NETFLIX : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following represents our consolidated performance highlights:

As of/ Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except revenue per membership and percentages) Financial Results: Streaming revenues $ 7,439,235 $ 6,376,803 $ 1,062,432 17 % DVD revenues 44,232 58,834 (14,602) (25) % Total revenues $ 7,483,467 $ 6,435,637 $ 1,047,830 16 % Operating income $ 1,755,253 $ 1,314,863 $ 440,390 33 % Operating margin 23.5 % 20.4 % 3.1 % 15 % Global Streaming Memberships: Paid net membership additions 4,383 2,204 2,179 99 % Paid memberships at end of period 213,563 195,151 18,412 9 % Average paying memberships 211,372 194,049 17,323 9 % Average monthly revenue per paying membership $ 11.73 $ 10.95 $ 0.78 7 % Consolidated revenues for the three months ended September 30, 2021 increased 16% as compared to the three months ended September 30, 2020. The increase in our consolidated revenues was due to the 9% growth in average paying memberships and a 7% increase in average monthly revenue per paying membership. The increase in average monthly revenue per paying membership resulted from our price changes and favorable fluctuations in foreign exchange rates. The increase in operating margin is primarily due to content amortization growing at a slower rate as compared to the 16% increase in revenues as a result of delays in content releases due to the COVID-19 pandemic. The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Part I, Item 1A: "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional details. We have implemented a phased-in return to our offices where COVID-related restrictions have eased though most of our workforce has had and continues in most instances to spend a significant amount of time working from home. While most of our productions have resumed, certain of our productions continue to experience disruption, as do the productions of our third-party content suppliers. Our other partners have similarly had their operations disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. As a result, the pandemic has and continues to affect our ability to produce content, which in turn led to delays in certain content releases. The pandemic varies by geography, and government measures to contain COVID-19 or slow its spread, including orders to close all businesses not deemed "essential," isolate residents to their homes or places of residence, and practice social distancing, continue to remain in effect or may be rescinded, modified, or reinstated. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, will continue to negatively impact business activity across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and 20 -------------------------------------------------------------------------------- Table of Contents stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results. Streaming Revenues We derive revenues from monthly membership fees for services related to streaming content to our members. We offer a variety of streaming membership plans, the price of which varies by country and the features of the plan. As of September 30, 2021, pricing on our paid plans ranged from the U.S. dollar equivalent of $3 to $24 per month. We expect that from time to time the prices of our membership plans in each country may change and we may test other plan and price variations. The following tables summarize streaming revenue and other streaming membership information by region for the three and nine months ended September 30, 2021 and September 30, 2020. United States and Canada (UCAN) Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 As of/ Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in

thousands, except revenue per membership and percentages) Revenues

$ 3,257,697 $ 2,933,445 $ 324,252 11 % Paid net membership additions 73 177 (104) (59) % Paid memberships at end of period 74,024 73,081 943 1 % Average paying memberships 73,988 72,993 995 1 %

Average monthly revenue per paying membership $ 14.68

 $ 13.40 $ 1.28 10 % Constant currency change (1) 9 % Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 As of/ Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in

thousands, except revenue per membership and percentages) Revenues

$ 9,663,312 $ 8,475,891 $ 1,187,421 14 % Paid net membership additions 88 5,419 (5,331) (98) % Paid memberships at end of period 74,024 73,081 943 1 % Average paying memberships 74,105 71,082 3,023 4 %

Average monthly revenue per paying membership $ 14.49

 $ 13.25 $ 1.24 9 % Constant currency change (1) 9 %

Europe , Middle East , and Africa (EMEA) Three months ended September 30, 2021 as compared to the three months ended September 30, 2020

Table of Contents As of/ Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in

thousands, except revenue per membership and percentages) Revenues

$ 2,432,239 $ 2,019,083 $ 413,156 20 % Paid net membership additions 1,804 759 1,045 138 % Paid memberships at end of period 70,500 62,242 8,258 13 % Average paying memberships 69,598 61,863 7,735 13 %

Average monthly revenue per paying membership $ 11.65

 $ 10.88 $ 0.77 7 % Constant currency change (1) 3 % Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 As of/ Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in

thousands, except revenue per membership and percentages) Revenues

$ 7,176,393 $ 5,635,094 $ 1,541,299 27 % Paid net membership additions 3,802 10,464 (6,662) (64) % Paid memberships at end of period 70,500 62,242 8,258 13 % Average paying memberships 68,601 59,076 9,525 16 %

Average monthly revenue per paying membership $ 11.62

 $ 10.60 $ 1.02 10 % Constant currency change (1) 3 % Latin America (LATAM) Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 As of/ Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in

thousands, except revenue per membership and percentages) Revenues

$ 915,297 $ 789,384 $ 125,913 16 % Paid net membership additions 330 256 74 29 % Paid memberships at end of period 38,988 36,324 2,664 7 % Average paying memberships 38,823 36,196 2,627 7 % Average monthly revenue per paying membership $ 7.86 $ 7.27 $ 0.59 8 % Constant currency change (1) 8 % Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 As of/ Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in

thousands, except revenue per membership and percentages) Revenues

$ 2,612,826 $ 2,368,205 $ 244,621 10 % Paid net membership additions 1,451 4,907 (3,456) (70) % Paid memberships at end of period 38,988 36,324 2,664 7 % Average paying memberships 38,272 34,752 3,520 10 %

Average monthly revenue per paying membership $ 7.59

$ 7.57 $ 0.02 - % Constant currency change (1) 5 % 22

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Asia-Pacific (APAC) Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 As of/ Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in

thousands, except revenue per membership and percentages) Revenues

$ 834,002 $ 634,891 $ 199,111 31 % Paid net membership additions 2,176 1,012 1,164 115 % Paid memberships at end of period 30,051 23,504 6,547 28 % Average paying memberships 28,963 22,998 5,965 26 % Average monthly revenue per paying membership $ 9.60 $ 9.20 $ 0.40 4 % Constant currency change (1) 2 % Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 As of/ Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in

thousands, except revenue per membership and percentages) Revenues

$ 2,395,896 $ 1,687,691 $ 708,205 42 % Paid net membership additions 4,559 7,271 (2,712) (37) % Paid memberships at end of period 30,051 23,504 6,547 28 % Average paying memberships 27,500 20,732 6,768 33 %

Average monthly revenue per paying membership $ 9.68

$ 9.05 $ 0.63 7 % Constant currency change (1) 2 % (1) We believe constant currency information is useful in analyzing the underlying trends in average monthly revenue per paying membership. In order to exclude the effect of foreign currency rate fluctuations on average monthly revenue per paying membership, we estimate current period revenue assuming foreign exchange rates had remained constant with foreign exchange rates from each of the corresponding months of the prior-year period. For the three and nine months ended September 30, 2021, our revenues would have been approximately $128 million and $485 million lower had foreign currency exchange rates remained constant with those for the three and nine months ended September 30, 2020. Cost of Revenues Amortization of content assets makes up the majority of cost of revenues. Expenses associated with the acquisition, licensing and production of content (such as payroll and related personnel expenses, costs associated with obtaining rights to music included in our content, overall deals with talent, miscellaneous production related costs and participations and residuals), streaming delivery costs and other operations costs make up the remainder of cost of revenues. We have built our own global content delivery network ("Open Connect") to help us efficiently stream a high volume of content to our members over the internet. Delivery expenses, therefore, include equipment costs related to Open Connect, payroll and related personnel expenses and all third-party costs, such as cloud computing costs, associated with delivering content over the internet. Other operations costs include customer service and payment processing fees, including those we pay to our integrated payment partners, as well as other costs incurred in making our content available to members. Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except percentages) Cost of revenues $ 4,206,589 $ 3,867,751 $ 338,838 9 % As a percentage of revenues 56 % 60 % 23

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The increase in cost of revenues was primarily due to a $229 million increase in content amortization relating to our existing and new content, including more exclusive and original programming. Other costs of revenues increased $110 million primarily due to continued growth in our content production activities, coupled with an increase in payment processing fees driven by our growing member base. The decrease in cost of revenues as a percentage of revenues from 60% to 56% is primarily due to delays in content releases due to the COVID-19 pandemic, resulting in content amortization growing at a slower rate as compared to the growth in revenue. Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in thousands, except percentages) Cost of revenues $ 12,093,108 $ 11,111,159 $ 981,949 9 % As a percentage of revenues 55 % 61 % The increase in cost of revenues was primarily due to a $665 million increase in content amortization relating to our existing and new content, including more exclusive and original programming. Other costs of revenues increased $317 million, primarily due to the continued growth in our content production activities, coupled with an increase in expenses associated with streaming delivery costs and payment processing fees driven by our growing member base. The increase in other cost of revenues was partially offset by a $50 million decrease in expenses associated with customer service, primarily due to higher activity resulting from the COVID-19 pandemic in the same prior year period. The decrease in cost of revenues as a percentage of revenues from 61% to 55% is primarily due to delays in content releases due to the COVID-19 pandemic, resulting in content amortization growing at a slower rate as compared to the growth in revenue. Marketing Marketing expenses consist primarily of advertising expenses and certain payments made to our marketing partners, including consumer electronics ("CE") manufacturers, multichannel video programming distributors ("MVPDs"), mobile operators and internet service providers ("ISPs"). Advertising expenses include promotional activities such as digital and television advertising. Marketing expenses also include payroll and related expenses for personnel that support marketing activities. Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except percentages) Marketing $ 635,948 $ 527,597 $ 108,351 21 % As a percentage of revenues 8 % 8 %

The increase in marketing expenses was primarily due to an $87 million increase in advertising expenses.

Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in thousands, except percentages) Marketing $ 1,752,433 $ 1,465,797 $ 286,636 20 % As a percentage of revenues 8 % 8 %

The increase in marketing expenses was primarily due to a $246 million increase in advertising expenses.

24 -------------------------------------------------------------------------------- Table of Contents Technology and Development Technology and development expenses consist of payroll and related expenses for all technology personnel, as well as other costs incurred in making improvements to our service offerings, including testing, maintaining and modifying our user interface, our recommendations, merchandising and streaming delivery technology and infrastructure. Technology and development expenses also include costs associated with computer hardware and software. Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except percentages)

Technology and development $ 563,887 $ 453,802 $ 110,085 24 % As a percentage of revenues 8 % 7 % The increase in technology and development expenses was primarily due to a $95 million increase in personnel-related costs, primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service. Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in thousands, except percentages)

Technology and development $ 1,626,415 $ 1,342,664 $ 283,751 21 % As a percentage of revenues 7 % 7 %

The increase in technology and development expenses was primarily due to a $245 million increase in personnel-related costs, primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service.

General and Administrative General and administrative expenses consist of payroll and related expenses for corporate personnel. General and administrative expenses also include professional fees and other general corporate expenses. Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except percentages)

General and administrative $ 321,790 $ 271,624 $ 50,166 18 % As a percentage of revenues 4 % 4 % The increase in general and administrative expenses was primarily due to a $43 million increase in personnel-related costs, primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service. 25

Table of Contents Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in thousands, except percentages) General and administrative $ 953,831 $ 800,947 $ 152,884 19 % As a percentage of revenues 4 % 4 %

The increase in general and administrative expenses was primarily due to a $88 million increase in personnel-related costs, primarily due to growth in average headcount to support the increase in our production activity and continued improvements in our streaming service. In addition, third-party expenses, including costs for contractors and consultants, increased $47 million .

26 -------------------------------------------------------------------------------- Table of Contents Interest Expense Interest expense consists primarily of the interest associated with our outstanding debt obligations, including the amortization of debt issuance costs. See Note 6 Debt in the accompanying notes to our consolidated financial statements for further detail on our debt obligations. Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except percentages) Interest expense $ 190,429 $ 197,079 $ (6,650) (3) % As a percentage of revenues 3 % 3 % Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in thousands, except percentages) Interest expense $ 576,191 $ 570,313 $ 5,878 1 % As a percentage of revenues 3 % 3 % Interest expense primarily consists of interest on our Notes of $186 million and $563 million for the three and nine months ended September 30, 2021. The decrease in interest expense for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 was due to the lower average aggregate principal of interest bearing notes outstanding. The increase in interest expense for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was due to the higher average aggregate principal of interest bearing notes outstanding. Interest and Other Income (Expense) Interest and other income (expense) consists primarily of foreign exchange gains and losses on foreign currency denominated balances and interest earned on cash and cash equivalents. Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except percentages) Interest and other income (expense) $ 96,135 $ (256,324) $ 352,459 138 % As a percentage of revenues 1 % (4) % Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in thousands, except percentages) Interest and other income (expense) $ 302,702 $ (367,802) $ 670,504 182 % As a percentage of revenues 1 % (2) % 27

-------------------------------------------------------------------------------- Table of Contents Interest and other income (expense) increased in the three and nine months ended September 30, 2021 primarily due to foreign exchange gains of $103 million and $301 million, respectively, compared to losses of $258 million and $397 million, respectively, for the corresponding periods in 2020. In the three and nine months ended September 30, 2021, the foreign exchange gains were primarily driven by the non-cash gains of $136 million and $327 million, respectively, from the remeasurement of our €5,170 million Senior Notes, partially offset by the remeasurement of cash and content liability positions in currencies other than the functional currencies. In the three and nine months ended September 30, 2020, the foreign exchange losses were driven by the non-cash losses of $249 million and $275 million, respectively, from the remeasurement of our €5,170 million Senior Notes, coupled with the remeasurement of cash and content liability positions in currencies other than the functional currencies. Provision for Income Taxes Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except percentages) Provision for income taxes $ 211,888 $ 71,484 $ 140,404 196 % Effective tax rate 13 % 8 % Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in thousands, except percentages) Provision for income taxes $ 780,451 $ 473,693 $ 306,758 65 % Effective tax rate 15 % 18 % The effective tax rates for the three and nine months ended September 30, 2021 differed from the Federal statutory rate primarily due to the impact of international provisions of the Tax Cuts and Jobs Act and recognition of excess tax benefits of stock-based compensation. The increase in the effective tax rate for the three months ended September 30, 2021, as compared to the same period in 2020 was primarily due to a reduced benefit on percentage basis for excess tax benefits related to stock-based compensation due to higher pre-tax income as of September 30, 2021. The decrease in the effective tax rate for the nine months ended September 30, 2021, as compared to the same period in 2020 was primarily due to the establishment of a valuation allowance on the California R&D credit in the quarter ended June 30, 2020, offset by markedly reduced excess tax benefits related to stock-based compensation as of September 30, 2021.

Liquidity and Capital Resources

As of Change September 30, December 31, September 30, 2021 vs. December 2021 2020 31, 2020 (in thousands, except percentages) Cash, cash equivalents and restricted cash $ 7,552,968 $ 8,238,870 $ (685,902) (8) % Short-term and long-term debt 15,493,164 16,308,973 (815,809) (5) % 28

-------------------------------------------------------------------------------- Table of Contents Cash, cash equivalents and restricted cash decreased $686 million in the nine months ended September 30, 2021 primarily due to the repurchase of stock and repayment of debt, partially offset by cash provided by operations. Debt, net of debt issuance costs, decreased $816 million primarily due to the repayment upon maturity of the $500 million aggregate principal amount of our 5.375% Senior Notes in February 2021, coupled with the remeasurement of our euro-denominated notes. The amount of principal and interest on our outstanding notes due in the next twelve months is $1,432 million. As of September 30, 2021, no amounts had been borrowed under the $1 billion Revolving Credit Agreement. See Note 6 Debt in the accompanying notes to our consolidated financial statements. We anticipate that our future capital needs from the debt market will be more limited compared to prior years. Our ability to obtain this or any additional financing that we may choose to, or need to, obtain will depend on, among other things, our development efforts, business plans, operating performance and the condition of the capital markets at the time we seek financing. We may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution. In March 2021, our Board of Directors authorized the repurchase of up to $5 billion of our common stock, with no expiration date. Stock repurchases may be effected through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, accelerated stock repurchase plans, block purchases, or other similar purchase techniques and in such amounts as management deems appropriate. We are not obligated to repurchase any specific number of shares, and the timing and actual number of shares repurchased will depend on a variety of factors, including our stock price, general economic, business and market conditions, and alternative investment opportunities. We may discontinue any repurchases of our common stock at any time without prior notice. As of September 30, 2021, the Company has repurchased 1,182,410 shares of common stock for an aggregate amount of $600 million. As of September 30, 2021, $4.4 billion remains available for repurchases. Our primary uses of cash include the acquisition, licensing and production of content, streaming delivery, marketing programs and personnel-related costs. Cash payment terms for non-original content have historically been in line with the amortization period. Investments in original content, and in particular content that we produce and own, require more cash upfront relative to licensed content. For example, production costs are paid as the content is created, well in advance of when the content is available on the service and amortized. We expect to continue to significantly increase our investments in global content, particularly in original content, which will impact our liquidity. We currently anticipate that cash flows from operations, available funds and access to financing sources, including our revolving credit facility, will continue to be sufficient to meet our cash needs for at least the next twelve months. Free Cash Flow We define free cash flow as cash provided by (used in) operating activities less purchases of property and equipment and change in other assets. We believe free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make strategic acquisitions and investments and for certain other activities like stock repurchases. Free cash flow is considered a non-GAAP financial measure and should not be considered in isolation of, or as a substitute for, net income, operating income, net cash provided by (used in) operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. In assessing liquidity in relation to our results of operations, we compare free cash flow to net income, noting that the major recurring differences are excess content payments over amortization, non-cash stock-based compensation expense, non-cash remeasurement gain/loss on our euro-denominated debt, and other working capital differences. Working capital differences include deferred revenue, excess property and equipment purchases over depreciation, taxes and semi-annual interest payments on our outstanding debt. Membership fees due are generally collected quickly. 29

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Three months ended September 30, 2021 as compared to the three months ended September 30, 2020 Three Months Ended Change September 30, September 30, 2021 2020 Q3'21 vs. Q3'20 (in thousands, except percentages) Net cash provided by operating activities $ 82,379 $ 1,263,761 $ (1,181,382) (93) % Net cash used in investing activities (188,631) (118,651) 69,980 59 % Net cash provided by (used in) financing activities (81,555) 68,665 (150,220) (219) % Non-GAAP reconciliation of free cash flow: Net cash provided by operating activities 82,379 1,263,761 (1,181,382) (93) % Purchases of property and equipment (167,327) (109,811) 57,516 52 % Change in other assets (21,304) (8,840) 12,464 141 % Free cash flow $ (106,252) $ 1,145,110 $ (1,251,362) (109) % Net cash provided by operating activities decreased $1,181 million to $82 million for the three months ended September 30, 2021. The decrease in cash provided by operating activities was primarily driven by the increase in investments in content that require more upfront cash payments, partially offset by a $1,048 million or 16% increase in revenues. The payments for content assets increased $1,662 million, from $3,033 million to $4,695 million, or 55%, as compared to the increase in the amortization of content assets of $229 million, from $2,734 million to $2,963 million, or 8%. The increase in payments for content assets was primarily driven by delays in productions resulting from the pandemic that impacted the prior year period, which resulted in the timing of certain production payments being shifted into the current period. In addition, we had increased payments associated with higher operating expenses, primarily related to increased headcount to support our continued improvements in our streaming service and our international expansion. Net cash used in investing activities increased $70 million for the three months ended September 30, 2021, primarily due to an increase in purchases of property and equipment. Net cash provided by (used in) financing activities decreased $150 million for the three months ended September 30, 2021, due to the repurchases of common stock for an aggregate amount of $100 million in the three months ended September 30, 2021. Free cash flow was $1,555 million lower than net income for the three months ended September 30, 2021 primarily due to $1,732 million of cash payments for content assets over amortization expense and $136 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $218 million in other favorable working capital differences and $95 million of non-cash stock-based compensation expense. Free cash flow was $355 million higher than net income for the three months ended September 30, 2020, primarily due to $300 million favorable working capital differences, $249 million of non-cash remeasurement loss on our euro-denominated debt and $106 million non-cash stock-based compensation expense, partially offset by $300 million of cash payments for content assets over amortization expense. 30

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Nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 Nine Months Ended Change September 30, September 30, 2021 2020 YTD'21 vs. YTD'20 (in thousands, except percentages) Net cash provided by operating activities $ 795,884 $ 2,564,749 $ (1,768,865) (69) % Net cash used in investing activities (385,525) (358,955) 26,570 7 % Net cash provided by (used in) financing activities (1,013,757) 1,203,324 (2,217,081) (184) % Non-GAAP reconciliation of free cash flow: Net cash provided by operating activities 795,884 2,564,749 (1,768,865) (69) % Purchases of property and equipment (358,606) (349,567) 9,039 3 % Change in other assets (26,919) (9,388) 17,531 187 % Free cash flow $ 410,359 $ 2,205,794 $ (1,795,435) (81) % Net cash provided by operating activities decreased $1,769 million to $796 million for the nine months ended September 30, 2021. The decrease in cash provided by operating activities was primarily driven by an increase in investments in content that require more upfront cash payments, partially offset by a $3,637 million or 20% increase in revenues. The payments for content assets increased $3,967 million, from $8,688 million to $12,655 million, or 46% as compared to the increase in the amortization of content assets of $665 million, from $7,824 million to $8,489 million, or 8%. The increase in payments for content assets was primarily driven by delays in productions resulting from the pandemic that impacted the prior year period, which resulted in the timing of certain production payments being shifted into the current period. In addition, we had increased payments associated with higher operating expenses, primarily related to increased headcount to support our continued improvements in our streaming service and our international expansion. Net cash used in investing activities increased $27 million for the nine months ended September 30, 2021, primarily due to the increase in purchases of other assets and property and equipment. Net cash provided by (used in) financing activities decreased $2,217 million in the nine months ended September 30, 2021, due to no debt issuances in the nine months ended September 30, 2021 as compared to proceeds from the issuance of debt of $1,002 million, net of $8 million issuance costs in the nine months ended September 30, 2020, coupled with the repurchases of common stock for an aggregate amount of $600 million in the nine months ended September 30, 2021 and repayment upon maturity of the $500 million aggregate principal amount of our 5.375% Senior Notes in February 2021. Free cash flow was $4,098 million lower than net income for the nine months ended September 30, 2021 primarily due to $4,166 million of cash payments for content assets over amortization expense and $327 million of non-cash remeasurement gain on our euro-denominated debt, partially offset by $304 million of non-cash stock-based compensation expense and $91 million in other favorable working capital differences. Free cash flow was $13 million lower than net income for the nine months ended September 30, 2020, primarily due to $864 million of cash payments for content assets over amortization expense partially offset by $308 million of non-cash stock-based compensation expense, $275 million of non-cash remeasurement loss on our euro-denominated debt, $239 million non-cash valuation allowance for deferred taxes due to legislation which imposed an annual cap on research and development credits and $29 million favorable other working capital differences. 31

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For the purpose of this table, contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The expected timing of the payment of the obligations discussed below is estimated based on information available to us as of September 30, 2021. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. The following table summarizes our contractual obligations as of September 30, 2021: Payments due by Period Contractual obligations (in Less than More than thousands): Total 1 year 1-3 years 3-5 years 5 years Content obligations (1) $ 22,465,540 $

10,017,405 $ 8,991,781 $ 2,860,871 $ 595,483 Debt (2)

20,535,734 1,431,621 1,787,577 3,108,329 14,208,207 Operating lease obligations (3) 3,275,668 388,090 755,782 715,804 1,415,992 Other purchase obligations (4) 2,099,539 1,726,126 347,153 5,345 20,915 Total $ 48,376,481 $ 13,563,242 $ 11,882,293 $ 6,690,349 $ 16,240,597 (1)As of September 30, 2021, content obligations were comprised of $4.1 billion included in "Current content liabilities" and $2.3 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $16.1 billion of obligations that are not reflected on the Consolidated Balance Sheets as they did not then meet the criteria for recognition. Content obligations include amounts related to the acquisition, licensing and production of content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements and other production related commitments. An obligation for the acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title becomes available, a content liability is recorded on the Consolidated Balance Sheets. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date. Traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown, are examples of these types of agreements. The contractual obligations table above does not include any estimated obligation for the unknown future titles, payment for which could range from less than one year to more than five years. However, these unknown obligations are expected to be significant and we believe could include approximately $1 billion to $4 billion over the next three years, with the payments for the vast majority of such amounts expected to occur after the next twelve months. The foregoing range is based on considerable management judgments and the actual amounts may differ. Once we know the title that we will receive and the license fees, we include the amount in the contractual obligations table above.

(2)Debt obligations include our Notes consisting of principal and interest payments. See Note 6 Debt to the consolidated financial statements for further details.

(3)Operating lease obligations are comprised of operating lease liabilities included in "Accrued expenses and other liabilities" and "Other non-current liabilities" on the Consolidated Balance Sheets, inclusive of imputed interest. Operating lease obligations also include additional obligations that are not reflected on the Consolidated Balance Sheets as they did not meet the criteria for recognition. See Note 5 Balance Sheet Components in the accompanying notes to our consolidated financial statements for further details regarding leases. (4)Other purchase obligations include all other non-cancelable contractual obligations. These contracts are primarily related to acquisitions, streaming delivery and cloud computing costs, as well as other miscellaneous open purchase orders for which we have not received the related services or goods. 32

Table of Contents As of September 30, 2021 , we had gross unrecognized tax benefits of $172 million . At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

Off-Balance Sheet Arrangements We do not have transactions with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, whereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us. Indemnification

The information set forth under Note 7 Commitments and Contingencies to the consolidated financial statements under the caption "Indemnification" is incorporated herein by reference.

Critical Accounting Policies and Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

We acquire, license and produce content, including original programming, in order to offer our members unlimited viewing of video entertainment. The content licenses are for a fixed fee and specific windows of availability. Payment terms for certain content licenses and the production of content require more upfront cash payments relative to the amortization expense. Payments for content, including additions to content assets and the changes in related liabilities, are classified within "Net cash provided by (used in) operating activities" on the Consolidated Statements of Cash Flows. We recognize content assets (licensed and produced) as "Content assets, net" on the Consolidated Balance Sheets. For licensed content, we capitalize the fee per title and record a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known and the title is accepted and available for streaming. For produced content, we capitalize costs associated with the production, including development cost, direct costs and production overhead. Participations and residuals are expensed in line with the amortization of production costs. Based on factors including historical and estimated viewing patterns, we amortize the content assets (licensed and produced) in "Cost of revenues" on the Consolidated Statements of Operations over the shorter of each title's contractual window of availability or estimated period of use or ten years, beginning with the month of first availability. The amortization is on an accelerated basis, as we typically expect more upfront viewing, for instance due to additional merchandising and marketing efforts, and film amortization is more accelerated than TV series amortization. On average, over 90% of a licensed or produced content asset is expected to be amortized within four years after its month of first availability. We review factors that impact the amortization of the content assets on a regular basis. Our estimates related to these factors require considerable management judgment. Our business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. To date, we have not identified any such event or changes in circumstances. If such changes are identified in the future, these aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. Income Taxes We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain. 33 -------------------------------------------------------------------------------- Table of Contents Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments and estimates. However, we believe that it is more likely than not that most of the deferred tax assets recorded on our Consolidated Balance Sheets will ultimately be realized. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. As of September 30, 2021, the valuation allowance of $350 million was related to the California R&D credits and certain foreign tax attributes that we do not expect to realize. We did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At September 30, 2021, our estimated gross unrecognized tax benefits were $172 million of which $108 million, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. See Note 9 Income Taxes to the consolidated financial statements for further information regarding income taxes.

Recent Accounting Pronouncements

The information set forth under Note 1 to the consolidated financial statements under the caption "Basis of Presentation and Summary of Significant Accounting Policies" is incorporated herein by reference. 34

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