How Netflix Makes Money

Subscriptions remain the company's main source of revenue, and growth has slowed

Netflix Inc. (NFLX) is a media company offering streaming entertainment subscriptions. Its digital platform allows subscribers to stream TV series, documentaries, and feature films on demand. The company also offers a range of mobile games. Though most consumers access the most popular Netflix content online, the company still offers its original DVD-by-mail service in the U.S.

Competition in streaming video entertainment has intensified in recent years with a number of media giants launching streaming platforms. Netflix's service faces competition from Walt Disney Co.'s (DIS) Disney+, Amazon.com Inc.'s (AMZN) Prime Video, Apple Inc.'s (AAPL) Apple TV+, and Peacock from Comcast Corp. (CMCSA) subsidiary NBCUniversal.

Key Takeaways

  • Netflix operates a subscription streaming service offering a wide range of licensed and original entertainment programming, including movies and serials.
  • Growth has slowed recently, and the price of Netflix shares fell 35% the day after the release of the company's Q1 2022 quarterly results.
  • Netflix suspended its service and production work in Russia after Russia's invasion of Ukraine.
  • Netflix recently acquired Finnish mobile games developer Next Games for $68.3 million.

Netflix Financials

In April 2022, Netflix announced financial results for the Q1 2022 quarter ended March 31, 2022. The company reported net income of $1.6 billion, down 6.4% from the year-ago quarter. Revenue for the quarter grew 9.8% year over year (YOY) to $7.9 billion.

Netflix's global streaming paid memberships, a key metric, rose 6.7% YOY to a total of 221.6 million, but declined by 200,000 from Q4 2021. Growth in the company's global streaming paid memberships has slowed considerably over the past year, from 13.6% YOY in Q1 2021. Netflix projected a loss of 2 million subscribers during Q2 2022, with the YOY growth rate slowing further to 5%. Netflix's share price fell 35% on April 20, 2022, after the release of the Q1 2022 results the prior evening.

Netflix Business Segments

Unlike many other media companies, Netflix does not sell advertising. Nor does it sell its user data. Subscriptions are the predominant source of the company's revenue. Streaming services are available in three tiers, with higher-cost subscriptions offering streaming to additional devices and in higher definition.

Although the company operates as a single business segment, Netflix does break out its streaming revenue by four broad regions: the United States and Canada; Europe, Middle East, and Africa; Latin America; and Asia-Pacific.

United States and Canada

Revenue from the United States and Canada grew 5.6% YOY to $3.35 billion in Q1 2022. The region remained Netflix's mainstay, accounting for nearly 43% of the company's revenue.

Europe, Middle East, and Africa

Revenue from Netflix's Europe, Middle East, and Africa region grew 9.3% YOY to $2.56 billion in Q1 2022. The region generated about 33% of Netflix's revenue.

Latin America

Latin America revenue rose 19.4% YOY to $999 million in Q1 2022. Latin America was the second-fastest growing region for the quarter. It contributed almost 13% of Netflix's quarterly revenue.

Asia-Pacific

Revenue from the Asia-Pacific region increased 20.3% to $917 million in Q1 2022. Asia-Pacific remained Netflix's fastest-growing region during the quarter, accounting for nearly 12% of the company's revenue.

Netflix Recent Developments

In early March 2022, Netflix suspended its service in Russia following Russia's invasion of Ukraine. The company reportedly had 1 million subscribers in the country, some of whom are now suing Netflix in Russia for withdrawing the service.

On March 1, 2022, Netflix said it agreed to acquire Next Games, a Finnish mobile games developer, in a deal valued at approximately 65 million euros ($68.3 million). Netflix acquired 96% of Next Games' Finland-listed shares by April 29 and had applied to initiate compulsory redemption for the remainder.

How Netflix Reports Diversity and Inclusiveness

As part of our commitment to diversity, we examined the data Netflix releases about 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 data about the diversity of its board of directors, C-Suite (top executives), general management, and employees overall, as denoted with a ✔. It also shows whether Netflix discloses data on those groups 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)      

Article Sources

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  1. Netflix Inc. "Form 10-K for the Fiscal Year Ended Dec. 31, 2021," Page 44.

  2. Netflix Inc. "Q1 22 Letter to Shareholders," Page 1.

  3. Netflix Inc. "Plans and Pricing."

  4. Netflix Inc. "Q1 22 Letter to Shareholders," Page 6.

  5. The Hollywood Reporter. "Netflix Suspends Service in Russia Amid Ongoing Invasion of Ukraine."

  6. Variety. "Russian Netflix Users Sue Streamer for Loss of Service."

  7. Netflix Inc. "Netflix to Acquire Finnish Mobile Game Developer Next Games."

  8. Netflix Inc. "Preliminary Result of the Subsequent Offer Period of Netflix, Inc.’s Voluntary Recommended Public Tender Offer for All Outstanding

    Shares and Stock Options in Next Games Corporation."

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