Netflix Inc. (NASDAQ:NFLX)

The provision for income taxes exhibited a generally increasing trend over the five-year period. However, this overall increase is the result of offsetting movements in current and deferred tax provisions. A detailed examination reveals distinct patterns within each component.

Current Tax Provision

The current tax provision demonstrated consistent growth throughout the period, rising from US$524.356 million in 2021 to US$2.190 billion in 2025. This indicates an increasing tax liability related to current taxable income. The rate of increase appears to accelerate from 2022 onwards, suggesting a potentially significant rise in pre-tax profits subject to immediate taxation.

Deferred Tax Provision

The deferred tax provision experienced significant volatility. Initially, a provision of US$199.519 million was recorded in 2021. This was followed by a benefit in 2022, amounting to US$134.527 million, and larger benefits in subsequent years, peaking at US$591.370 million in 2023. The deferred tax benefit trend continued into 2024 and moderated slightly in 2025, recording a benefit of US$449.100 million. This pattern suggests the realization of previously recorded deferred tax liabilities, potentially due to changes in tax laws, adjustments to temporary differences, or the utilization of tax loss carryforwards.

Total Provision for Income Taxes

Despite the substantial fluctuations in the deferred tax provision, the total provision for income taxes generally increased. From US$723.875 million in 2021, it rose to US$772.005 million in 2022, then to US$797.415 million in 2023. A more substantial increase was observed in 2024, reaching US$1.254 billion, and continued in 2025, reaching US$1.741 billion. The increasing trend in the total provision is primarily driven by the growth in the current tax provision, which largely offsets the deferred tax benefits.

The interplay between current and deferred tax provisions indicates a complex tax position. While current taxable income appears to be increasing, the company is simultaneously realizing benefits from deferred tax items. Further investigation into the nature of these deferred tax items and the underlying drivers of the current tax provision would be necessary for a more comprehensive understanding.

The effective income tax rate exhibited fluctuations over the five-year period, while the U.S. federal statutory tax rate remained constant. A review of the effective tax rate reveals a pattern of initial increase followed by stabilization.

Effective Tax Rate Trend

In 2021, the effective tax rate was 12.00%. This rate increased to 15.00% in 2022, representing a 300 basis point rise. Subsequently, the effective tax rate decreased to 13.00% in 2023 and remained stable at 13.00% through 2024 and 2025.

The divergence between the effective tax rate and the U.S. federal statutory tax rate of 21.00% throughout the period suggests the presence of factors influencing the company’s tax obligations beyond the standard corporate rate. These factors could include tax credits, deductions, differing tax rates in international jurisdictions where the company operates, or changes in the mix of taxable income.

Effective Tax Rate vs. Statutory Rate

The consistent difference between the effective and statutory rates indicates that permanent or timing differences exist in the calculation of taxable income. The increase in the effective tax rate in 2022, despite the constant statutory rate, suggests a reduction in tax benefits or an increase in taxable income subject to higher rates. The subsequent stabilization at 13.00% implies these influencing factors have reached a relative equilibrium.

Further investigation into the components of the company’s tax expense would be necessary to fully understand the drivers behind the observed effective tax rate and to assess any potential risks or opportunities related to tax planning.

The composition of deferred tax assets and liabilities exhibits significant changes over the five-year period. A notable increase in net deferred tax assets is observed, driven by shifts in the underlying components. The company’s deferred tax assets are primarily composed of stock-based compensation, tax credit carryforwards, and capitalized research expenses, while deferred tax liabilities are largely attributable to depreciation & amortization, operating right-of-use lease assets, and acquired intangibles.

Stock-Based Compensation

Stock-based compensation consistently represents a substantial portion of deferred tax assets, increasing from US$351.238 million in 2021 to US$438.684 million in 2025. This suggests a continued reliance on equity-based compensation plans.

Tax Credits and Net Operating Loss Carryforwards

Tax credits and net operating loss carryforwards demonstrate volatility, decreasing from US$494.881 million in 2021 to US$409.411 million in 2022, then increasing to US$835.529 million by 2025. This fluctuation likely reflects changes in taxable income and the utilization of available tax benefits.

Capitalized Research Expenses

Capitalized research expenses show a significant upward trend, beginning at zero in 2021 and reaching US$969.243 million in 2025. This indicates a substantial and growing investment in research and development activities, which are being capitalized for tax purposes.

Accruals and Reserves

Accruals and reserves exhibit moderate fluctuations, increasing from US$165.214 million in 2021 to US$370.568 million in 2025. This suggests changes in the company’s provisions for various liabilities.

Operating Lease Liabilities

Operating lease liabilities remain relatively stable, ranging from US$516.574 million to US$570.830 million over the period. This suggests consistent leasing activity.

Valuation Allowance

The valuation allowance against deferred tax assets consistently increases throughout the period, from US$-318.408 million in 2021 to US$-617.575 million in 2025. This indicates a growing uncertainty regarding the realizability of a portion of the deferred tax assets.

Depreciation & Amortization

Depreciation & amortization contribute significantly to deferred tax liabilities, decreasing from US$-388.115 million in 2021 to US$-32.780 million in 2025. This decline likely reflects changes in the company’s asset base and depreciation methods.

Operating Right-of-Use Lease Assets

Operating right-of-use lease assets consistently generate deferred tax liabilities, decreasing from US$-506.403 million in 2021 to US$-448.313 million in 2025. This mirrors the stability observed in operating lease liabilities.

Acquired Intangibles

Deferred tax liabilities related to acquired intangibles decrease from US$-240.334 million in 2021 to US$-261.493 million in 2025, indicating a potential reduction in the value of these assets or changes in related tax treatments.

Net Deferred Tax Assets (Liabilities)

The net deferred tax position shifts from a liability of US$148.095 million in 2021 to an asset of US$1,954.803 million in 2025. This substantial change is primarily driven by the growth in deferred tax assets, particularly those related to capitalized research expenses, coupled with the increasing valuation allowance.

Overall, the data suggests a transition from a net deferred tax liability position to a significant net deferred tax asset position. This is largely attributable to increased investments in research and development and the utilization of tax benefits, although tempered by a growing valuation allowance reflecting uncertainty regarding the realizability of some assets.

A significant increase in deferred tax assets is observed over the five-year period. Conversely, deferred tax liabilities appear only from 2023 onwards and exhibit a slight decline in subsequent years. The composition and magnitude of these items suggest evolving tax positions and potential impacts on future tax obligations.

Deferred Tax Assets

Deferred tax assets demonstrate substantial growth, increasing from US$148,095 thousand in 2021 to US$2,062,078 thousand in 2025. The most pronounced increase occurs between 2022 and 2023, rising from US$261,541 thousand to US$1,000,760 thousand. Growth continues at a slower pace in 2024 and 2025, but remains positive. This trend indicates a growing capacity to utilize future deductible temporary differences, net operating losses, or tax credit carryforwards.

Deferred Tax Liabilities

Deferred tax liabilities are first reported in 2023 at US$126,210 thousand. They then decrease to US$112,602 thousand in 2024 and further to US$107,275 thousand in 2025. While present, the magnitude of these liabilities remains considerably smaller than the deferred tax assets. This suggests that taxable temporary differences are currently less significant than deductible temporary differences.

Net Deferred Tax Position

The company maintains a net deferred tax asset position throughout the period. The difference between deferred tax assets and liabilities widens considerably over time, reflecting the substantial growth in deferred tax assets relative to the comparatively stable deferred tax liabilities. This net asset position implies a future reduction in income tax expense, assuming realization of the deferred tax assets.

The classification of deferred tax assets as “Other non-current assets” and deferred tax liabilities as “Other non-current liabilities” indicates that these items are not expected to reverse within one year. The increasing deferred tax asset balance warrants continued monitoring to assess the likelihood of future realization, considering factors such as projected profitability and changes in tax laws.

The financial information reveals adjustments made to reported figures, primarily concerning the removal of deferred tax assets and liabilities. These adjustments impact total assets, stockholders’ equity, and net income over the five-year period from 2021 to 2025. A consistent pattern emerges where the adjusted figures are generally lower than the reported figures, indicating a reduction in reported values due to these adjustments.

Total Assets

Reported total assets demonstrate an increasing trend from US$44,584,663 thousand in 2021 to US$55,596,993 thousand in 2025. However, the adjusted total assets show a slightly lower, yet similar, upward trajectory, beginning at US$44,436,568 thousand in 2021 and reaching US$53,534,915 thousand in 2025. The difference between reported and adjusted assets remains relatively stable across the period, suggesting a consistent impact from the deferred tax adjustments.

Total Liabilities

Reported total liabilities exhibit relative stability, fluctuating between US$27,817,367 thousand and US$28,886,807 thousand throughout the period. Adjusted total liabilities closely mirror this trend, with minimal divergence from the reported values. The adjustments to liabilities are comparatively small, indicating a limited impact from deferred tax considerations on the company’s obligations.

Stockholders’ Equity

Reported stockholders’ equity increased significantly from US$15,849,248 thousand in 2021 to US$26,615,488 thousand in 2025. The adjusted stockholders’ equity also shows an increase, starting at US$15,701,153 thousand in 2021 and ending at US$24,660,685 thousand in 2025. The adjustments consistently reduce the reported equity, with the difference widening slightly in later years. This suggests a growing impact of deferred tax adjustments on the reported equity position.

Net Income

Reported net income fluctuates over the period, with a high of US$8,711,631 thousand in 2024 and a low of US$4,491,924 thousand in 2022. The adjusted net income follows a similar pattern, but is consistently higher than the reported net income in 2021, 2023, 2024 and 2025. The adjustment increases net income, indicating that the removal of deferred tax expenses positively impacts the bottom line. The largest adjustment is observed in 2021, with a difference of US$199,519 thousand between reported and adjusted net income.

In summary, the adjustments related to deferred taxes consistently reduce reported assets and equity, while increasing reported net income. The magnitude of these adjustments appears relatively stable for assets and liabilities, but the impact on equity and net income becomes more pronounced in later years. This suggests a potential shift in the company’s tax position or accounting practices regarding deferred taxes.

The financial performance, as reflected in several key ratios, demonstrates a consistent pattern when adjusted for the impact of deferred taxes. Generally, the adjusted ratios present a slightly different, and often more conservative, view of profitability and efficiency compared to the reported figures. Over the five-year period, a general trend of improvement is observed in most ratios, particularly from 2022 onwards.

Profitability

Reported net profit margin initially decreased from 17.23% in 2021 to 14.21% in 2022, before recovering and increasing to 24.30% in 2025. The adjusted net profit margin mirrors this trend, though consistently lower, starting at 17.90% in 2021 and reaching 23.31% in 2025. The difference between reported and adjusted margins remains relatively stable across the period. This suggests that deferred tax assets and liabilities have a consistent, though not substantial, impact on reported profitability.

Asset Efficiency

Total asset turnover, both reported and adjusted, shows a gradual increase over the period. Reported turnover rose from 0.67 in 2021 to 0.81 in 2025, while the adjusted ratio increased from 0.67 to 0.84. The adjusted ratio consistently remains slightly higher, indicating that removing deferred tax effects slightly improves the measure of how efficiently assets are used to generate revenue. The incremental change is small, however.

Financial Leverage

Financial leverage exhibits a decreasing trend from 2021 to 2025 for both reported and adjusted values. Reported leverage decreased from 2.81 to 2.09, and the adjusted leverage decreased from 2.83 to 2.17. The adjusted leverage is consistently higher, suggesting that deferred taxes influence the perception of the company’s reliance on debt financing. The difference between the two values narrows over time.

Return on Equity (ROE)

Reported ROE experienced a decline from 32.28% in 2021 to 21.62% in 2022, followed by a strong recovery to 41.26% in 2025. The adjusted ROE follows a similar pattern, ranging from 33.86% to 42.71% over the same period. The adjusted ROE is consistently higher than the reported ROE, indicating that deferred taxes reduce the reported return to shareholders. The gap between the two values remains relatively consistent.

Return on Assets (ROA)

Reported ROA decreased from 11.48% in 2021 to 9.24% in 2022, then increased to 19.75% in 2025. The adjusted ROA mirrors this trend, moving from 11.96% to 19.67% over the same period. Similar to ROE, the adjusted ROA is consistently higher, suggesting that deferred taxes lower the reported return on assets. The difference between the two values is relatively stable.

In summary, the adjustments for deferred taxes result in slightly lower profitability and efficiency ratios, and a slightly higher leverage ratio. The trends observed in both the reported and adjusted ratios are largely consistent, indicating that the impact of deferred taxes does not fundamentally alter the overall picture of financial performance. The improvements observed in profitability, asset efficiency, and returns from 2022 to 2025 are evident in both sets of ratios.

The period under review demonstrates fluctuations in both reported and adjusted net income, which correspondingly impact net profit margins. A comparison of reported and adjusted figures reveals a consistent, though sometimes small, difference in net income and margin calculations annually.

Reported Net Income & Margin

Reported net income increased from US$5,116,228 thousand in 2021 to US$4,491,924 thousand in 2022, representing a decline. Subsequent years show recovery, with income reaching US$5,407,990 thousand in 2023, US$8,711,631 thousand in 2024, and US$10,981,201 thousand in 2025. The reported net profit margin mirrors this trend, decreasing from 17.23% in 2021 to 14.21% in 2022, then increasing to 16.04% in 2023, 22.34% in 2024, and 24.30% in 2025. This indicates a strengthening of profitability as a percentage of revenue in the later years of the period.

Adjusted Net Income & Margin

Adjusted net income follows a similar pattern to reported net income, beginning at US$5,315,747 thousand in 2021, decreasing to US$4,357,397 thousand in 2022, and then increasing to US$4,865,012 thousand in 2023, US$8,120,261 thousand in 2024, and US$10,532,101 thousand in 2025. The adjusted net profit margin exhibits a corresponding trend, moving from 17.90% in 2021 to 13.78% in 2022, then to 14.43% in 2023, 20.82% in 2024, and 23.31% in 2025. The adjusted margin consistently exceeds the reported margin each year.

Margin Discrepancy

The difference between reported and adjusted net profit margins remains relatively stable across the observed period, generally ranging between 0.5% and 1.5%. This suggests that the adjustments made to net income consistently contribute to a slightly higher profitability figure. The nature of these adjustments is not revealed within the presented information, but their consistent impact is notable.

Overall Trend

A clear recovery is observed following the decline in profitability experienced in 2022. Both reported and adjusted net profit margins demonstrate substantial growth from 2023 to 2025, indicating improved operational efficiency or revenue generation during those years. The increasing trend in both metrics suggests a positive trajectory for the company’s financial performance.

The information presents trends in reported and adjusted total assets, alongside their corresponding turnover ratios, over a five-year period. Both reported and adjusted total asset turnover exhibit an increasing trend, though with slight variations. A comparison of the two asset bases and their resulting turnover ratios reveals a consistent pattern.

Adjusted Total Assets

Adjusted total assets decreased from 2021 to 2022, declining from US$44,436,568 thousand to US$48,333,227 thousand. A further decrease was observed in 2023, reaching US$47,731,232 thousand. Subsequently, adjusted total assets increased in both 2024 and 2025, reaching US$52,340,214 thousand and US$53,534,915 thousand respectively. The overall trend indicates a period of initial decline followed by recovery and moderate growth.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio remained stable at 0.67 in both 2021 and 2022. An increase to 0.71 was noted in 2023, followed by further increases to 0.75 in 2024 and 0.84 in 2025. This demonstrates a consistent upward trend in the efficiency with which assets are used to generate sales, as measured by the adjusted asset base. The increase suggests improved asset utilization over the period.

The adjusted total asset turnover ratio consistently exceeds the reported total asset turnover ratio across all observed years, although the difference is minimal. This suggests that the adjustments made to total assets have a small but consistent impact on the calculated turnover, indicating a more refined measure of asset efficiency when utilizing the adjusted figures.

Comparison of Turnover Ratios

Both reported and adjusted total asset turnover ratios show a similar pattern of increase from 2021 to 2025. The reported ratio increased from 0.67 to 0.81, while the adjusted ratio increased from 0.67 to 0.84. The parallel movement of both ratios suggests that the underlying drivers of asset turnover are consistent, regardless of whether reported or adjusted assets are considered.

In summary, the period is characterized by fluctuating asset levels and a clear, positive trend in asset turnover efficiency, as indicated by both the reported and adjusted ratios.

An examination of the financial information reveals trends in both reported and adjusted asset and equity figures, impacting calculated financial leverage ratios over the five-year period. Reported total assets generally increased, though growth slowed in 2023 before resuming in 2024 and 2025. Adjusted total assets mirrored this pattern, with a slight decrease observed in 2023. Stockholders’ equity, both reported and adjusted, demonstrated consistent growth throughout the period.

Total Assets

Reported total assets increased from US$44,584,663 thousand in 2021 to US$55,596,993 thousand in 2025, representing a cumulative increase of approximately 24.7%. The rate of increase was not consistent, with a deceleration in 2023. Adjusted total assets followed a similar trajectory, reaching US$53,534,915 thousand in 2025, but experienced a more pronounced decrease in 2023.

Stockholders’ Equity

Reported stockholders’ equity increased steadily from US$15,849,248 thousand in 2021 to US$26,615,488 thousand in 2025, a cumulative increase of approximately 67.8%. Adjusted stockholders’ equity exhibited a comparable upward trend, reaching US$24,660,685 thousand in 2025.

Financial Leverage

Reported financial leverage decreased consistently from 2.81 in 2021 to 2.09 in 2025, indicating a diminishing reliance on debt financing relative to equity. Adjusted financial leverage also decreased over the period, moving from 2.83 in 2021 to 2.17 in 2025. While both measures show a similar downward trend, adjusted financial leverage consistently reports slightly higher values than the reported leverage. The difference between the two leverage ratios remained relatively stable throughout the period.

The consistent decrease in both reported and adjusted financial leverage suggests a strengthening financial position. The slight variations between reported and adjusted figures indicate the presence of adjustments impacting asset and equity valuations, though the overall trend remains consistent regardless of the measurement approach.

The period between 2021 and 2025 demonstrates fluctuating performance in reported and adjusted net income, alongside increasing stockholders’ equity. These movements influence both reported and adjusted return on equity (ROE) metrics. A general upward trend in both net income and equity is apparent over the five-year period, though not consistently year-over-year.

Net Income

Reported net income decreased from US$5.12 billion in 2021 to US$4.49 billion in 2022, before recovering to US$5.41 billion in 2023. Significant growth is then observed, reaching US$8.71 billion in 2024 and further increasing to US$10.98 billion in 2025. Adjusted net income follows a similar pattern, though the magnitude of the decrease in 2022 is more pronounced, and the absolute values are consistently lower than reported net income.

Stockholders’ Equity

Reported stockholders’ equity increased steadily from US$15.85 billion in 2021 to US$20.78 billion in 2022, with a slight decrease to US$20.59 billion in 2023. Further growth is seen in 2024 and 2025, reaching US$24.74 billion and US$26.62 billion respectively. Adjusted stockholders’ equity mirrors this trend, though the values are consistently lower than reported equity.

Reported ROE

Reported ROE experienced a decline from 32.28% in 2021 to 21.62% in 2022, coinciding with the decrease in reported net income. It then recovered to 26.27% in 2023, followed by substantial increases to 35.21% in 2024 and 41.26% in 2025, driven by the growth in net income and equity.

Adjusted ROE

Adjusted ROE exhibited a similar pattern to reported ROE, decreasing from 33.86% in 2021 to 21.24% in 2022, recovering to 24.68% in 2023, and then increasing significantly to 34.46% in 2024 and 42.71% in 2025. The adjusted ROE values are consistently lower than the reported ROE values, indicating that adjustments to net income and equity have a dampening effect on the overall return metric.

The divergence between reported and adjusted ROE suggests that certain accounting adjustments are impacting the reported profitability and equity base. The overall trend indicates improving profitability and efficiency as evidenced by the increasing ROE values in the later years of the period.

The period between 2021 and 2025 demonstrates fluctuating, yet generally increasing, profitability and asset values. Reported net income initially decreased from 2021 to 2022, before exhibiting consistent growth through 2025. A similar pattern is observed in adjusted net income, though the magnitude of the decrease in 2022 is more pronounced. Total assets, both reported and adjusted, generally increased over the five-year period, with a slight decrease in adjusted total assets between 2022 and 2023.

Reported Return on Assets (ROA)

Reported ROA experienced a decline from 11.48% in 2021 to 9.24% in 2022. Subsequently, it increased steadily, reaching 11.10% in 2023, 16.24% in 2024, and culminating in 19.75% in 2025. This indicates improving profitability relative to the reported asset base over the latter part of the analyzed period.

Adjusted Return on Assets (ROA)

Adjusted ROA mirrored the trend of the reported ROA, decreasing from 11.96% in 2021 to 9.02% in 2022. It then rose to 10.19% in 2023, 15.51% in 2024, and 19.67% in 2025. The adjusted ROA values are consistently, though marginally, higher than the reported ROA values across all years, suggesting that adjustments to net income and total assets positively impact the return on assets calculation.

Relationship between Reported and Adjusted ROA

The difference between reported and adjusted ROA remained relatively small throughout the period, generally ranging between 0.4% and 0.7%. This suggests that the adjustments made to net income and total assets, while having an impact, do not fundamentally alter the overall profitability picture as measured by ROA. The consistent positive difference indicates that the adjustments generally enhance the ROA metric.

Overall Trend

Despite the initial dip in 2022, both reported and adjusted ROA demonstrate a clear upward trend from 2023 to 2025. This suggests increasing efficiency in utilizing assets to generate profits during this timeframe. The growth in ROA coincides with increases in both net income and total assets, indicating a sustainable improvement in financial performance.