10-QPeriod: Q1 FY2010

NETFLIX INC Quarterly Report for Q1 Ended Mar 31, 2010

Filed April 28, 2010For Securities:NFLX

Summary

Netflix Inc.'s (NFLX) first quarter 2010 results demonstrate robust growth and expanding profitability. The company reported a significant 25.3% year-over-year increase in revenue, reaching $493.7 million, driven by a substantial 32.3% rise in average paying subscribers. This subscriber growth, despite a slight decrease in average monthly revenue per paying subscriber due to the popularity of lower-priced plans, underscores the expanding market adoption of Netflix's combined DVD-by-mail and streaming service. Profitability also saw a marked improvement, with net income growing by 44.3% to $32.3 million and diluted earnings per share increasing by 59.5% to $0.59. The company maintained strong operational efficiency, with gross margin expanding to 37.8%, benefiting from cost management and a shift in subscriber preferences towards streaming. Investments in technology and content are evident, with expenses in these areas increasing, supporting the company's strategic vision for delivering enhanced streaming capabilities and a growing content library. The company also continued its share repurchase program, demonstrating a commitment to returning value to shareholders.

Financial Highlights

44 data points
Beta

Revenue

$493.67M

37.8% Gross Margin

Net Income

$32.27M

6.5% Net Margin

EPS (Diluted)

$0.01

Total Assets

$648.29M

Cash & Equivalents

$79.86M

Free Cash Flow

$70.81M

Financial Statements
Beta
Revenue$493.67M
Cost of Revenue$307.16M
Gross Profit$186.50M
R&D Expenses$37.40M
Operating Expenses$128.16M
Operating Income$58.34M
Interest Expense$4.96M
Net Income$32.27M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)3.70B
Shares Outstanding (Diluted)3.83B

Key Highlights

  • 1Revenue increased by 25.3% year-over-year to $493.7 million.
  • 2Total subscribers grew by 35.5% year-over-year to 13.97 million.
  • 3Net income increased by 44.3% year-over-year to $32.3 million.
  • 4Diluted earnings per share rose by 59.5% to $0.59.
  • 5Gross margin improved to 37.8% from 34.2% in the prior year period.
  • 6Technology and development expenses increased significantly, reflecting investment in streaming capabilities.
  • 7The company continued its share repurchase program, buying back $108 million in stock during the quarter.

Frequently Asked Questions

Revenue growth was primarily driven by a significant increase in the average number of paying subscribers, which grew by 32.3% year-over-year. This growth was fueled by the appealing value proposition of Netflix's combined DVD-by-mail and streaming service.

Profitability saw substantial improvement. Net income increased by 44.3% to $32.3 million, and diluted earnings per share grew by 59.5% to $0.59. This was supported by an expanding gross margin of 37.8%.

Netflix is making significant investments in technology and development, particularly in solutions for streaming content, and in its content library through acquisitions and licensing. These investments are aimed at enhancing its streaming service and expanding its content offerings.

Netflix continues to focus on its core strategy of growing a subscription business that combines both streaming and DVD-by-mail services. The company believes this hybrid model offers a competitive advantage. While DVD is still expected to be the primary viewing method for the foreseeable future, Netflix anticipates that internet delivery will eventually surpass DVDs.