Netflix(NFLX) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for Q2 2025, highlighting significant year-over-year growth in revenue and net income, alongside substantial cash usage for share repurchases and debt repayments Consolidated Statements of Operations For Q2 2025, revenues increased 16% to $11.08 billion, with operating income up 45% to $3.77 billion and net income rising 46% to $3.13 billion Q2 2025 vs Q2 2024 Performance (Three Months Ended June 30) | Metric | Q2 2025 | Q2 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $11,079.2M | $9,559.3M | +$1,519.9M | +15.9% | | Operating Income | $3,774.7M | $2,602.8M | +$1,171.9M | +45.0% | | Net Income | $3,125.4M | $2,147.3M | +$978.1M | +45.5% | | Diluted EPS | $7.19 | $4.88 | +$2.31 | +47.3% | H1 2025 vs H1 2024 Performance (Six Months Ended June 30) | Metric | H1 2025 | H1 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $21,622.0M | $18,929.8M | +$2,692.2M | +14.2% | | Operating Income | $7,121.7M | $5,235.4M | +$1,886.3M | +36.0% | | Net Income | $6,015.8M | $4,479.5M | +$1,536.3M | +34.3% | | Diluted EPS | $13.80 | $10.16 | +$3.64 | +35.8% | Consolidated Statements of Comprehensive Income Q2 2025 comprehensive income was $2.31 billion, lower than net income due to an $819 million other comprehensive loss, primarily from unrealized losses on cash flow hedges - Comprehensive income for Q2 2025 was $2.31 billion, compared to net income of $3.13 billion. The difference is mainly due to an $819 million other comprehensive loss[11] - The other comprehensive loss was primarily driven by a $913 million net loss on cash flow hedges (net of tax), a significant reversal from the $98 million gain in Q2 2024[11] Consolidated Statements of Cash Flows For H1 2025, net cash from operating activities was $5.21 billion, with investing activities providing $1.25 billion, while financing activities used $6.53 billion for share repurchases and debt repayments Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,212.5M | $3,503.4M | | Net cash provided by (used in) investing activities | $1,254.3M | ($154.0M) | | Net cash used in financing activities | ($6,531.2M) | ($3,622.3M) | - Financing activities in H1 2025 included $5.19 billion in common stock repurchases and $1.83 billion in debt repayments[14] Consolidated Balance Sheets As of June 30, 2025, the company held $8.18 billion in cash, with total assets at $53.1 billion and total debt decreasing to $14.45 billion Balance Sheet Highlights (As of June 30, 2025 vs Dec 31, 2024) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $8,177.4M | $7,804.7M | | Content assets, net | $32,089.4M | $32,452.5M | | Total assets | $53,099.7M | $53,630.4M | | Long-term debt | $14,453.2M | $13,798.4M | | Total liabilities | $28,147.8M | $28,886.8M | | Total stockholders' equity | $24,951.9M | $24,743.6M | Notes to Consolidated Financial Statements These notes detail accounting policies, revenue recognition, debt, and derivatives, highlighting revenue growth across all regions, debt reduction, and significant stock repurchase activity Revenue by Region (Three Months Ended June 30) | Region | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | UCAN | $4,929.0M | $4,295.6M | +15% | | EMEA | $3,538.2M | $3,007.8M | +18% | | LATAM | $1,306.7M | $1,204.1M | +9% | | APAC | $1,305.3M | $1,051.8M | +24% | - In the first six months of 2025, the company repaid upon maturity its 5.875% Senior Notes ($800 million), 3.000% Senior Notes (€470 million), and 3.625% Senior Notes ($500 million)[44] - Total content obligations were $21.0 billion as of June 30, 2025, down from $23.2 billion at the end of 2024. This includes $15.3 billion in off-balance sheet obligations[62][63] - During the six months ended June 30, 2025, the company repurchased 5.24 million shares of common stock for an aggregate amount of $5.2 billion. As of June 30, 2025, $12.0 billion remains available for repurchases[78] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2025 revenue growth to membership, pricing, and advertising, with operating margin improving due to revenue outpacing costs, and strong liquidity supporting content investments, share repurchases, and debt repayments - The company's core strategy is to grow globally within its operating margin target by continuously improving the member experience with compelling content and a range of pricing plans, including ad-supported options[95] - Q2 2025 operating margin increased by approximately seven percentage points year-over-year, primarily because revenue growth outpaced the growth in cost of revenues and other operating expenses[98] - The company has discontinued quarterly reporting of membership numbers as of Q1 2025, shifting focus to revenue and operating margin as primary performance metrics[96] - Primary uses of cash are investments in global content (especially originals), marketing, streaming delivery, and personnel. The company anticipates cash flow from operations and available funds will be sufficient for cash needs for the next twelve months and beyond[132] Results of Operations Q2 2025 revenue grew 16% to $11.1 billion, driven by membership, pricing, and advertising, with all regions showing growth and controlled cost of revenues, despite increases in Sales & Marketing and Technology & Development expenses Q2 2025 Revenue Growth by Region | Region | Revenue (Q2'25) | YoY Growth | Constant Currency YoY Growth | | :--- | :--- | :--- | :--- | | UCAN | $4,929.0M | 15% | 15% | | EMEA | $3,538.2M | 18% | 16% | | LATAM | $1,306.7M | 9% | 23% | | APAC | $1,305.3M | 24% | 23% | | Total | $11,079.2M | 16% | 17% | - The increase in Sales and Marketing expenses for Q2 was driven by a $40 million rise in personnel costs (advertising sales headcount) and a $19 million increase in advertising-related expenses[115] - Technology and Development expenses for Q2 increased by $113 million, almost entirely due to higher personnel-related costs[118] Liquidity and Capital Resources As of June 30, 2025, the company held $8.4 billion in cash and equivalents, with $5.2 billion cash from operations used for stock repurchases and debt repayments, and total contractual obligations amounting to $42.2 billion Cash Flow Summary (Six Months Ended June 30, 2025 vs 2024) | Cash Flow Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,212.5M | $3,503.4M | | Net cash provided by (used in) investing activities | $1,254.3M | ($154.0M) | | Net cash used in financing activities | ($6,531.2M) | ($3,622.3M) | - Total debt decreased by $1.13 billion in H1 2025 due to repayments of approximately $1.83 billion[129] Material Cash Requirements (as of June 30, 2025) | Contractual Obligations | Total | Next 12 Months | Beyond 12 Months | | :--- | :--- | :--- | :--- | | Content obligations | $20,967.3M | $10,843.0M | $10,124.3M | | Debt (Principal & Interest) | $18,432.4M | $690.0M | $17,742.4M | | Operating lease obligations | $2,843.6M | $544.9M | $2,298.7M | | Total | $42,243.3M | $12,077.9M | $30,165.4M | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate changes on its $14.5 billion fixed-rate debt and significant foreign currency fluctuations, actively using derivatives and foreign-denominated debt to hedge these exposures - The company's primary market risks are interest rate changes affecting its $14.5 billion fixed-rate debt and foreign currency fluctuations[145][147] - 55% of revenue and 29% of operating expenses for H1 2025 were in currencies other than the U.S. dollar, primarily the euro, British pound, Brazilian real, Mexican peso, and Canadian dollar[148] - The company actively uses derivative instruments (foreign exchange forward contracts) and non-derivative instruments (foreign currency-denominated debt) to hedge against foreign exchange risks related to revenue, content costs, and net investments[150][151][152] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the quarter, the co-CEOs and CFO concluded that the company's disclosure controls and procedures were effective[155] - No changes occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[157] Part II. Other Information Legal Proceedings Information on legal proceedings is incorporated by reference from Note 8, with no currently material litigation matters identified - Information regarding legal proceedings is incorporated by reference from Note 8, Commitments and Contingencies[159] - The company is involved in a number of non-income tax matters with Brazilian tax authorities, with a cumulative potential exposure estimated at approximately $600 million, for which a loss is not considered probable[67] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2024 Annual Report on Form 10-K[161] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased 1.52 million shares for approximately $1.6 billion, with $12.0 billion remaining available for future repurchases Share Repurchases (Q2 2025) | Period | Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 784,964 | $939.88 | | May 2025 | 390,471 | $1,162.69 | | June 2025 | 349,473 | $1,237.23 | | Total | 1,524,908 | N/A | - As of June 30, 2025, approximately $12.0 billion remained available for repurchase under the company's stock repurchase program[162] Other Information No Rule 10b5-1 trading plans were adopted or terminated by Section 16 officers or directors in Q2 2025, with a prior omission regarding a director's plan now disclosed - No Section 16 officers or directors adopted or terminated a Rule 10b5-1 trading plan in Q2 2025[164] - The company disclosed a previously omitted Rule 10b5-1 plan adopted by director Mathias Döpfner on January 29, 2025, covering the potential sale of up to 6,013 shares[165][166] Exhibits This section provides an index of exhibits filed with the Form 10-Q, including corporate governance documents and required certifications - The report includes an index of all exhibits filed, such as Sarbanes-Oxley certifications (Sections 302 and 906) and financial statements formatted in Inline XBRL[168][169]