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Earnings Highlights and Summary

Netflix?s total revenues reached $3.91 billion for Q2 FY18, reflecting an increase of 40.27% from $2.79 billion in Q2 FY17. The reported revenue number missed analysts? consensus estimates by $30 million.

Netflix?s second quarter of 2018 was strong but not stellar. The Company ended Q2 FY18 with 130 million memberships, while membership growth was 5.20 million, the same as Q2 FY17, but lower than the Company?s forecasts of 6.20 million.

Netflix?s cost of revenues was $2.29 billion for Q2 FY18, 20.37% higher than $1.90 billion in Q2 FY17. The Company incurred marketing expenses of $526.78 million in the reported quarter, 92.03% higher than $274.32 million in the previous year same quarter. Moreover, Netflix?s technology and development expenses increased 18.77% to $317.21 million on a y-o-y basis, while general and administrative (G&A) expenses jumped 45.46% to $311.20 million on a y-o-y basis in the reported quarter. The Company had an operating income of $462.21 million in Q2 FY18 compared to $127.81 million in Q2 FY17, reflecting an increase of 261.65%. On a non-GAAP basis, Netflix had an adjusted EBITDA of $563.18 million in Q2 FY18, which was almost 2.96 times the adjusted EBITDA of $190.39 million in Q2 FY17.

Netflix had a net income of $384.35 million in the quarter ending June 30, 2018, an increase of 485.90% from $65.60 million for the quarter ending June 30, 2017. The Company?s diluted earnings per share also jumped 466.67% to $0.85 in Q2 FY18 from $0.15 in Q2 FY17. This surpassed analysts? consensus estimates by $0.06 per share. The reported results include an $85 million non-cash unrealized gain from F/X re-measurement on Eurobond.

Netflix?s Segment Details

During Q2 FY18, the Domestic Streaming segment generated net revenues of $1.89 billion, up 25.75% on a y-o-y basis. This segment?s profit contribution was $739.56 million in Q2 FY18, an increase of 32.08% from $559.93 million in Q2 FY17.

The International streaming segment reported revenues of $1.92 billion in Q2 FY18, an increment of 64.87% from the previous year?s corresponding quarter. This segment?s profit contribution was $298.09 million for the reported quarter compared to contribution loss of $13.10 million in the prior year?s same quarter.

The Domestic DVD segment?s revenues fell 19.03% to $92.90 million in Q2 FY18 from $114.74 million in Q2 FY17. This segment?s profit contribution also declined 14.55% to $52.98 million in the quarter under review from $62 million in the year ago same quarter.

Cash Matters

Netflix had cash and cash equivalents of $3.91 billion as on June 30, 2018, up 103.59% from $1.92 billion as on June 30, 2017. The Company had a long-term debt of $8.34 billion as on June 30, 2018, an increase of 28.35% from $6.50 billion as on June 30, 2017.

Netflix?s cash outflow from operating activities was $518.24 million for the quarter ending June 30, 2018, compared cash outflow of $534.53 million in the same period last year. The Company had a free cash outflow of $585.56 million in the reported quarter versus $608.45 million in the year ago comparable quarter.

Netflix spent $27.32 million on purchases of property and equipment in the quarter under review, 58.11% lower than $65.23 million in the same period last year.

Outlook

For the third quarter of 2018, Netflix expects total revenue of $3.99 billion, up 33.60% on a y-o-y basis. The Company anticipates an operating income of $420 million with operating margin of 10.5% in Q3 FY18. Netflix expects net income of $307 million and DEPS of $0.68 in Q3 FY18.

Stock Performance Snapshot

July 18, 2018 - At Wednesday?s closing bell, Netflix?s stock declined 1.15%, ending the trading session at $375.13.

Volume traded for the day: 21.70 million shares, which was above the 3-month average volume of 10.25 million shares.

Stock performance in the last three-month ? up 12.14%; previous six-month period ? up 72.47%; past twelve-month period ? up 104.32%; and year-to-date ? up 95.42%

After yesterday?s close, Netflix?s market cap was at $172.48 billion.

Price to Earnings (P/E) ratio was at 224.49.

The stock is part of the Services sector, categorized under the CATV Systems industry. This sector was up 0.3% at the end of the session.

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