~Content obligations include amounts related~~Commitments and Contingencies to the ~~acquisition, licensing and production~~consolidated financial statements for further details.

Table of content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. Contents

The contractual obligations table above does 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.

~~(4)~~Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to streaming delivery and cloud computing costs, as well as other miscellaneous open purchase orders for which we have not received the related services or goods.

As of March 31, ~~2021,~~2022, we had gross unrecognized tax benefits of ~~$160~~$215 million. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

~~Off-Balance Sheet Arrangements~~Free Cash Flow

We dodefine 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 ~~have transactions with unconsolidated entities, such~~be considered in isolation of, or as entities often referred to as structured finance or special purpose entities, whereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities,a substitute for, net income, operating income, net cash provided by (used in) operating activities, or any other ~~obligation under a variable~~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 excess content payments over 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 ~~in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us.~~payments on our outstanding debt. Our receivables from members generally settle quickly.


	Three Months Ended				Change
	March 31, 2022		March 31, 2021		Q1'22 vs. Q1'21
	(in thousands, except percentages)
Net cash provided by operating activities	$	922,839	$	777,266	$	145,573	19	%
Net cash used in investing activities	(245,679)		(85,616)		160,063		187	%
Net cash used in financing activities	(686,322)		(451,929)		(234,393)		(52)	%

Non-GAAP reconciliation of free cash flow:
Net cash provided by operating activities	922,839		777,266		145,573		19	%
Purchases of property and equipment	(121,158)		(81,001)		(40,157)		(50)	%
Change in other assets	—		(4,615)		4,615		100	%
Free cash flow	$	801,681	$	691,650	$	110,031	16	%

Net cash provided by operating activities increased $146 million to $923 million for the three months ended March 31, 2022. The increase in cash provided by operating activities was primarily driven by a $704 million or 10% increase in revenues, partially offset by an increase in investments in content that require more upfront cash payments. The payments for content assets increased $381 million, from $3,551 million to $3,931 million, or 11%, as compared to the increase in the amortization of content assets of $447 million, from $2,719 million to $3,166 million, or 16%. In addition, we had increased payments associated with higher operating expenses, primarily related to increased headcount to support our continued improvements in our streaming service and our international expansion.

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Net cash used in investing activities increased $160 million for the three months ended March 31, 2022, primarily due to an increase in acquisitions and purchases of property and equipment.

Net cash used in financing activities increased $234 million for the three months ended March 31, 2022, primarily due to the repayment of debt.

Free cash flow was $796 million lower than net income for the three months ended March 31, 2022 primarily due to $765 million of cash payments for content assets over amortization expense and $162 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $119 million of non-cash stock-based compensation expense and $12 million in other favorable working capital differences.

Free cash flow was $1,015 million lower than net income for the three months ended March 31, 2021, primarily due to $831 million of cash payments for content assets over amortization expense, $253 million of non-cash remeasurement gain on our euro-denominated debt and $38 million in other non-favorable working capital differences, partially offset by $107 million of non-cash stock-based compensation expense.

Indemnification

The information set forth under Note 7 Commitments and Contingencies to the consolidated financial statements under the caption “Indemnification” is incorporated herein by reference.

Critical Accounting ~~Policies and~~ Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

Content

We acquire, license and produce content, including original programming, in order to offer our members unlimited viewing of video entertainment. The content licenses are for a fixed fee and specific windows of availability. Payment terms for certain content licenses and the production of content require more upfront cash payments relative to the amortization expense. Payments for content, including additions to content assets and the changes in related liabilities, are classified within "Net cash provided by (used in) operating activities" on the Consolidated Statements of Cash Flows.

We recognize content assets (licensed and produced) as "Content assets, net" on the Consolidated Balance Sheets. For licensed content, we capitalize the fee per title and record a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known and the title is accepted and available for streaming. For produced content, we capitalize costs associated with the production, including development cost, direct costs and production overhead. Participations and residuals are expensed in line with the amortization of production costs.

Based on factors including historical and estimated viewing patterns, we amortize the content assets (licensed and produced) in “Cost of revenues” on the Consolidated Statements of Operations over the shorter of each title's contractual window of availability or estimated period of use or ten years, beginning with the month of first availability. The amortization is on an accelerated basis, as we typically expect more upfront viewing, ~~for instance due to additional merchandising and marketing efforts,~~ and film amortization is more accelerated than TV series amortization. On average, over 90% of a licensed or produced content asset is expected to be amortized within four years after its month of first availability. We review factors that impact the amortization of the content assets on a regular basis. Our estimates related to these factors require considerable management judgment.

Our business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. To date, we have not identified any such event or changes in circumstances. If such changes are identified in the future, these aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

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Income Taxes

We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.

Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments and estimates. However, we believe that it is more likely than not that most of the deferred tax assets recorded on our Consolidated Balance Sheets will ultimately be realized. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. As of March 31, ~~2021,~~2022, the valuation allowance of ~~$298~~$333 million was related to the California ~~research and~~

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~~development~~R&D credits and certain foreign tax attributes that we do not expect to realize.

We did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At March 31, ~~2021,~~2022, our estimated gross unrecognized tax benefits were ~~$160~~$215 million of which ~~$99~~$143 million, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. ~~See Note 9~~ ~~Income Taxes~~ ~~to the consolidated financial statements for further information regarding income taxes.~~

Recent Accounting Pronouncements

The information set forth under Note 1 to the consolidated financial statements under the caption “Basis of Presentation and Summary of Significant Accounting Policies” is incorporated herein by reference.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

For financial market risks related to changes in interest rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Our exposure to market risk has not changed significantly since December 31, ~~2020.~~2021.

Foreign Currency Risk

Revenues denominated in currencies other than the U.S. dollar account for ~~56%~~58% of the consolidated amount for the three months ended March 31, ~~2021.~~2022. We therefore have foreign currency risk related to these currencies, which are primarily the euro, the British pound, the Brazilian real, the Canadian dollar, the Mexican Peso, the Australian dollar, and the Japanese yen.

Accordingly, changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenue and operating income as expressed in U.S. dollars. In the three months ended March 31, ~~2021,~~2022, our revenues would have been approximately ~~$80~~$280 million ~~lower~~higher had foreign currency exchange rates remained consistent with those in same period of ~~2020.~~2021.

We have also experienced and will continue to experience fluctuations in our net income as a result of gains (losses) on the settlement and the remeasurement of monetary assets and liabilities denominated in currencies that are not the functional currency. In the three months ended March 31, ~~2021,~~2022, we recognized a ~~$258~~$192 million foreign exchange gain primarily due to the non-cash remeasurement of our Senior Notes denominated in euros, coupled with the remeasurement of cash and content liabilities denominated in currencies other than the functional currencies.

In addition, the effect of exchange rate changes on cash, cash equivalents and restricted cash as disclosed on the Consolidated Statements of Cash Flow for the three months ended March 31, ~~2021~~2022 was a decrease of ~~$42~~$11 million.

We do not use foreign exchange contracts or derivatives to hedge any foreign currency exposures. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Our continued international expansion increases our exposure to exchange rate fluctuations and, as a result, such fluctuations could have a significant impact on our future results of operations.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange ~~Act~~Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our co-Chief Executive Officers and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, ~~2021,~~2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

The information set forth under Note 7 Commitments and Contingencies in the notes to the consolidated financial statements under the caption “Legal Proceedings” is incorporated herein by reference.

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Item 1A.Risk Factors

There have been no material changes from the risk factors previously disclosed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Company Purchases of Equity Securities

In March 2021, ~~our~~the Company’s Board of Directors authorized the repurchase of up to $5 billion of ~~our~~its common stock, with no expiration date. ~~Stock~~There were no repurchases ~~may be effected through open market repurchases in compliance with Rule 10b-18 under~~during 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.three months ended March 31, 2022. As of March 31, ~~2021, no stock has been repurchased under this program.~~2022, $4.4 billion remains available for repurchases.

Item 6.Exhibits

(a) Exhibits:

See Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.

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EXHIBIT INDEX

Exhibit Number Exhibit Description Incorporated by Reference Filed
Herewith
Form File No. Exhibit Filing Date
3.1
Restated Certificate of Incorporation
10-Q 001-35727 3.1 July 17, 2015
3.2
Amended and Restated Bylaws
8-K 001-35727 3.1 December 18, 2020
10.1†
Executive Severance and Retention Incentive Plan, as amended and restated as of April 1, 2021
X
31.1
Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.3
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1*
Certifications of Co-Chief Executive Officers and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101 The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Balance Sheets, (v) Consolidated Statements of Stockholders' Equity and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags X
104 The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL X

Exhibit Number

Exhibit Description

Incorporated by Reference

Filed
Herewith

Form

File No.

Exhibit

Filing Date

3.1

Restated Certificate of Incorporation

10-Q

001-35727

3.1

July 17, 2015

3.2

Amended and Restated Bylaws

8-K

001-35727

3.1

December 18, 2020

31.1

Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Co-Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certifications of Co-Chief Executive Officers and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Balance Sheets, (v) Consolidated Statements of Stockholders' Equity and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags

104

The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL

* These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.

† Indicates a management contract or compensatory plan

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		NETFLIX, INC.
Dated:	April ~~22, 2021~~21, 2022	By:	/s/ Reed Hastings
			Reed Hastings Co-Chief Executive Officer (Principal executive officer)

Dated:	April ~~22, 2021~~21, 2022	By:	/s/ Spencer Neumann
			Spencer Neumann Chief Financial Officer (Principal financial and accounting officer)

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