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Biggest issues/risks: « Low reviews scores on Iron Fist effecting fan churn and causing some to question Netflix’s ability to continue creating hit series « Marketing spend in 1Q to drive subscriber growth ¢ Lower than expected contribution margins as Netflix invests in content. ¢ Content spending impact on FCF Top 1Q data points: Traffic gains on PC In the U.S., comScore reported quarter to date (Jan. and Feb.) average unique desktop visitors up down 2% y/y to 40.5 million compared to 4Q up 22% y/y or 47 million, while mobile unique users were flat y/y at 29.4mn users vs. up 19% y/y in 4Q. We note recent comScore changes heavily impacted the y/y comparable data for several companies including Netflix, in addition Comscore Data is PC only which is likely less relevant given that a large portion of Netflix viewing is through connected TVs/devices. Estimates vs. Consensus: In-line on revenue, slightly below on EPS Our 1Q rev/GAAP EPS estimates of $2.71bn/$0.39 are above the Street’s estimates of $2.64bn/S0.37. We estimate total domestic subs of 51.1 million, domestic DVD subs of 4 million, and international streaming subs of 48.3 million. Netflix a solid line up of popular content in 2Q, especially May where it has Sense& Season 2, Unbreakable Kimmy Schmidt Season 3, War Machine (Movie), House of Cards Season 5 in May, and a remake of Anne of Green Gables and Orange is the New Black in June which will likely help U.S. domestic subscriber total stay positive in 2Q. In addition, we expect lower y/y churn rates to potentially help subscriber growth. Table 18: Netflix estimate summary 1017 2017 2017 2018 Revenue BofAML est. $2,710 $2,854 $11,627 $13,937 Growth Y/Y% 38% 35% 32% 20% Street $2,644 $2,760 $11,221 $13,448 BofAML vs. Street Above Above Above Above EBITDA BofAML est. $331 $306 $1,218 $1,758 Street $308 $245 $1,053 $1,710 BofAML vs. Street Above Above Above Above GAAP EPS BofAML est. $0.39 $0.30 $1.19 $2.04 Street $0.37 $0.23 $1.09 $1.98 BofAML vs. Street Above Above Above Above Source: BofA Merrill Lynch Global Research estimates, company report Bankof America 2 Internet/e-Commerce | 06 April2017 929 Merrill Lynch HOUSE_OVERSIGHT_014915