10-QPeriod: Q3 FY2003

NETFLIX INC Quarterly Report for Q3 Ended Sep 30, 2003

Filed October 31, 2003For Securities:NFLX

Summary

Netflix Inc. has reported strong growth in its subscription-based business for the nine months ended September 30, 2003, demonstrating a significant turnaround from the previous year. Total revenues increased by 77.5% to $191.1 million, primarily driven by a 79.2% surge in subscription revenue, reaching $189.6 million. This growth is attributed to a substantial increase in paying subscribers, up 75.4% year-over-year to 1.24 million by the end of the quarter, coupled with a slight increase in average monthly revenue per subscriber. The company successfully transitioned from a net loss of $18.7 million in the same period last year to a net profit of $4.2 million, with earnings per share turning positive at $0.18 basic and $0.14 diluted. The company's operating expenses, while increasing in absolute terms, grew at a slower pace than revenues, leading to improved operating income. Marketing expenses, though significant, saw a decrease in subscriber acquisition cost and an improvement in churn rate, suggesting increased efficiency in acquiring and retaining customers. The balance sheet shows a healthy increase in cash and cash equivalents to $79.2 million, supported by positive cash flow from operations, indicating a sound financial position.

Key Highlights

  • 1Total revenues grew by 77.5% to $191.1 million for the nine months ended September 30, 2003, compared to the prior year.
  • 2Subscription revenue increased by 79.2% to $189.6 million for the nine months ended September 30, 2003, indicating strong customer adoption.
  • 3The company achieved profitability, with a net income of $4.2 million for the nine months ended September 30, 2003, a significant improvement from a net loss of $18.7 million in the prior year.
  • 4Basic earnings per share turned positive at $0.18 for the nine months ended September 30, 2003, compared to a loss of $1.64 in the prior year.
  • 5Total subscribers grew by 74.0% to 1.29 million as of September 30, 2003.
  • 6Cash and cash equivalents increased by 46.0% to $79.2 million as of September 30, 2003, reflecting strong operational cash generation.
  • 7Marketing expense as a percentage of revenue decreased from 23.5% to 18.5%, indicating improved marketing efficiency.

Frequently Asked Questions

The primary driver of Netflix's revenue growth is the significant increase in its subscriber base. For the nine months ended September 30, 2003, total revenues increased by 77.5% to $191.1 million, with subscription revenue up 79.2% to $189.6 million, primarily due to a 75.4% rise in paid subscribers.

Netflix has achieved profitability in the nine months ended September 30, 2003, reporting a net income of $4.2 million, a substantial improvement from a net loss of $18.7 million in the same period of 2002. This resulted in positive basic earnings per share of $0.18, compared to a loss of $1.64 in the prior year.

While operating expenses have increased in absolute terms, they have grown at a slower rate than revenues. Marketing expenses decreased as a percentage of total revenues from 23.5% to 18.5% for the nine-month period. The company also reported a decrease in subscriber acquisition cost and an improvement in subscriber churn rate, indicating increased efficiency in its marketing efforts.

Netflix's cash position has strengthened significantly, with cash and cash equivalents increasing by 46.0% to $79.2 million as of September 30, 2003. This increase is supported by robust cash flow from operating activities, which more than doubled year-over-year for both the three and nine-month periods. The company states that its current cash reserves, along with operational cash flow, are expected to be sufficient for its foreseeable future needs, although it may seek additional financing.