10-QPeriod: Q1 FY2007

NETFLIX INC Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 7, 2007For Securities:NFLX

Summary

Netflix Inc. reported strong financial results for the first quarter of 2007, showcasing significant growth in revenue and net income compared to the same period in the prior year. Revenue increased by 36.2% to $305.3 million, driven by a substantial 46.5% rise in average paying subscribers. Net income more than doubled, growing by 125% to $9.9 million, with diluted earnings per share increasing from $0.07 to $0.14. While subscriber growth remains robust, the company noted a slight increase in churn to 4.4% and a 7.0% decline in average monthly revenue per paying subscriber, partly due to the promotion of lower-cost subscription plans. The company is strategically expanding into internet-based movie delivery while continuing to invest in its core DVD rental business. Management anticipates slower revenue and subscriber growth in 2007 due to increased competition, particularly from Blockbuster's 'Total Access' program. The company also announced a $100 million stock repurchase program, signaling confidence in its financial position.

Key Highlights

  • 1Revenue surged 36.2% year-over-year to $305.3 million.
  • 2Net income more than doubled, increasing 125% to $9.9 million ($0.14 diluted EPS).
  • 3Average paying subscribers grew by 46.5% to 6.4 million.
  • 4Average monthly revenue per paying subscriber decreased by 7.0% to $15.86, influenced by promotional pricing.
  • 5Subscriber churn slightly increased to 4.4%, attributed to increased competition.
  • 6The company launched an 'instant-viewing' feature for internet-based movie delivery.
  • 7A stock repurchase program of up to $100 million was authorized.

Frequently Asked Questions

Netflix reported a 36.2% increase in revenue to $305.3 million and a 125% increase in net income to $9.9 million for the first quarter of 2007 compared to the same period in 2006. Diluted EPS rose from $0.07 to $0.14.

Average paying subscribers grew by 46.5% to 6.4 million, driven by increased awareness of online DVD rentals and service improvements. However, subscriber churn slightly increased to 4.4%, and average revenue per subscriber decreased by 7.0% due to promotional pricing on lower-cost plans, indicating increased competition.

Netflix is expanding into internet-based movie delivery with the launch of its 'instant-viewing' feature. The company plans to transition its business and subscribers to this new model as it develops, while continuing to invest in its core DVD rental service.

Management anticipates that revenue and subscriber growth may slow down in 2007 due to increased competition, particularly from Blockbuster's 'Total Access' program, and aggressive promotional activities in the market. The company also expects increased marketing expenses to support business growth.