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, Inc. (AMZN), and Apple, Inc. (AAPL) launching services to rival Netflix.
- 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 Q2 2020.
- Home-confinement measures related to COVID-19 have given Netflix's paid subscriptions a massive boost so far this year.
- In an effort to build on its early lead in the streaming space, Netflix has substantially expanded its offerings of original programming in recent years.
Netflix has posted negative cash flow 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 both of the first two 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 paid net membership additions by 274% in Q2 2020 compared to the same three-month period a year ago. Net income rose 166.1% to $720.2 million while revenue rose 24.9% to $6.1 billion for Q2 2020, which ended June 30, 2020.
Although Netflix now operates as a single business segment, the company's 10-K for the fiscal year 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 $174.0 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 13.5% to $2.8 billion during Q2 2020 compared to the same quarter a year ago. It was Netflix's slowest growing region for the quarter. However, it comprises nearly half of Netflix's total streaming revenue with a nearly 47% share.
Europe, Middle East, and Africa (EMEA)
Streaming revenue from the Europe, Middle East, and Africa region grew 43.5% to $1.9 billion over the second quarter. The region comprises about 31% of the company's total streaming revenue.
Latin America (LATAM)
Latin America streaming revenue rose 16.0% to $785.4 million in Q2 2020 compared to the year-ago quarter. The region makes up nearly 13% of Netflix's total streaming revenue.
Streaming revenue from the Asia-Pacific region increased 62.8% to $569.1 million. It was Netflix's fastest growing region in the second quarter. However, it comprises the smallest share of total streaming revenue at just over 9%.
Netflix Recent Developments
Netflix faces growing competition from a large number of large streaming service rivals. 2019 saw Disney pull all of its content from Netflix's platform to make way for the new Disney+ service, for instance. In response, Netflix has increased its own original and exclusive content. While this effort has required an investment of billions of dollars in production costs, the strategy is getting results.
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 second quarter that while production has resumed in many parts of the world, the ability to resume production in other parts, including the U.S., remains uncertain.
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|
|General Management||✔ (U.S. only)||✔|
|Employees||✔ (U.S. only)||✔|
Netflix, Inc. "Form 10-K for the fiscal year ended December 31, 2019," Page 30. Accessed Feb. 5, 2020.
Netflix Inc. "Form 10-K for the fiscal year ended December 31, 2019," page 18. Accessed Aug. 25, 2020.
Netflix Inc. "Form 10-K For the fiscal year ended December 31, 2015," page 15. Accessed Aug. 25, 2020.
Netflix Inc. "Form 10-Q for the quarterly period ended March 31, 2020," page 26. Accessed Aug. 25, 2020.
Netflix Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 29. Accessed Aug. 25, 2020.
Netflix, Inc. "Form 10-K for the fiscal year ended December 31, 2019," Page 18. Accessed Feb. 5, 2020.
Netflix Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 20. Accessed Aug. 25, 2020.
Netflix Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 3. Accessed Aug. 25, 2020.
Netflix Inc. "Form 10-K for the fiscal year ended December 31, 2019," page 30. Accessed Aug. 25, 2020.
Netflix Inc. "Compare plans and pricing." Accessed Aug. 25, 2020.
Netflix Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 8. Accessed Aug. 25, 2020.
Netflix Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 9. Accessed Aug. 25, 2020.
CNBC. "Netflix eager to restart production, has enough new content for 2020." Accessed Aug. 25, 2020.
Netflix Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 21. Accessed Aug. 25, 2020.