Netflix Inc. (NFLX) is a media company that offers consumers the ability to buy movie and TV entertainment services. Though the company has since adapted to a largely subscription-based model allowing customers to watch streaming television and movies online, Netflix still offers its original DVD service. Since the fourth quarter 2019, Netflix operates as a single business segment, no longer reporting across domestic streaming, international streaming, and domestic DVD segments. In recent years, competition in the streaming media business has grown fierce, with companies including The Walt Disney Co. (DIS), Amazon.com Inc. (AMZN), and Apple Inc. (AAPL) launching services to rival Netflix.

Key Takeaways

  • Netflix is a media company primarily known for its subscription streaming services offering access to a wide range of movies and television programs.
  • Netflix's Asia-Pacific region was its fast growing geographic segment in Q3 2020.
  • Home-confinement measures related to COVID-19 have helped to boost Netflix's paid subscriptions so far this year.
  • Netflix faces disruptions to content production amid the COVID-19 pandemic and related safety measures.

Netflix's Financials

Netflix has posted negative cash flow every year since 2011 due largely to the company's strategy of spending heavily to finance growth, including the production of original entertainment.  However, Netflix has posted positive cash flow in each of the first three quarters of 2020. The company noted that the increase in cash provided by operating activities during the second quarter was driven by an increase in revenue and decreases in cash payments for content assets.

Netflix has also seen significant gains to its net income and revenue in recent years. For the fiscal year (FY) 2019, annual net income was $1.9 billion, up 54.1% year-over-year (YOY). Netflix has continued to grow in 2020 amid the COVID-19 Pandemic. Indeed, pandemic-related home confinement measures have helped to increase the company's global paid streaming memberships by 23.3% in Q3 2020 compared to the same three-month period a year ago. Net income rose 18.7% to $790.0 million while revenue rose 22.7% to $6.4 billion for Q3 2020, which ended September 30, 2020.

Although Netflix now operates as a single business segment, the company's 10-K for FY 2019 provided supplemental information reflecting historic segment reporting. The 2019 contributions to profit for domestic streaming, international streaming, and domestic DVD, respectively, were $3.3 billion, $1.6 billion, and $174 million. Domestic streaming comprised two-thirds of profits even though it accounted for less than half of revenue.

Netflix's Business Segments

Unlike many other media companies, Netflix does not sell ad space on its site, nor does it sell its user data. Essentially, the only source of revenue for the company is its subscriptions. Streaming services are available at three tiers, with higher-cost subscriptions offering streaming to additional devices and in higher definition. Although it now operates as a single business segment, Netflix does break down its streaming revenue into four broad geographic segments: United States and Canada; Europe, Middle East, and Africa; Latin America; and Asia-Pacific.

United States and Canada (UCAN)

Streaming revenue from the United States and Canada grew 11.9% to $2.9 billion during Q3 2020 compared to the same quarter a year ago. It was Netflix's second slowest growing region for the quarter. However, it comprises nearly half of Netflix's total streaming revenue with a 46% share.

Europe, Middle East, and Africa (EMEA)

Streaming revenue from the Europe, Middle East, and Africa region grew 41.4% to $2.0 billion over the third quarter. The region comprises about 32% of the company's total streaming revenue.

Latin America (LATAM)

Latin America streaming revenue rose 6.5% to $789.4 million in Q3 2020 compared to the year-ago quarter. It was the slowest-growing region for the quarter. Latin America generates about 12% of Netflix's total streaming revenue.

Asia-Pacific (APAC)

Streaming revenue from the Asia-Pacific region increased 66.1% to $634.9 million. It was Netflix's fastest-growing region in the third quarter. However, it comprises the smallest share of total streaming revenue at just under 10%.

Netflix Recent Developments

The increased online activity resulting from the coronavirus pandemic has provided a boost to Netflix's business. However, the government-mandated lockdowns and shelter-in-place measures have hindered content production. Up until now, Netflix has been able to keep up with consumer demand for content. But if production fails to ramp up, offering enough content to keep subscribers satisfied could pose a problem in the future. Netflix noted in its 10-Q for the third quarter that while production has resumed in many parts of the world, the ability to produce content remains affected by the pandemic.

How Netflix Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Netflix and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Netflix releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Netflix discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Netflix breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Netflix Diversity & Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors          
C-Suite
 
       
General Management ✔ (U.S. only)      
Employees ✔ (U.S. only)