"Consumers embraced the Netflix experience in near record numbers last
quarter," said
Fourth-Quarter and Fiscal-Year 2008 Financial Highlights
Subscribers. Netflix ended the fourth quarter of 2008 with approximately 9,390,000 total subscribers, representing 26 percent year-over-year growth from 7,479,000 total subscribers at the end of the fourth quarter of 2007 and 8 percent sequential growth from 8,672,000 subscribers at the end of the third quarter of 2008.
Net subscriber change in the quarter was an increase of 718,000 compared to an increase of 451,000 for the same period of 2007 and an increase of 261,000 for the third quarter of 2008.
Gross subscriber additions for the quarter totaled 2,085,000, representing 39 percent year-over-year growth from 1,495,000 gross subscriber additions in the fourth quarter of 2007 and 36 percent quarter-over-quarter growth from 1,528,000 gross subscriber additions in the third quarter of 2008.
Of the 9,390,000 total subscribers at quarter end, 98 percent, or 9,164,000, were paid subscribers. The other 2 percent, or 226,000, were free subscribers. Paid subscribers represented 98 percent of total subscribers at the end of the fourth quarter of 2007 and at the end of the third quarter of 2008.
Revenue for the fourth quarter of 2008 was
Gross margin(1) for the fourth quarter of 2008 was 35.2 percent compared to 33.8 percent for the fourth quarter of 2007 and 34.2 percent for the third quarter of 2008. Gross margin for fiscal 2008 was 33.3 percent compared to 34.8 percent for fiscal 2007.
GAAP net income for the fourth quarter of 2008 was
GAAP net income for fiscal 2008 was
Non-GAAP net income was
Non-GAAP net income was
Non-GAAP net income equals net income on a GAAP basis before stock-based compensation expense, net of taxes.
Stock-based compensation was
Subscriber acquisition cost(2) for the fourth quarter of 2008 was
Churn(3) for the fourth quarter of 2008 was 4.2 percent compared to 4.1 percent for the fourth quarter of 2007 and 4.2 percent for the third quarter of 2008. Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.
Free cash flow(4) for the fourth quarter of 2008 was
(1) Gross margin is defined as revenues less cost of subscription and fulfillment expenses divided by revenues. (2) Subscriber acquisition cost is defined as the total marketing expense, which includes stock-based compensation for marketing personnel, on the Company's Consolidated Statements of Operations divided by total gross subscriber additions during the quarter. (3) Churn is defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, divided by three months. (4) Free cash flow is defined as cash provided by operating activities and investing activities excluding the non-operational cash flows from purchases and sales of short-term investments and cash flows from investment in business.
Cash provided by operating activities for the fourth quarter of 2008 was
Stock Buyback
The Company also is announcing today that its Board of Directors has
authorized a stock repurchase program for 2009. Based on the Board's
authorization, the Company anticipates a repurchase program of up to
Stock repurchases under this program may be made through open market transactions and, from time to time, privately negotiated transactions with third parties, and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions. Repurchased shares would be returned to the status of authorized but un-issued shares of common stock.
Business Outlook
The Company's performance expectations for the first quarter of 2009 and full-year 2009 are as follows:
First-Quarter 2009 -- Ending subscribers of 10.1 million to 10.3 million -- Revenue of $387 million to $393 million -- GAAP net income of $15 million to $20 million -- GAAP EPS of $0.25 to $0.33 per diluted share Full-Year 2009 -- Ending subscribers of 10.6 million to 11.3 million -- Revenue of $1.58 billion to $1.635 billion -- GAAP net income of $88 million to $98 million -- GAAP EPS of $1.43 to $1.59 per diluted share
Float and Trading Plans
The Company estimates the public float at approximately 50,150,991 shares
as of
Earnings Call
The Netflix earnings call will be webcast today at
Following completion of the call, a replay of the webcast will be
available at http://ir.netflix.com. The telephone replay of the call will be
available from approximately
Use of Non-GAAP Measures
Management believes that non-GAAP net income is a useful measure of operating performance because it excludes the non-cash impact of stock option accounting. In addition, management believes that free cash flow is a useful measure of liquidity because it excludes the non-operational cash flows from purchases and sales of short-term investments, cash flows from investment in business and cash flows from financing activities. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. A reconciliation to the GAAP equivalents of these non-GAAP measures is contained in tabular form on the attached unaudited financial statements.
About Netflix
Netflix, Inc. (NASDAQ: NFLX) is the world's largest online movie rental service, with more than nine million subscribers. For one low monthly price, Netflix members can get DVDs delivered to their homes and can instantly watch movies and TV episodes streamed to their TVs and PCs, all in unlimited amounts. Members can choose from over 100,000 DVD titles and a growing library of more than 12,000 choices that can be watched instantly. There are never any due dates or late fees. DVDs are delivered free to members by first class mail, with a postage-paid return envelope, from more than 55 distribution centers. More than 95 percent of Netflix members live in areas that generally receive shipments in one business day. Netflix is also partnering with leading consumer electronics companies to offer a range of devices that can instantly stream movies and TV episodes to members' TVs from Netflix. For more information, visit http://www.netflix.com/.
Forward-Looking Statements
This press release contains certain forward-looking statements within the
meaning of the federal securities laws, including statements regarding our
subscriber growth, revenue, GAAP net income and earnings per share for the
first quarter of 2009 and the full-year 2009 as well as the anticipated size
of our 2009 stock repurchase program. The forward-looking statements in this
release are subject to risks and uncertainties that could cause actual results
and events to differ, including, without limitation: our ability to attract
new subscribers and retain existing subscribers, especially in the current
uncertain economic environment; our ability to manage our subscriber
acquisition cost as well as the cost of content delivered to our subscribers;
fluctuations in consumer usage of our service; the deterioration of the U.S.
economy and its affect on online commerce or the filmed entertainment
industry; conditions that effect our delivery through the U.S. Postal Service,
including regulatory changes and postal rate increases; changes in the costs
of acquiring DVDs or electronic content; customer spending on DVDs and related
products; disruption in service on our website or with our computer systems;
competition and widespread consumer adoption of different modes of viewing
in-home filmed entertainment and, with respect to the stock repurchase
program, changes in cash flows, cash balances, economic and market conditions,
stock price and additional Board action. A detailed discussion of these and
other risks and uncertainties that could cause actual results and events to
differ materially from such forward-looking statements is included in our
filings with the Securities and Exchange Commission, including our Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
Netflix, Inc. Consolidated Statements of Operations (unaudited) (in thousands, except per share data) Three Months Ended Twelve Months Ended December September December December December 31, 30, 31, 31, 31, 2008 2008 2007 2008 2007 Revenues $359,595 $341,269 $302,355 $1,364,661 $1,205,340 Cost of revenues: Subscription 193,635 186,573 168,673 761,133 664,407 Fulfillment expenses * 39,211 37,923 31,377 149,101 121,761 Total cost of revenues 232,846 224,496 200,050 910,234 786,168 Gross profit 126,749 116,773 102,305 454,427 419,172 Operating expenses: Technology and development * 24,052 23,368 18,453 89,873 70,979 Marketing * 55,617 49,217 51,704 199,713 218,212 General and administrative * 10,762 11,742 13,570 49,662 52,404 Gain on disposal of DVDs (1,603) (1,628) (1,696) (6,327) (7,196) Gain on legal settlement -- -- -- -- (7,000) Total operating expenses 88,828 82,699 82,031 332,921 327,399 Operating income 37,921 34,074 20,274 121,506 91,773 Other income (expense): Interest expense on lease financing obligations (677) (677) (295) (2,458) (1,188) Interest and other income (expense) 852 1,536 4,929 12,452 20,340 Income before income taxes 38,096 34,933 24,908 131,500 110,925 Provision for income taxes 15,364 14,562 9,217 48,474 44,317 Net income $22,732 $20,371 $15,691 $83,026 $66,608 Net income per share: Basic $0.39 $0.34 $0.24 $1.36 $0.99 Diluted $0.38 $0.33 $0.23 $1.32 $0.97 Weighted average common shares outstanding: Basic 58,906 60,408 65,156 60,961 67,076 Diluted 60,311 62,272 67,042 62,836 68,902 * Stock-based compensation included in expense line items: Fulfillment expenses $126 $126 $100 $466 $427 Technology and development 1,095 950 1,105 3,890 3,695 Marketing 462 460 561 1,886 2,160 General and administrative 1,511 1,499 1,476 6,022 5,694 Reconciliation of Non-GAAP Financial Measures (unaudited) Non-GAAP net income reconciliation: GAAP net income $22,732 $20,371 $15,691 $83,026 $66,608 Stock-based compensation 3,194 3,035 3,242 12,264 11,976 Income tax effect of stock-based compensation (1,287) (1,266) (1,200) (4,585) (4,760) Non-GAAP net income $24,639 $22,140 $17,733 $90,705 $73,824 Non-GAAP net income per share: Basic $0.42 $0.37 $0.27 $1.49 $1.10 Diluted $0.41 $0.36 $0.26 $1.44 $1.07 Weighted average common shares outstanding: Basic 58,906 60,408 65,156 60,961 67,076 Diluted 60,311 62,272 67,042 62,836 68,902 Netflix, Inc. Consolidated Balance Sheets (unaudited) (in thousands, except share and par value data) As of December 31, December 31, 2008 2007* Assets Current assets: Cash and cash equivalents $139,881 $177,439 Short-term investments 157,390 207,703 Prepaid expenses 8,122 6,116 Prepaid revenue sharing expenses 18,417 6,983 Current content library, net 18,691 16,301 Deferred tax assets 5,617 2,254 Other current assets 13,329 15,627 Total current assets 361,447 432,423 Content library, net 98,547 112,070 Property and equipment, net 124,948 113,175 Deferred tax assets 22,409 16,865 Other assets 10,595 4,465 Total assets $617,946 $678,998 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $100,344 $99,951 Accrued expenses 31,394 36,466 Current portion lease financing obligations 1,152 823 Deferred revenue 83,127 71,665 Total current liabilities 216,017 208,905 Lease financing obligations, excluding current portion 37,988 35,652 Other liabilities 16,786 4,629 Total liabilities 270,791 249,186 Stockholders' equity: Common stock, $0.001 par value; 160,000,000 shares authorized at December 31, 2008 and December 31, 2007; 58,862,478 and 64,912,915 issued and outstanding at December 31, 2008 and December 31, 2007, respectively 62 65 Additional paid-in capital 338,577 402,710 Treasury stock at cost (3,491,084 shares) (100,020) -- Accumulated other comprehensive income 84 1,611 Retained earnings 108,452 25,426 Total stockholders' equity 347,155 429,812 Total liabilities and stockholders' equity $617,946 $678,998 * Certain amounts have been reclassified for the change in the accounting for the streaming content portion of our content library. Netflix, Inc. Consolidated Statements of Cash Flows (unaudited) (in thousands) Three Months Ended Twelve Months Ended December September December December December 31, 30, 31, 31, 31, 2008 2008* 2007* 2008 2007* Cash flows from operating activities: Net income $22,732 $20,371 $15,691 $83,026 $66,608 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, equipment and intangibles 9,141 8,643 6,162 32,454 22,219 Amortization of content library 47,579 47,596 54,751 209,757 203,415 Amortization of discounts and premiums on investments 185 122 72 623 24 Stock-based compensation expense 3,193 3,035 3,242 12,263 11,976 Excess tax benefits from stock-based compensation (753) (1,093) (4,984) (5,220) (26,248) Loss (gain) on disposal of property and equipment -- (1) 14 101 142 Loss (gain) on sale of short-term investments 618 494 (323) (3,130) (687) Gain on disposal of DVDs (3,494) (3,205) (2,906) (13,350) (14,637) Deferred taxes (1,172) (3,894) 342 (8,427) (893) Changes in operating assets and liabilities: Prepaid expenses and other current assets 11,038 (7,022) (816) (4,181) (3,893) Content library (11,123) (5,773) (15,348) (48,290) (34,821) Accounts payable (7,917) (744) 15,091 7,111 16,555 Accrued expenses 171 4,730 (567) (1,823) 32,809 Deferred revenue 17,232 (1,989) 15,344 11,464 1,987 Other assets and liabilities 4,670 (775) 1,842 11,659 2,868 Net cash provided by operating activities 92,100 60,495 87,607 284,037 277,424 Cash flows from investing activities: Purchases of short-term investments (76,118) (22,950) (35,228) (256,959) (405,340) Proceeds from sale of short-term investments 59,723 50,609 35,453 307,333 200,832 Purchases of property and equipment (7,471) (9,226) (9,863) (43,790) (44,256) Acquisition of intangible asset -- (62) (550) (1,062) (550) Acquisitions of content library (38,295) (28,828) (59,505) (162,849) (208,647) Proceeds from sale of DVDs 4,695 3,787 3,884 18,368 21,640 Investment in business -- -- -- (6,000) -- Other assets (32) 3 (482) (1) 297 Net cash used in investing activities (57,498) (6,667) (66,291) (144,960) (436,024) Cash flows from financing activities: Principal payments of lease financing obligations (237) (234) (100) (823) (390) Proceeds from issuance of common stock 3,231 2,576 5,745 18,873 9,611 Excess tax benefits from stock-based compensation 753 1,093 4,984 5,220 26,248 Repurchases of common stock (9,992) (90,028) (34,310) (199,905) (99,860) Net cash used in financing activities (6,245) (86,593) (23,681) (176,635) (64,391) Net increase (decrease) in cash and cash equivalents 28,357 (32,765) (2,365) (37,558) (222,991) Cash and cash equivalents, beginning of period 111,524 144,289 179,804 177,439 400,430 Cash and cash equivalents, end of period $139,881 $111,524 $177,439 $139,881 $177,439 Non-GAAP free cash flow reconciliation: Net cash provided by operating activities $92,100 $60,495 $87,607 $284,037 $277,424 Purchases of property and equipment (7,471) (9,226) (9,863) (43,790) (44,256) Acquisition of intangible asset -- (62) (550) (1,062) (550) Acquisitions of content library (38,295) (28,828) (59,505) (162,849) (208,647) Proceeds from sale of DVDs 4,695 3,787 3,884 18,368 21,640 Other assets (32) 3 (482) (1) 297 Non-GAAP free cash flow $50,997 $26,169 $21,091 $94,703 $45,908 * Certain amounts have been reclassified for the change in the accounting for the streaming content portion of our content library. Netflix, Inc. Consolidated Other Data (unaudited) (in thousands, except percentages, average monthly revenue per paying subscriber and subscriber acquisition cost) As of / Three Months Ended December September December 31, 2008 30, 2008 31, 2007 Subscriber information: Subscribers: beginning of period 8,672 8,411 7,028 Gross subscriber additions: during period 2,085 1,528 1,495 Gross subscriber additions year-to-year change 39.5% 17.8% 0.1% Gross subscriber additions quarter-to-quarter sequential change 36.5% 10.4% 15.3% Less subscriber cancellations: during period (1,367) (1,267) (1,044) Subscribers: end of period 9,390 8,672 7,479 Subscribers year-to-year change 25.6% 23.4% 18.4% Subscribers quarter-to-quarter sequential change 8.3% 3.1% 6.4% Free subscribers: end of period 226 182 153 Free subscribers as percentage of ending subscribers 2.4% 2.1% 2.0% Paid subscribers: end of period 9,164 8,490 7,326 Paid subscribers year-to-year change 25.1% 24.0% 19.0% Paid subscribers quarter-to-quarter sequential change 7.9% 3.1% 7.0% Average monthly revenue per paying subscriber $13.58 $13.60 $14.22 Churn 4.2% 4.2% 4.1% Subscriber acquisition cost $26.67 $32.21 $34.58 Margins: Gross margin 35.2% 34.2% 33.8% Operating margin 10.5% 10.0% 6.7% Net margin 6.3% 6.0% 5.2% Expenses as percentage of revenues: Technology and development 6.7% 6.8% 6.1% Marketing 15.5% 14.4% 17.1% General and administrative 3.0% 3.4% 4.5% Gain on disposal of DVDs (0.5%) (0.4%) (0.5%) Total operating expenses 24.7% 24.2% 27.2% Year-to-year change: Total revenues 18.9% 16.1% 9.1% Fulfillment expenses 25.0% 23.3% 17.2% Technology and development 30.3% 29.0% 40.9% Marketing 7.6% 0.1% (21.8%) General and administrative (20.7%) (8.7%) 22.1% Gain on disposal of DVDs (5.5%) (29.5%) 30.1% Total operating expenses 8.3% 6.3% (7.9%)
SOURCE Netflix, Inc.