10-QPeriod: Q2 FY2007

NETFLIX INC Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 6, 2007For Securities:NFLX

Summary

Netflix, Inc. reported strong financial performance for the second quarter and first half of 2007, demonstrating continued revenue growth and increasing profitability. Revenue for the six months ended June 30, 2007, reached $609.0 million, a significant increase from $463.5 million in the prior year period, driven by a growing subscriber base which expanded to 6.7 million. Net income for the six months was $35.4 million, up from $21.4 million in the same period last year, with diluted EPS at $0.50. The company continues to invest in its core DVD-by-mail business while strategically expanding its internet-based delivery capabilities, having launched an "instant-viewing" feature in early 2007. Despite facing increased competition, particularly from Blockbuster's "Total Access" program, Netflix is adapting its pricing strategy, including a recent price reduction on some plans, which is expected to impact near-term revenue growth but reflects a proactive approach to subscriber retention and market positioning. The company also announced a $100 million stock repurchase program, signaling confidence in its financial health and commitment to shareholder value.

Key Highlights

  • 1Revenue for the six months ended June 30, 2007, increased by 31.4% year-over-year to $609.0 million.
  • 2Net income for the six months ended June 30, 2007, grew to $35.4 million, up from $21.4 million in the prior year period.
  • 3The subscriber base expanded to 6.7 million by June 30, 2007, a 41.1% increase compared to the prior year.
  • 4The company launched an "instant-viewing" feature in January 2007, indicating strategic expansion into digital content delivery.
  • 5Netflix initiated a $100 million stock repurchase program in April 2007.
  • 6Average monthly revenue per paying subscriber decreased by 6.8% year-over-year, reflecting pricing adjustments and the popularity of lower-cost plans.
  • 7Gross margin saw a slight decline to 35.7% for the first six months of 2007, impacted by increased content amortization and postage costs, alongside investments in the instant viewing feature.

Frequently Asked Questions

Netflix experienced robust subscriber growth, with the total subscriber base reaching 6.7 million by June 30, 2007, an increase of 36.2% compared to the same period last year. The number of paying subscribers also saw a significant increase.

Netflix is actively developing its internet-based delivery capabilities and launched an "instant-viewing" feature in January 2007. The company plans to continue improving this service and broaden its distribution to multiple platforms, positioning itself for the evolving media landscape.

The company acknowledges increased competition, notably from Blockbuster's "Total Access" program. This competition is influencing pricing strategies, subscriber acquisition costs, and churn rates, leading Netflix to adjust its pricing and marketing efforts.

The "instant-viewing" feature, launched in early 2007, is associated with increased content amortization and related expenses, impacting the cost of revenues. Netflix anticipates incurring at least $40 million in expenses related to this feature in 2007, which is expected to put downward pressure on gross margins.

Yes, in April 2007, Netflix announced a stock repurchase program authorizing the repurchase of up to $100 million of its common stock through the end of 2007. This action signals management's confidence in the company's financial position.