10-KPeriod: FY2007

NETFLIX INC Annual Report, Year Ended Dec 31, 2007

Filed February 28, 2008For Securities:NFLX

Summary

Netflix, Inc. (NFLX) in its 2007 10-K filing, reported significant growth as the leading online DVD rental subscription service in the United States, serving approximately 7.5 million subscribers. The company's core strategy centered on expanding its DVD subscription base while simultaneously investing in and developing its nascent instant-watching feature. This dual approach aimed to leverage its existing subscriber relationships and technology infrastructure to capitalize on the evolving digital content delivery landscape. Financially, the company demonstrated strong revenue growth year-over-year. However, its gross margin experienced a decline in 2007 compared to 2006, attributed to increased postage rates and strategic price reductions on popular subscription plans. Despite margin pressures, Netflix continued to invest in technology and development to enhance its recommendation service and expand its digital delivery capabilities, signaling a proactive stance towards future industry shifts and competitive challenges.

Financial Highlights

31 data points
Beta

Revenue

$1.21B

34.8% Gross Margin

Net Income

$66.61M

5.5% Net Margin

EPS (Diluted)

$0.01

Cash & Equivalents

$177.44M

Free Cash Flow

$233.17M

Financial Statements
Beta
Revenue$1.21B
Cost of Revenue$786.17M
Gross Profit$419.17M
R&D Expenses$70.98M
Operating Expenses$327.40M
Operating Income$91.77M
Interest Expense$1.19M
Net Income$66.61M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)4.70B
Shares Outstanding (Diluted)4.82B

Key Highlights

  • 1As of December 30, 2007, Netflix served approximately 7.5 million subscribers with access to around 90,000 DVD titles and over 6,000 instant-watch titles.
  • 2The company's core strategy involves growing its DVD subscription business and expanding into Internet-based content delivery, with plans to support instant-watching on set-top boxes.
  • 3Revenue for the year ended December 31, 2007, was $1.205 billion, representing a 20.9% increase over the previous year.
  • 4Net income for 2007 was $67.0 million, an increase from $49.1 million in 2006.
  • 5Gross margin decreased to 34.8% in 2007 from 37.1% in 2006, impacted by increased postage rates and subscription price reductions.
  • 6The company continued to invest in technology and development, with expenses increasing by 47.6% in 2007, primarily focused on its recommendation service and Internet content delivery solutions.
  • 7Netflix repurchased approximately $99.9 million of its common stock in 2007 as part of a stock repurchase program.

Frequently Asked Questions

In 2007, Netflix operated primarily as the largest online movie rental subscription service in the United States. Subscribers paid a monthly fee for access to a large DVD library, with titles delivered and returned via mail. They also offered a growing library of titles that could be watched instantly on PCs.

Netflix reported robust revenue growth, reaching $1.205 billion for the year ended December 31, 2007, up 20.9% from 2006. Net income also increased to $67.0 million. However, gross margin declined to 34.8% from 37.1% in the prior year due to factors like increased postage costs and strategic price adjustments on popular subscription plans.

Netflix's core strategy was to grow its existing DVD subscription business while simultaneously investing in and preparing for the expansion of Internet-based content delivery. This included developing its instant-watching feature to be viewable on televisions via set-top boxes, signaling a forward-looking approach to digital distribution.

Netflix faced intense competition from various sources, including traditional video rental outlets (like Blockbuster), other online DVD rental services (including Blockbuster Online), subscription entertainment services (HBO, Showtime), pay-per-view and VOD providers, movie retailers, and emerging Internet content providers.