10-KPeriod: FY2004

NETFLIX INC Annual Report, Year Ended Dec 31, 2004

Filed March 15, 2005For Securities:NFLX

Summary

Netflix, Inc. (NFLX) presented its 2004 annual report, highlighting significant growth and a pivotal shift towards profitability. The company reported total revenues of $506.2 million and achieved net income of $21.6 million, a substantial improvement from previous years. This marks a turning point from historical losses, demonstrating the scalability and effectiveness of its DVD-by-mail subscription model. The subscriber base grew to 2.61 million by the end of 2004, driven by the convenience, extensive library, and proprietary recommendation service. While facing increasing competition, particularly from Blockbuster, Netflix emphasized its competitive strengths: a comprehensive title library, personalized merchandising through its recommendation engine, a scalable low-cost business model, and efficient delivery. The company also signaled its intent to adapt to evolving technologies, including developing solutions for movie downloading, aiming to offer subscribers flexibility. Despite competitive pressures and ongoing investments in technology and marketing, Netflix demonstrated robust revenue growth and a clear path to profitability, making it an interesting proposition for investors looking at the evolving media landscape.

Key Highlights

  • 1Achieved profitability with $21.6 million net income on $506.2 million in revenue for 2004, a significant turnaround from prior losses.
  • 2Reached 2.61 million total subscribers by year-end 2004, with paid subscribers representing 95.2% of the total.
  • 3Demonstrated strong revenue growth, with total revenues increasing by 85.9% year-over-year to $506.2 million.
  • 4Invested in technology, launching 'FriendsTM' and 'ProfilesTM' features to enhance subscriber engagement and personalization.
  • 5Expanded its DVD library to over 35,000 titles and operated a nationwide network of 30 shipping centers for efficient delivery.
  • 6Managed subscriber acquisition cost around $36.09 in 2004, while continuously working to reduce churn, which declined to 4.4% in Q4 2004.
  • 7Acknowledged intense competition, notably from Blockbuster's aggressive pricing and online service launch, while strategically positioning for future technological shifts like movie downloading.

Frequently Asked Questions

Netflix's primary business model is an online movie rental subscription service. Subscribers pay a monthly fee (standard plan at $17.99) for access to a large DVD library. They select titles online, receive them via U.S. mail, and return them using prepaid mailers. The service emphasizes no due dates or late fees, convenience, and a wide selection of titles.

Netflix highlights several competitive advantages: a comprehensive library of over 35,000 titles, a proprietary recommendation service for personalized merchandising, a scalable low-cost business model leveraging technology and shipping centers, and the convenience of home delivery with no due dates or late fees.

The market is highly competitive. Netflix faces direct competition from other online DVD subscription services, notably Blockbuster (which launched its online service and aggressively priced its offerings) and Walmart.com. It also competes indirectly with traditional video rental outlets (like Blockbuster), retailers, subscription entertainment services (HBO, Showtime), pay-per-view, and VOD providers.

Netflix is actively investing in developing solutions for downloading movies directly to consumers. While its core strategy remains focused on the DVD subscription business, it intends to offer downloading as an option under one subscription as technology and infrastructure evolve, anticipating future demand for digital delivery.