The “profit” Netflix is reporting on the one hand is an entirely different number than the taxable net income that Netflix reports to the IRS. Take a look at N

The “profit” Netflix is reporting on the one hand is an entirely different number than the taxable net income that Netflix reports to the IRS. Take a look at Netflix’s free cash flow for a better understanding of what a SaaS-type business experiencing hyper-growth looks like. Their customer acquisition cost in this case is spending on content. That content will be consumed (and hence “paid for”) by subscribers primarily over the next 1-3 years. So as they ramp up their subscriber count, and likewise ramp up their production spending, they are constantly outspending “Year 0” (today) to create content which will earn back that money, and then some, over the next 1-3 years. Netflix is able to report financial metrics which show “Net Income” I think (and I haven’t dug into their statements to confirm this) because they spread/amortize the cost of licensing the content over the timeframes they expect it to be used. Whereas for tax purposes, the money they are spending on content can be deducted fully in the year it is spent against income for that year. As long as Netflix grows the amount they spend on content each year, they will have negative free cash flow and pay little to no taxes. If they grow their subscribe base at 20-30% YoY it means they can spend 20-30% more on content this year than they would typically be able to spend based on their current subscription revenue. E.g. if they spend 60% of revenue on content, and content is consumed over 3 years, they can spend closer to 80% of this year’s subscription revenue on content, and in theory over the next 3 years they earn it back. By doing this, as far as the IRS is concerned their cash flow and net income is truly negative. Eventually a company will flatten out its growth curve and the weight of servicing all that debt will require spending on content to fall below the subscriber revenue, and in the long run cash flow must be positive for a company to survive. Keep in mind income taxes are just one for of tax revenue that is generated by a company like Netflix. There is a tremendous amount of tax revenue generated overall by Netflix, everything from taxes on the internet connectivity people are buying to use Netflix, to sales taxes and employment taxes.