10-QPeriod: Q3 FY2007

NETFLIX INC Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 2, 2007For Securities:NFLX

Summary

Netflix Inc. (NFLX) reported its third-quarter 2007 financial results, showcasing continued revenue growth driven by an expanding subscriber base. Total revenue reached $293.97 million for the three months ended September 30, 2007, a 14.9% increase year-over-year. Net income for the quarter was $15.73 million, resulting in diluted earnings per share of $0.23. Despite overall growth, the company experienced a slight revenue sequential decline of 3.2% from the second quarter due to strategic price reductions on popular subscription plans and a shift towards lower-cost plans. This pricing strategy, while impacting average revenue per user, is aimed at retaining subscribers and driving further acquisition. The company also highlighted its ongoing investment in its Internet-based delivery feature, which was launched in early 2007, as a key component of its future growth strategy.

Key Highlights

  • 1Revenue for the third quarter of 2007 increased by 14.9% to $293.97 million compared to the same period in 2006.
  • 2Net income grew to $15.73 million, representing a 23.0% increase year-over-year.
  • 3Diluted earnings per share rose to $0.23 from $0.18 in the prior year's third quarter.
  • 4Total subscribers reached 7.03 million, an increase of 28.1% year-over-year.
  • 5Average monthly revenue per paying subscriber decreased by 10.3% year-over-year to $14.57, reflecting price reductions and a shift to lower-cost plans.
  • 6The company repurchased $35.3 million of its common stock during the quarter under its $100 million repurchase program.
  • 7Cash and cash equivalents stood at $179.8 million, with an additional $206.4 million in short-term investments.

Frequently Asked Questions

The primary driver of Netflix's revenue growth in the third quarter of 2007 was the increase in the average number of paying subscribers, which grew by 28.1% year-over-year to 6.8 million.

The decline in ARPU was a result of strategic price reductions implemented on three popular subscription plans during June and July 2007, and the continued growth of the company's lower-cost subscription plans. This strategy is aimed at customer retention and acquisition.

Netflix launched its instant-viewing feature in January 2007 and is continuing to invest in its quality, content, and functionality. The company plans to broaden distribution capabilities to multiple platforms over time, viewing it as a key component of its long-term growth strategy to transition from its DVD-by-mail business.

Netflix maintained a strong liquidity position with $179.8 million in cash and cash equivalents and $206.4 million in short-term investments as of September 30, 2007. The company began building an investment portfolio in the first quarter of 2007 to enhance returns on its cash balance, investing in corporate debt securities, government securities, and asset-backed securities.