Netflix Announces Q4 2009 Financial Results Subscribers - 12.3 million

Revenue - $444.5 million

GAAP Net Income - $30.9 million

GAAP EPS - $0.56 per diluted share

LOS GATOS, Calif., Jan. 27 /PRNewswire-FirstCall/ -- Netflix, Inc. (Nasdaq: NFLX) today reported results for the fourth quarter and year ended December 31, 2009.

"Adding more than one million net new subscribers in the fourth quarter and nearly three million over the full year highlights the growing appeal of the Netflix service as we further expand access to and adoption of streaming movies and TV episodes over the Internet," said Reed Hastings, Netflix co-founder and chief executive officer.  "In 2010, we expect to extend our operating momentum as we grow the business both rapidly and profitably."

Earnings Call Format

Netflix is changing the format of the company's fourth quarter earnings conference call.  The call will consist solely of Q&A.  In conjunction with the press release, the company has posted a written version of management's commentary to its Web site at http://ir.netflix.com.  The conference call will be webcast today at 6:00 p.m. Eastern Time / 3:00 p.m. Pacific Time.  If the format change is well received, future earnings calls will follow the same format.  Please see conference call details below.

Fourth-Quarter and Fiscal-Year 2009 Financial Highlights

Subscribers.  Netflix ended the fourth quarter of 2009 with approximately 12,268,000 total subscribers, representing 31 percent year-over-year growth from 9,390,000 total subscribers at the end of the fourth quarter of 2008 and 10 percent sequential growth from 11,109,000 subscribers at the end of the third quarter of 2009.

Net subscriber change in the quarter was an increase of 1,159,000 compared to an increase of 718,000 for the same period of 2008 and an increase of 510,000 for the third quarter of 2009.

Gross subscriber additions for the quarter totaled 2,803,000, representing 34 percent year-over-year growth from 2,085,000 gross subscriber additions in the fourth quarter of 2008 and 29 percent quarter-over-quarter growth from 2,180,000 gross subscriber additions in the third quarter of 2009.

Of the 12,268,000 total subscribers at quarter end, 97 percent, or 11,892,000, were paid subscribers.  The other 3 percent, or 376,000, were free subscribers.  Paid subscribers represented 98 percent of total subscribers at the end of the fourth quarter of 2008 and at the end of the third quarter of 2009.

Revenue for the fourth quarter of 2009 was $444.5 million, representing 24 percent year-over-year growth from $359.6 million for the fourth quarter of 2008, and a 5 percent sequential increase from $423.1 million for the third quarter of 2009.  Revenue for fiscal 2009 was $1.67 billion, up 22 percent from $1.365 billion for fiscal 2008.  

Gross margin(1) for the fourth quarter of 2009 was 38.0 percent compared to 35.2 percent for the fourth quarter of 2008 and 34.9 percent for the third quarter of 2009.  Gross margin for fiscal 2009 was 35.4 percent compared to 33.3 percent for fiscal 2008.  

GAAP net income for the fourth quarter of 2009 was $30.9 million, or $0.56 per diluted share compared to GAAP net income of $22.7 million, or $0.38 per diluted share, for the fourth quarter of 2008 and GAAP net income of $30.1 million, or $0.52 per diluted share, for the third quarter of 2009.  GAAP net income grew 36 percent on a year-over-year basis and GAAP EPS grew 47 percent on a year-over-year basis.  

GAAP net income for fiscal 2009 was $115.9 million, or $1.98 per diluted share compared to GAAP net income of $83.0 million, or $1.32 per diluted share, for fiscal 2008.  GAAP net income grew 40 percent on a year-over-year basis and GAAP EPS grew 50 percent on a year-over-year basis.

Non-GAAP net income was $32.7 million, or $0.59 per diluted share, for the fourth quarter of 2009 compared to non-GAAP net income of $24.6 million, or $0.41 per diluted share, for the fourth quarter of 2008 and non-GAAP net income of $32.1 million, or $0.55 per diluted share, for the third quarter of 2009.  Non-GAAP net income grew 33 percent on a year-over-year basis and non-GAAP EPS grew 44 percent on a year-over-year basis.

Non-GAAP net income was $123.5 million, or $2.11 per diluted share, for fiscal 2009 compared to non-GAAP net income of $90.7 million, or $1.44 per diluted share, for fiscal 2008.  Non-GAAP net income grew 36 percent on a year-over-year basis and non-GAAP EPS grew 47 percent on a year-over-year basis.

Non-GAAP net income equals net income on a GAAP basis before stock-based compensation expense, net of taxes.  

Stock-based compensation was $3.0 million for the fourth quarter of 2009, compared to $3.2 million for the fourth quarter of 2008 and for the third quarter of 2009.  Stock-based compensation for fiscal 2009 was $12.6 million compared to $12.3 million for fiscal 2008.  Stock-based compensation is presented in the same lines of the Consolidated Statements of Operations as cash compensation paid to the same individuals.

Subscriber acquisition cost(2) for the fourth quarter of 2009 was $25.23 per gross subscriber addition compared to $26.67 for the same period of 2008 and $26.86 for the third quarter of 2009.  Subscriber acquisition cost for fiscal 2009 was $25.48 per gross subscriber addition compared to $29.12 for fiscal 2008.  

Churn(3) for the fourth quarter of 2009 was 3.9 percent compared to 4.2 percent for the fourth quarter of 2008 and 4.4 percent for the third quarter of 2009.  Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.

Percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie in the fourth quarter of 2009 was 48 percent compared to 28 percent for the same period of 2008 and 41 percent for the third quarter of 2009.

Free cash flow(4) for the fourth quarter of 2009 was $30.2 million compared to $51.0 million in the fourth quarter of 2008 and $25.5 million for the third quarter of 2009.  Free cash flow for fiscal 2009 was $97.1 million compared to $94.7 million in fiscal 2008.  

Cash provided by operating activities for the fourth quarter of 2009 was $105.8 million compared to $92.1 million for the fourth quarter of 2008 and $78.3 million for the third quarter of 2009.  Cash provided by operating activities for fiscal 2009 was $325.1 million compared to $284.0 million for fiscal 2008.  

Business Outlook

The Company's performance expectations for the first quarter of 2010 and full-year 2010 are as follows:

First-Quarter 2010

  • Ending subscribers of 13.5 million to 13.8 million
  • Revenue of $490 million to $496 million
  • GAAP net income of $26 million to $32 million
  • GAAP EPS of $0.47 to $0.58 per diluted share

Full-Year 2010

  • Ending subscribers of 15.5 million to 16.3 million
  • Revenue of $2.05 billion to $2.11 billion
  • GAAP net income of $125 million to $137 million
  • GAAP EPS of $2.28 to $2.50 per diluted share

Earnings Call

The Company has posted a written version of management's commentary to its Web site at http://ir.netflix.com.  Therefore, the conference call, which will be webcast today at 6:00 p.m. Eastern Time / 3:00 p.m. Pacific Time, will consist solely of Q&A, with questions submitted via email.  Please email your questions to dcrawford@netflix.com.  The company will read the questions aloud on the call and respond to as many questions as possible.  All media inquiries should be directed to Steve Swasey at (408) 540-3947 or sswasey@netflix.com.

Following completion of the call, a replay of the webcast will be available at  http://ir.netflix.com. The telephone replay of the call will be available from approximately 6:00 p.m. Pacific Time on January 27, 2010 through midnight on February 2, 2010. To listen to a replay, call (719) 457-0820, access code 5243602.

Use of Non-GAAP Measures

Management believes that non-GAAP net income is a useful measure of operating performance because it excludes the non-cash impact of stock option accounting.  In addition, management believes that free cash flow is a useful measure of liquidity because it excludes the non-operational cash flows from purchases and sales of short-term investments, cash flows from investment in business and cash flows from financing activities.  However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP.  A reconciliation to the GAAP equivalents of these non-GAAP measures is contained in tabular form on the attached unaudited financial statements.

About Netflix

With more than 12 million members, Netflix, Inc. (Nasdaq: NFLX) is the world's largest subscription service streaming movies and TV episodes over the Internet and sending DVDs by mail.  For $8.99 a month, Netflix members can instantly watch unlimited TV episodes and movies streamed to their TVs and computers and can receive unlimited DVDs delivered quickly to their homes.  With Netflix, there are never any due dates or late fees.  Members can select from a growing library of titles that can be watched instantly and a vast array of titles on DVD.  Among the large and expanding base of devices that can stream movies and TV episodes from Netflix right to members' TVs are Microsoft's Xbox 360 and Sony's PS3 game consoles and, this spring, Nintendo's Wii console; Blu-ray disc players from Samsung, LG and Insignia; Internet TVs from LG, Sony and VIZIO; the Roku digital video player and TiVo digital video recorders.  For more information, visit http://www.netflix.com.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding our subscriber growth, revenue, GAAP net income and earnings per share for the first quarter of 2010 and the full-year 2010. The forward-looking statements in this release are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new subscribers and retain existing subscribers; our ability to manage our subscriber acquisition cost as well as the cost of content delivered to our subscribers; fluctuations in consumer usage of our service; the continued availability of content on terms and conditions acceptable to us; maintenance and expansion of device platforms for instant streaming; continued weakness in the U.S. economy and its affect on online commerce or the filmed entertainment industry; conditions that effect our delivery through the U.S. Postal Service, including regulatory changes and postal rate increases; changes in the costs of acquiring DVDs or electronic content; consumer spending on DVDs and related products; disruption in service on our website or with our computer systems; competition and widespread consumer adoption of different modes of viewing in-home filmed entertainment.  A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2009.  We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.

(1) Gross margin is defined as revenues less cost of subscription and fulfillment expenses divided by revenues.

(2) Subscriber acquisition cost is defined as the total marketing expense, which includes stock-based compensation for marketing personnel, on the Company's Consolidated Statements of Operations divided by total gross subscriber additions during the quarter.

(3) Churn is a monthly measure defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, then divided by three months.

(4) Free cash flow is defined as cash provided by operating activities and investing activities excluding the non-operational cash flows from purchases and sales of short-term investments and cash flows from investment in business.


Netflix, Inc.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)




Three Months Ended

Twelve Months Ended




December 31,

September 30,

December 31,

December 31,

December 31,




2009

2009

2008

2009

2008









Revenues


$         444,542 

$         423,120 

$         359,595 

$     1,670,269 

$      1,364,661 

Cost of revenues:







Subscription

231,598 

233,091 

193,635 

909,461 

761,133 


Fulfillment expenses *

43,888 

42,183 

39,211 

169,810 

149,101 



Total cost of revenues

275,486 

275,274 

232,846 

1,079,271 

910,234 

Gross profit

169,056 

147,846 

126,749 

590,998 

454,427 

Operating expenses:







Technology and development *

33,209 

30,014 

24,052 

114,542 

89,873 


Marketing *

70,715 

58,556 

55,617 

237,744 

199,713 


General and administrative *

13,524 

11,543 

10,762 

51,333 

49,662 


Gain on disposal of DVDs

(1,741)

(1,604)

(1,603)

(4,560)

(6,327)



Total operating expenses

115,707 

98,509 

88,828 

399,059 

332,921 

Operating income

53,349 

49,337 

37,921 

191,939 

121,506 

Other income (expense):







Interest expense

(4,457)

(674)

(677)

(6,475)

(2,458)


Interest and other income (expense)

2,444 

1,808 

852 

6,728 

12,452 

Income before income taxes

51,336 

50,471 

38,096 

192,192 

131,500 

Provision for income taxes

20,423 

20,330 

15,364 

76,332 

48,474 

Net income


$           30,913 

$           30,141 

$           22,732 

$        115,860 

$           83,026 

Net income per share:







Basic


$              0.58 

$              0.54 

$              0.39 

$             2.05 

$              1.36 


Diluted

$              0.56 

$              0.52 

$              0.38 

$             1.98 

$              1.32 

Weighted average common shares outstanding:






Basic


53,609 

56,146 

58,906 

56,560 

60,961 


Diluted

55,479 

57,938 

60,311 

58,416 

62,836 









*Stock-based compensation included in





expense line items:







Fulfillment expenses

$                  59 

$                  99 

$                126 

$               380 

$                466 


Technology and development

1,023 

1,169 

1,095 

4,453 

3,890 


Marketing

433 

452 

462 

1,786 

1,886 


General and administrative

1,461 

1,512 

1,511 

5,999 

6,022 









Reconciliation of Non-GAAP Financial Measures





(unaudited)







Non-GAAP net income reconciliation:





GAAP net income

$           30,913 

$           30,141 

$           22,732 

$        115,860 

$           83,026 


Stock-based compensation

2,976 

3,232 

3,194 

12,618 

12,264 


Income tax effect of stock-based compensation

(1,184)

(1,302)

(1,287)

(5,017)

(4,585)

Non-GAAP net income

$           32,705 

$           32,071 

$           24,639 

$        123,461 

$           90,705 

Non-GAAP net income per share:







Basic


$              0.61 

$              0.57 

$              0.42 

$             2.18 

$              1.49 


Diluted

$              0.59 

$              0.55 

$              0.41 

$             2.11 

$              1.44 

Weighted average common shares outstanding:






Basic


53,609 

56,146 

58,906 

56,560 

60,961 


Diluted

55,479 

57,938 

60,311 

58,416 

62,836 




Netflix, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and par value data)







As of







December 31,

December 31,







2009

2008

Assets




Current assets:





Cash and cash equivalents

$         134,224 

$         139,881 



Short-term investments

186,018 

157,390 



Prepaid expenses

12,491 

8,122 



Prepaid revenue sharing expenses

17,133 

18,417 



Current content library, net

37,329 

18,691 



Other assets

23,818 

16,424 






Total current assets

411,013 

358,925 

Content library, net

108,810 

98,547 

Property and equipment, net

131,653 

124,948 

Deferred tax assets

15,958 

22,409 

Other non-current assets

12,300 

10,595 






Total assets

$         679,734 

$         615,424 

Liabilities and Stockholders' Equity



Current liabilities:





Accounts payable

$           91,475 

$         100,344 



Accrued expenses

33,387 

31,394 



Current portion of lease financing obligations

1,410 

1,152 



Deferred revenue

100,097 

83,127 






Total current liabilities

226,369 

216,017 

Long-term debt

200,000 

Lease financing obligations, excluding current portion

36,572 

37,988 

Other non-current liabilities

17,650 

14,264 






Total liabilities

480,591 

268,269 

Stockholders' equity:




Common stock, $0.001 par value; 160,000,000 shares authorized at December 31, 2009 and 2008; 53,440,073 and 58,862,478 issued and outstanding at  December 31, 2009 and 2008, respectively

53 

62 


Additional paid-in capital

338,577 


Treasury stock at cost (3,491,084 shares at December 31, 2008)

(100,020)


Accumulated other comprehensive income, net

273 

84 


Retained earnings

198,817 

108,452 






Total stockholders' equity

199,143 

347,155 






Total liabilities and stockholders' equity

$         679,734 

$         615,424 




Netflix, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


Three Months Ended

Twelve Months Ended


December 31,

September 30,

December 31,

December 31,

December 31,


2009

2009

2008

2009

2008

Cash flows from operating activities:







Net income

$          30,913 

$         30,141 

$         22,732 

$       115,860 

$         83,026 


Adjustments to reconcile net income to net cash








provided by operating activities:









Depreciation and amortization of property, equipment and intangibles

10,238 

9,618 

9,141 

38,044 

32,454 




Amortization of content library

60,261 

56,690 

47,579 

219,490 

209,757 




Amortization of discounts and premiums on investments

168 

126 

184 

607 

625 




Amortization of debt issuance costs

1,124 

1,124 




Stock-based compensation expense

2,976 

3,232 

3,194 

12,618 

12,264 




Excess tax benefits from stock-based compensation

(3,584)

(1,600)

(753)

(12,683)

(5,220)




Loss on disposal of property and equipment

254 

101 




(Gain) loss on sale of short-term investments

(54)

(984)

618 

(1,509)

(3,130)




Gain on disposal of DVDs

(2,607)

(2,491)

(3,494)

(7,637)

(13,350)




Gain on sale of investment in business

(1,783)


(1,783)




Deferred taxes

1,789 

(15)

1,350 

6,328 

(5,905)




Changes in operating assets and liabilities:










Prepaid expenses and other current assets

(9,390)

7,625 

11,038 

(11,001)

(4,181)





Content library

(22,785)

(9,998)

(11,123)

(64,217)

(48,290)





Accounts payable

8,894 

(13,173)

(7,917)

(2,256)

7,111 





Accrued expenses

7,506 

2,752 

171 

13,169 

(1,824)





Deferred revenue

20,974 

(1,372)

17,232 

16,970 

11,462 





Other assets and liabilities

1,177 

(2,240)

2,148 

1,685 

9,137 






Net cash provided by operating activities


105,817 

78,311 

92,100 

325,063 

284,037 

Cash flows from investing activities:







Purchases of short-term investments

(125,841)

(21,006)

(76,118)

(228,000)

(256,959)


Proceeds from sale of short-term investments

36,037 

85,904 

58,723 

166,706 

304,163 


Proceeds from maturities of short-term investments

4,688 

3,480 

1,000 

35,673 

3,170 


Purchases of property and equipment

(22,433)

(9,994)

(7,471)

(45,932)

(43,790)


Acquisitions of intangible asset

(200)

(1,062)


Acquisitions of content library

(57,048)

(46,273)

(38,295)

(193,044)

(162,849)


Proceeds from sale of DVDs

3,934 

3,345 

4,695 

11,164 

18,368 


Proceeds from sale of investment in business

7,483 

7,483 


Investment in business

(6,000)


Other assets

(72)

134 

(32)

71 

(1)






Net cash provided by (used in) investing activities


(153,252)

15,590 

(57,498)

(246,079)

(144,960)

Cash flows from financing activities:







Principal payments of lease financing obligations

(300)

(294)

(237)

(1,158)

(823)


Proceeds from issuance of common stock

9,182 

2,725 

3,231 

35,274 

18,872 


Excess tax benefits from stock-based compensation

3,584 

1,600 

753 

12,683 

5,220 


Borrowings on line of credit, net of issuance costs

18,978 

18,978 


Payments on line of credit

(20,000)

(20,000)


Proceeds from issuance of debt, net of issuance costs

193,917 

193,917 


Repurchases of common stock

(79,419)

(129,686)

(9,992)

(324,335)

(199,904)






Net cash provided by (used in) financing activities


125,942 

(125,655)

(6,245)

(84,641)

(176,635)

Net increase (decrease) in cash and cash equivalents

78,507 

(31,754)

28,357 

(5,657)

(37,558)

Cash and cash equivalents, beginning of period

55,717 

87,471 

111,524 

139,881 

177,439 

Cash and cash equivalents, end of period

$        134,224 

$         55,717 

$       139,881 

$       134,224 

$       139,881 













Non-GAAP free cash flow reconciliation:







Net cash provided by operating activities

$        105,817 

$         78,311 

$         92,100 

$       325,063 

$       284,037 


Purchases of property and equipment

(22,433)

(9,994)

(7,471)

(45,932)

(43,790)


Acquisitions of intangible asset

(200)

(1,062)


Acquisitions of content library

(57,048)

(46,273)

(38,295)

(193,044)

(162,849)


Proceeds from sale of DVDs

3,934 

3,345 

4,695 

11,164 

18,368 


Other assets

(72)

134 

(32)

71 

(1)


Non-GAAP free cash flow

$          30,198 

$         25,523 

$         50,997 

$         97,122 

$         94,703 




Netflix, Inc.

Consolidated Other Data

(unaudited)

(in thousands, except percentages, average monthly revenue per paying subscriber,

average monthly gross profit per paying subscriber and subscriber acquisition cost)




As of / Three Months Ended




December 31,


September 30,


December 31,




2009


2009


2008

Subscriber information:







Subscribers: beginning of period

11,109   


10,599   


8,672   


Gross subscriber additions: during period

2,803   


2,180   


2,085   



Gross subscriber additions year-to-year change

34.4%


42.7%


39.5%



Gross subscriber additions quarter-to-quarter sequential change

28.6%


12.6%


36.5%


Less subscriber cancellations: during period

(1,644)  


(1,670)  


(1,367)  


Subscribers: end of period

12,268   


11,109   


9,390   


Subscribers year-to-year change

30.6%


28.1%


25.6%


Subscribers quarter-to-quarter sequential change

10.4%


4.8%


8.3%

Free subscribers: end of period

376   


274   


226   


Free subscribers as percentage of ending subscribers

3.1%


2.5%


2.4%

Paid subscribers: end of period

11,892   


10,835   


9,164   


Paid subscribers year-to-year change

29.8%


27.6%


25.1%


Paid subscribers quarter-to-quarter sequential change

9.8%


4.4%


7.9%

Average monthly revenue per paying subscriber

$            13.04   


$            13.30   


$            13.58   

Average monthly gross profit per paying subscriber

$              4.96   


$              4.65   


$              4.79   

Percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie

48%


41%


28%

Churn


3.9%


4.4%


4.2%

Subscriber acquisition cost

$            25.23   


$            26.86   


$            26.67   

Margins:







Gross margin

38.0%


34.9%


35.2%


Operating margin

12.0%


11.6%


10.5%


Net margin

7.0%


7.1%


6.3%

Expenses as percentage of revenues:







Technology and development

7.5%


7.1%


6.7%


Marketing

15.9%


13.8%


15.5%


General and administrative

3.0%


2.7%


3.0%


Gain on disposal of DVDs

(0.4%)


(0.3%)


(0.5%)



Total operating expenses

26.0%


23.3%


24.7%

Year-to-year change:







Total revenues

23.6%


24.0%


18.9%


Subscription

19.6%


24.9%


14.8%


Fulfillment expenses

11.9%


11.2%


25.0%


Technology and development

38.1%


28.4%


30.3%


Marketing

27.1%


19.0%


7.6%


General and administrative

25.7%


(1.7%)


(20.7%)


Gain on disposal of DVDs

8.6%


(1.5%)


(5.5%)



Total operating expenses

30.3%


19.1%


8.3%



SOURCE Netflix, Inc.



RELATED LINKS
http://www.netflix.com

More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.