- Published: 28 January 2010
- Written by Editor
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
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 This email address is being protected from spambots. You need JavaScript enabled to view it.. 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 This email address is being protected from spambots. You need JavaScript enabled to view it..
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
------------------
December 31, September 30, December 31,
2009 2009 2008
---- ---- ----
Revenues $444,542 $423,120 $359,595
Cost of revenues:
Subscription 231,598 233,091 193,635
Fulfillment expenses * 43,888 42,183 39,211
------ ------ ------
Total cost of
revenues 275,486 275,274 232,846
------- ------- -------
Gross profit 169,056 147,846 126,749
Operating expenses:
Technology and
development * 33,209 30,014 24,052
Marketing * 70,715 58,556 55,617
General and
administrative * 13,524 11,543 10,762
Gain on disposal of
DVDs (1,741) (1,604) (1,603)
------ ------ ------
Total operating
expenses 115,707 98,509 88,828
------- ------ ------
Operating income 53,349 49,337 37,921
Other income
(expense):
Interest expense (4,457) (674) (677)
Interest and other
income (expense) 2,444 1,808 852
----- ----- ---
Income before income
taxes 51,336 50,471 38,096
Provision for income
taxes 20,423 20,330 15,364
------ ------ ------
Net income $30,913 $30,141 $22,732
======= ======= =======
Net income per
share:
Basic $0.58 $0.54 $0.39
Diluted $0.56 $0.52 $0.38
Weighted average
common shares
outstanding:
Basic 53,609 56,146 58,906
Diluted 55,479 57,938 60,311
*Stock-based
compensation
included in
expense line items:
Fulfillment expenses $59 $99 $126
Technology and
development 1,023 1,169 1,095
Marketing 433 452 462
General and
administrative 1,461 1,512 1,511
Reconciliation of
Non-GAAP Financial
Measures
(unaudited)
Non-GAAP net income
reconciliation:
GAAP net income $30,913 $30,141 $22,732
Stock-based
compensation 2,976 3,232 3,194
Income tax effect of
stock-based
compensation (1,184) (1,302) (1,287)
------ ------ ------
Non-GAAP net income $32,705 $32,071 $24,639
======= ======= =======
Non-GAAP net income
per share:
Basic $0.61 $0.57 $0.42
Diluted $0.59 $0.55 $0.41
Weighted average
common shares
outstanding:
Basic 53,609 56,146 58,906
Diluted 55,479 57,938 60,311
Twelve Months Ended
-------------------
December 31, December 31,
2009 2008
---- ----
Revenues $1,670,269 $1,364,661
Cost of revenues:
Subscription 909,461 761,133
Fulfillment expenses * 169,810 149,101
------- -------
Total cost of
revenues 1,079,271 910,234
--------- -------
Gross profit 590,998 454,427
Operating expenses:
Technology and development * 114,542 89,873
Marketing * 237,744 199,713
General and administrative * 51,333 49,662
Gain on disposal of DVDs (4,560) (6,327)
------ ------
Total operating
expenses 399,059 332,921
------- -------
Operating income 191,939 121,506
Other income (expense):
Interest expense (6,475) (2,458)
Interest and other income
(expense) 6,728 12,452
----- ------
Income before income taxes 192,192 131,500
Provision for income taxes 76,332 48,474
------ ------
Net income $115,860 $83,026
======== =======
Net income per share:
Basic $2.05 $1.36
Diluted $1.98 $1.32
Weighted average common
shares outstanding:
Basic 56,560 60,961
Diluted 58,416 62,836
*Stock-based compensation
included in
expense line items:
Fulfillment expenses $380 $466
Technology and development 4,453 3,890
Marketing 1,786 1,886
General and administrative 5,999 6,022
Reconciliation of Non-GAAP
Financial Measures
(unaudited)
Non-GAAP net income
reconciliation:
GAAP net income $115,860 $83,026
Stock-based compensation 12,618 12,264
Income tax effect of stock-
based compensation (5,017) (4,585)
------ ------
Non-GAAP net income $123,461 $90,705
======== =======
Non-GAAP net income per
share:
Basic $2.18 $1.49
Diluted $2.11 $1.44
Weighted average common
shares outstanding:
Basic 56,560 60,961
Diluted 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
------------------
December 31, September 30, December 31,
2009 2009 2008
---- ---- ----
Cash
flows
from
operating
activities:
Net
income $30,913 $30,141 $22,732
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
Amortization
of
content
library 60,261 56,690 47,579
Amortization
of
discounts
and
premiums
on
investments 168 126 184
Amortization
of debt
issuance
costs 1,124 - -
Stock-
based
compensation
expense 2,976 3,232 3,194
Excess
tax
benefits
from
stock-
based
compensation (3,584) (1,600) (753)
Loss on
disposal
of
property
and
equipment - - -
(Gain)
loss on
sale of
short-
term
investments (54) (984) 618
Gain on
disposal
of DVDs (2,607) (2,491) (3,494)
Gain on
sale of
investment
in
business (1,783) -
Deferred
taxes 1,789 (15) 1,350
Changes
in
operating
assets
and
liabilities:
Prepaid
expenses
and
other
current
assets (9,390) 7,625 11,038
Content
library (22,785) (9,998) (11,123)
Accounts
payable 8,894 (13,173) (7,917)
Accrued
expenses 7,506 2,752 171
Deferred
revenue 20,974 (1,372) 17,232
Other
assets
and
liabilities 1,177 (2,240) 2,148
----- ------ -----
Net cash
provided by
operating
activities 105,817 78,311 92,100
------- ------ ------
Cash
flows
from
investing
activities:
Purchases
of short-
term
investments (125,841) (21,006) (76,118)
Proceeds
from
sale of
short-
term
investments 36,037 85,904 58,723
Proceeds
from
maturities
of
short-
term
investments 4,688 3,480 1,000
Purchases
of
property
and
equipment (22,433) (9,994) (7,471)
Acquisitions
of
intangible
asset - - -
Acquisitions
of
content
library (57,048) (46,273) (38,295)
Proceeds
from
sale of
DVDs 3,934 3,345 4,695
Proceeds
from
sale of
investment
in
business 7,483 - -
Investment
in
business - - -
Other
assets (72) 134 (32)
--- --- ---
Net cash
provided by
(used in)
investing
activities (153,252) 15,590 (57,498)
-------- ------ -------
Cash
flows
from
financing
activities:
Principal
payments
of lease
financing
obligations (300) (294) (237)
Proceeds
from
issuance
of
common
stock 9,182 2,725 3,231
Excess
tax
benefits
from
stock-
based
compensation 3,584 1,600 753
Borrowings
on line
of
credit,
net of
issuance
costs 18,978 - -
Payments
on line
of
credit (20,000) - -
Proceeds
from
issuance
of debt,
net of
issuance
costs 193,917 - -
Repurchases
of
common
stock (79,419) (129,686) (9,992)
------- -------- ------
Net cash
provided by
(used in)
financing
activities 125,942 (125,655) (6,245)
------- -------- ------
Net
increase
(decrease)
in cash
and cash
equivalents 78,507 (31,754) 28,357
Cash and
cash
equivalents,
beginning
of
period 55,717 87,471 111,524
------ ------ -------
Cash and
cash
equivalents,
end of
period $134,224 $55,717 $139,881
======== ======= ========
Non-GAAP
free
cash
flow
reconciliation:
Net cash
provided
by
operating
activities $105,817 $78,311 $92,100
Purchases
of
property
and
equipment (22,433) (9,994) (7,471)
Acquisitions
of
intangible
asset - - -
Acquisitions
of
content
library (57,048) (46,273) (38,295)
Proceeds
from
sale of
DVDs 3,934 3,345 4,695
Other
assets (72) 134 (32)
--- --- ---
Non-GAAP
free
cash
flow $30,198 $25,523 $50,997
======= ======= =======
Twelve Months Ended
-------------------
December 31, December 31,
2009 2008
---- ----
Cash flows from operating
activities:
Net income $115,860 $83,026
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation and amortization
of property, equipment and
intangibles 38,044 32,454
Amortization of content
library 219,490 209,757
Amortization of discounts and
premiums on investments 607 625
Amortization of debt issuance
costs 1,124 -
Stock-based compensation
expense 12,618 12,264
Excess tax benefits from
stock-based compensation (12,683) (5,220)
Loss on disposal of property
and equipment 254 101
(Gain) loss on sale of short-
term investments (1,509) (3,130)
Gain on disposal of DVDs (7,637) (13,350)
Gain on sale of investment in
business (1,783) -
Deferred taxes 6,328 (5,905)
Changes in operating assets
and liabilities:
Prepaid expenses and other
current assets (11,001) (4,181)
Content library (64,217) (48,290)
Accounts payable (2,256) 7,111
Accrued expenses 13,169 (1,824)
Deferred revenue 16,970 11,462
Other assets and liabilities 1,685 9,137
----- -----
Net cash provided by
operating
activities 325,063 284,037
------- -------
Cash flows from investing
activities:
Purchases of short-term
investments (228,000) (256,959)
Proceeds from sale of short-
term investments 166,706 304,163
Proceeds from maturities of
short-term investments 35,673 3,170
Purchases of property and
equipment (45,932) (43,790)
Acquisitions of intangible
asset (200) (1,062)
Acquisitions of content
library (193,044) (162,849)
Proceeds from sale of DVDs 11,164 18,368
Proceeds from sale of
investment in business 7,483 -
Investment in business - (6,000)
Other assets 71 (1)
--- ---
Net cash provided by
(used in) investing
activities (246,079) (144,960)
-------- --------
Cash flows from financing
activities:
Principal payments of lease
financing obligations (1,158) (823)
Proceeds from issuance of
common stock 35,274 18,872
Excess tax benefits from
stock-based compensation 12,683 5,220
Borrowings on line of credit,
net of issuance costs 18,978 -
Payments on line of credit (20,000) -
Proceeds from issuance of
debt, net of issuance costs 193,917 -
Repurchases of common stock (324,335) (199,904)
-------- --------
Net cash provided by
(used in) financing
activities (84,641) (176,635)
------- --------
Net increase (decrease) in
cash and cash equivalents (5,657) (37,558)
Cash and cash equivalents,
beginning of period 139,881 177,439
------- -------
Cash and cash equivalents, end
of period $134,224 $139,881
======== ========
Non-GAAP free cash flow
reconciliation:
Net cash provided by operating
activities $325,063 $284,037
Purchases of property and
equipment (45,932) (43,790)
Acquisitions of intangible
asset (200) (1,062)
Acquisitions of content
library (193,044) (162,849)
Proceeds from sale of DVDs 11,164 18,368
Other assets 71 (1)
--- ---
Non-GAAP free cash flow $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%
