Los Gatos, CA — 2020 was an incredibly difficult year with extraordinary loss for so many families, new restrictions that none of us have ever had to live with before and great uncertainty. We’re enormously grateful that in these uniquely challenging times we’ve been able to provide our members around the world with a source of escape, connection and joy while continuing to build our business.

With 8.5m paid net additions in Q4, we crossed the 200m paid memberships mark. For the full year, we added a record 37m paid memberships, achieved $25 billion in annual revenue (+24% year over year) and grew operating profit 76% to $4.6 billion. Our summary results and forecast are below.

Q4 Results and Q1 Forecast Average paid streaming memberships increased 23% year over year in Q4, while average revenue per membership was flat year over year both on a reported and foreign exchange (F/X) neutral basis. 1 Revenue was 1% higher than our guidance forecast, as paid net adds exceeded our 6.0m projection by 2.5m.

Operating margin of 14.4% (a 600bps increase from Q4’19) also came in above our guidance, due to higher-than-expected revenue. EPS of $1.19 vs. $1.30 a year ago included a $258m non-cash unrealized loss from F/X remeasurement on our Euro denominated debt.

For the full year, our 37m paid net additions represented a 31% increase from 2019’s 28m paid net adds. We’re becoming an increasingly global service with 83% of our paid net adds in 2020 coming from 1 Average revenue per membership (ARM) is defined as streaming revenue divided by the average number of streaming paid memberships divided by the number of months in the period; it was previously referred to as streaming ARPU.

These figures do not include sales taxes or VAT. 1 outside the UCAN region. Our EMEA region accounted for 41% of our full year paid net adds, while APAC was the second largest contributor to paid net additions with 9.3m (up 65% year over year). As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy.

For Q1’21, we expect paid net adds of 6.0m vs. last Q1’s 15.8m, which included the impact from the initial COVID-19 lockdowns. Since the start of 2018, our paid memberships have risen from 111m to 204m and our average revenue per membership has grown from $9.88 to $11.02, despite significant F/X headwinds. This approach has allowed us to organically increase revenue by $4-$5 billion annually over the past several years. We’ve made good progress growing our profitability with FY20 operating margin of 18% rising five percentage points over prior year.

For FY21, we’re now targeting a 20% operating margin, up two percentage points from 2020 and higher than our previous 19% forecast, due to a more favorable revenue outlook. As we said last quarter, we intend to continue to grow our operating margin each year at an average rate of three percentage points per year over any few-year period, but we anticipate some lumpiness.

Some years we’ll be a little over (like in 2020), some years a little under (like in 2021), but we are trying to keep on an average three percentage points per year long-term trajectory. Content The big growth in streaming entertainment has led legacy competitors like Disney, WarnerMedia and Discovery to compete with us in new ways, which we’ve been expecting for many years. This is, in part, why we have been moving so quickly to grow and further strengthen our original content library across a wide range of genres and nations.

Our fourth quarter slate highlights the breadth and diversity of our entertainment offering. 2 In scripted English language television, season four of the critically acclaimed The Crown was the biggest season so far and drove new watchers of prior seasons. In its first 28 days, more member households chose to watch season four of The Crown than each of the prior seasons, helping to grow the number of member households that have chosen to watch this series to over 100m since its initial launch.

In late December, we released our first original series from Shonda Rhimes, Bridgerton. This title has proven immensely popular and we’ll have some exciting news about Bridgerton later this week. Our largest original film of the quarter was The Midnight Sky, starring and directed by George Clooney; we estimate 72m member households will choose to watch this title in its first four weeks.

In its first 28 days, 43m member households chose to watch our animated feature film Over the Moon (directed by legendary creator Glen Keane) with high levels of rewatching. We Can Be Heroes (directed by Robert Rodriguez) was another successful family film with a projected 53m member households choosing this title in its first four weeks.

Our holiday movie slate also resonated with our members; in the first four weeks, 68m and 61m member households chose to watch Holidate (starring Emma Roberts) and The Christmas Chronicles: Part Two (starring Kurt Russell), respectively. Our first Portuguese language holiday film from Brazil, Just Another Christmas (starring Leandro Hassum), was also a big hit with 26m member households globally choosing to watch in the first 28 days of release.

We continue to ramp up our local original content slate. Our top local titles this quarter include Barbarians (a historical action series from Germany that 37m member households globally chose to watch in the first four weeks), Sweet Home, our Korean language horror show (22m member households), Selena: The Series, which particularly resonated with members throughout Mexico and the US (25m member households globally), and Alice in Borderland, a sci-fi thriller from Japan (18m member households).

While designed to be very impactful in the home country, we see many cases of our local originals traveling more broadly. For example, Lupin, an adrenalin-filled French language heist series released in early January, has hit #2 in our US Top 10 list and ranked #1 in dozens of other countries including Brazil, Argentina, Germany, Italy, Spain, Poland, Vietnam, the Philippines and many more. We project 70m member households will choose to watch Lupin in its first 28 days of release. In addition to titles with big viewership, we also aspire to have hits that become part of the cultural zeitgeist.

In 2020 alone, we had Tiger King, Bridgerton and The Queen’s Gambit. Not only did 62m member households choose to watch The Queen’s Gambit in its first 28 days (making this show our biggest limited series in Netflix history), but it ignited sales of chess sets and inspired the next generation of chess prodigies.

In fact, Netflix series accounted for nine out of the 10 most searched shows globally in 2020, while our films represented two of the top 10. 3 Google Year in Search, 2020 (Global) Source: Google. Note: Cobra Kai seasons 1 & 2 originally debuted on YouTube Red. Season 3 is a Netflix original. Our productions are back up and running in most regions – we have learned that flexibility and adaptability are paramount in this fast-changing environment.

With over 500 titles currently in post production or preparing to launch on our service and plans to release at least one new original film every week in 2021 with extraordinary talent, we’re confident we’ll continue to have a great content offering for our members.

In Q1, in addition to the recently released season 3 of Cobra Kai and Lupin, we’re excited to be launching later this quarter To All the Boys I’ve Loved Before 3, the finale to this beloved rom com trilogy, our young adult drama Fate: The Winx Saga, Yes Day (a family movie starring Jennifer Garner), Sky Rojo, a thrilling new series from the creators of La Casa de Papel (aka Money Heist) and Space Sweepers, an action packed Korean sci-fi film.

Product Last year, we continued to improve our parental controls so that families have more control over their experience. These enhancements include allowing members to filter out content at the title level or by maturity rating, creating a profile lock PIN and customizing autoplay settings for any profile. We also extended parental control support to downloads to give parents peace of mind regardless of how Netflix is used. And we provided parents with more transparency into the themes, characters and content that their kids love with the Kids Activity Report, a weekly message designed to keep parents informed about the content their children are watching.

As we bring our members more great programming, we’re always listening and working to make it easier for them to find the right show and film to watch. That’s why last year we debuted our Top 10 lists around the world, and in October we introduced the New & Popular tab in our television user interface, which includes a new Worth the Wait section, highlighting titles as far as a year away that you can remind yourself about. As another exciting step in this effort, we’ve been testing a new feature that 4 gives members the ability to choose to instantly watch a title chosen just for them versus browse. The response has been positive and we plan to roll it out globally in the first half of 2021. Competition It’s a great time to be a consumer of entertainment.

There are a wealth of options ranging from linear TV to video gaming to user generated content on YouTube and TikTok. We continue to work hard to grow our small share of screen time against these major competitors. Discovery recently launched its streaming service. Disney+ is expanding in new countries and with more content. ViacomCBS will be unveiling its plans for Paramount+ in 2021. Combined with the launch of AppleTV+, WarnerMedia’s HBO Max, and NBCUniversal’s Peacock streaming services, this signifies that these companies all recognize the future is streaming entertainment, a vision we have been working towards since inception.

Our strategy is simple: if we can continue to improve Netflix every day to better delight our members, we can be their first choice for streaming entertainment. This past year is a testament to this approach. Disney+ had a massive first year (87 million paid subscribers!) and we recorded the biggest year of paid membership growth in our history. Cash Flow and Capital Structure Net cash generated by operating activities in Q4 was -$138 million vs. -$1.5 billion in the prior year period. Free cash flow (FCF) for the quarter was -$284 million vs. -$1.7 billion in Q4‘19, bringing full year 2 2020 free cash flow to +$1.9 billion vs. -$3.3 billion in 2019.

We believe we are very close to being sustainably FCF positive. For the full year 2021, we currently anticipate free cash flow will be around break even (vs. our prior expectation for -$1 billion to break even). Combined with our $8.2 billion cash balance and our $750m undrawn credit facility, we believe we no longer have a need to raise external financing for our day-to-day operations. Our 5.375% February 1, 2021 bonds mature in Q1. We plan on repaying the bond at maturity out of cash on hand, as we are currently well above our minimum cash needs.

As we generate excess cash, we intend to maintain $10B-15B in gross debt and will explore returning cash to shareholders through ongoing stock buybacks, as we did in the past (2007-2011). Long-Term Stock Price Performance We thank our equity and debt investors for their trust and for coming along with us on our journey to build one of the world’s leading entertainment companies. Since day one, we’ve managed Netflix for the long term under the belief that pleasing our members would lead to strong value creation for our fellow shareholders.

Going forward, in each January investor letter, we’ll provide an update on our long-term stock performance. 2 For a reconciliation of free cash flow to net cash provided by (used in) operating activities, please refer to the reconciliation in tabular form on the attached unaudited financial statements and the footnotes thereto. 5 * As of 12/31/20. Source: Bloomberg and Google Finance. For NFLX, based on IPO price, split adjusted. IPO was May 22, 2002. Total Shareholder Returns basis. Reference For quick reference, our eight most recent investor letters are: October 2020, July 2020, April 2020, January 2020, October 2019, July 2019, April 2019, January 2019.