netflix investor letter q3 2011
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October 2
Dear Fello
The Intern
nation. Ou
subscripti
employee
$7.99 unl
than doub
Netflix me
proposed
reputatio
as ever an
(in millions exce
Domestic:Streaming S
DVD Subscri
Total UniquY/Y Change
Net SubscriY/Y Change
RevenueY/Y Change
ContributioY/Y Change
Operating InY/Y Change
InternatioSubscription
Net Subscri
Revenue
Contributio
Global:RevenueY/Y Change
Net IncomeY/Y Change
EPSY/Y Change
Free Cash Fl
Buyback
Shares (FD)
24th, 2011
ow Sharehold
net is transfo
ur opportunit
ion service on
es, and most u
imited stream
bling domesti
embers with
‐and‐now‐ca
n, and stalled
nd we are mo
ept per share data)
:Subscriptions
iptions
e U.S. Subscriber
ber Additions
n Profit
ncome
onal:ns
ption Additions
n Profit (Loss)
ow
ders,
rming video e
ty is to be one
n the planet.
unfortunately
ming service b
ic spending o
our significan
ncelled rebra
d our domesti
oving forward
Q3 '09
rs 11.1128%
0.5195%
$ 423 $24%
$ 89 $32%
$ 49 $45%
‐
‐
‐
‐
$ 423 $24%
$ 30 $48%
$ 0.52 $58%
$ 26 $
$ 130 $
57.9
entertainmen
e of the leade
The last few
y, many mem
by embracing
n streaming c
nt DVD‐relate
nding of our
ic growth. Bu
as quickly as
Q4 '09 Q1 '
12.27 13.31% 3
1.16 1.61% 8
445 $ 424% 2
98 $ 138% 5
53 $ 39% 6
‐
‐
‐
‐
445 $ 424% 2
31 $ 35% 4
0.56 $ 0.47% 5
30 $
79 $ 1
55.5 54
nt, stream by
ers of this tra
w months, how
mbers of Netfl
new platform
content over
d pricing cha
DVD service.
t our long‐ter
s we can to re
'10 Q2 '10
.97 15.005% 42%
.70 1.035% 255%
494 $ 520 5% 27%
111 $ 130 3% 40%
58 $ 77 1% 45%
‐ ‐
‐ ‐
‐ ‐
‐ ‐ $
494 $ 520 5% 27%
32 $ 44 5% 38%
.59 $ 0.80 9% 48%
38 $ 34
108 $ 45
4.8 54.3
stream, cons
nsformation
wever, have b
ix. While we
ms, simplifyin
2010, we gre
nges, and to
In doing so,
rm streaming
epair our repu
Q3 '10 Q4
16.80 1951% 5
1.80 2253% 13
$ 553 $ 31% 3
$ 130 $ 46% 5
$ 72 $ 47%
0.13 0
0.13 0
$ ‐ $
$ (3) $
$ 553 $ 31% 3
$ 38 $ 27% 5
$ 0.70 $ 035% 5
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$ 57 $
53.9 5
sumer by con
with the best
been difficult
e dramatically
ng our user‐in
eatly upset m
a lesser degr
we’ve hurt o
g opportunity
utation and re
4 '10 Q1 '11
9.50 22.8059% 63%
2.70 3.3033% 94%
592 $ 706 33% 43%
152 $ 187 55% 68%
88 $ 113 66% 95%
0.51 0.80
0.38 0.29
4 $ 12
(9) $ (11)
596 $ 719 34% 46%
47 $ 60 52% 88%
0.87 $ 1.11 55% 88%
51 $ 79
‐ $ 109
54.2 54.2
sumer, natio
t streaming v
for sharehold
y improved o
nterface, and
any domestic
ee, with the
our hard‐earn
y is as compel
eturn to grow
Q2 '11 Q
2
1
24.59 264%
1.80 ‐75% ‐
$ 770 $ 48%
$ 213 $ 64%
$ 124 $ 61%
0.97
0.16
$ 19 $
$ (9) $
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53.9
1
n by
video
ders,
ur
more
c
ed
lling
wth.
3 '11
21.45
13.93
23.7942%
‐0.81145%
799 44%
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120 67%
1.48
0.51
23
(23)
822 49%
62 63%
1.16 66%
14
40
53.9
DVD and
We think
prices, rel
be in the
problem w
steady DV
and then
reputatio
relatively
changes, a
Because o
profitable
few quart
unprofita
internatio
UK and Ire
profitabili
increase o
Investors
each for s
Some inve
signup flo
$15.98. A
percentag
would do
current hy
our stream
fall, given
We see a
10% of Ca
build back
day‐after‐
Q3 Dom
We ended
Unique do
level of ca
its impact
d Streaming
that $7.99 fo
lative to com
long term. W
with our lack
VD costs, so th
retracted a se
n, and caused
minor. Our p
and more of t
of this, our re
e on a global b
ters starting i
ble on a glob
onal investme
eland, we wil
ity. We plan
our costs.
and member
streaming and
estors have a
ow, we offer t
About 7% of n
ge would incr
it on streami
ybrid subscrib
ming subscrib
that only 7%
huge global o
anadian house
k our brand th
‐day, for an in
mestic Resul
d the quarter
omestic subsc
ancellations a
t on word‐of‐
g
or unlimited st
petition and t
What we misju
of explanatio
hat absent th
eparate bran
d a temporary
primary issue
them have ex
venue and pr
basis. In Q1’1
n Q1, we exp
al basis; that
ents and pay f
l pause on op
to do that by
rs will be relie
d DVD we can
sked us abou
three choices
new members
rease if we re
ing. Our futu
bers continue
bers also subs
% of new strea
opportunity f
ehold penetr
he same way
ncredibly low
lts
with 21.4 mi
cribers declin
and a reductio
mouth. In spi
treaming and
to the value o
udged was ho
on about the
hat explanatio
d for DVD. W
y cancellation
e is many of o
xpressed that
rofits in Q4 w
12 we’ll be lau
ect the costs
is, domestic
for global G&
pening new in
y increasing o
eved to know
n move forwa
ut the combin
: (a) streamin
s choose the
duced the pr
ure is in rapid
e to get a grea
scribe to our
aming subscri
or our $7.99
ation in just o
we built it in
price.
illion streamin
ned to 23.8 m
on in acquisit
ite of this, we
d $7.99 for un
of the service
ow quickly to
rising cost of
on, many perc
While this bran
n surge, comp
ur long‐term
t by cancelling
will be lower th
unching in the
of our entry
profits will no
&A and Techno
nternational m
our global stre
we are done
ard for a long
nation or “hyb
ng only at $7.9
$15.98 hybrid
ice for hybrid
dly expanding
at and stable
DVD service,
ibers also cur
unlimited str
one year since
the first plac
ng subscriptio
illion subscrib
ions driven b
e continued to
nlimited DVD
es, and they a
move there.
the expansio
ceived us as g
nding inciden
pared to our
members fel
g Netflix than
han we had a
e UK and Irela
into the UK a
ot be large en
ology & Deve
markets until
eaming subsc
e with pricing
time.
brid” offering
99, (b) DVD o
d offering. O
d, but if we w
g streaming, b
experience.
and we expe
rrently sign up
reaming servi
e launching s
ce: no grand
ons and 13.9
bers, driven b
y the PR stor
o experience
are both very
are the right p
We compou
on of streamin
greedy. Fina
nt further den
price change,
lt shocked by
n we expected
anticipated, b
and, as we ha
and Ireland w
nough to both
elopment. Aft
we return to
criber base fa
changes, and
g in the U.S. I
only at $7.99,
One could arg
ere going to l
but we will ma
As of today,
ect that numb
p for DVD.
ce, as indicat
service there.
gestures, jus
million DVD
both by a high
m that engul
year‐over‐ye
y aggressive l
place for Netf
unded the
ng content, a
lly, we annou
nted our
, its impact w
y the pricing
d.
but we’ll rema
ad planned. F
will push us to
h cover
ter launching
o global
ster than we
d that at $7.9
n our current
and (c) both,
gue that this
lower prices,
ake sure that
less than hal
ber to continu
ted by reachin
In the U.S., w
t amazing ser
subscriptions
her than expe
fed our brand
ear growth in
2
low
flix to
nd
unced
was
ain
For a
be
g the
99
t
, for
we
t
lf of
ue to
ng
we’ll
rvice
s.
ected
d and
gross
additions,
acquisitio
down 24%
Domestic
expected,
relative to
exceeded
fewer DV
Q4 Dom
In Q4, we
reporting
businesse
will be gu
global net
DVD subs
domestic
up in Q4.
We think
price chan
through, a
anticipate
library is f
to offer vi
to last a lo
household
nearest u
centers an
Looking a
were mos
justify pay
streaming
with our n
At the sam
the contin
negative i
additions
Decembe
, acquiring 4.7
n up compar
% from a year
revenue grew
, revenue was
o our forecast
our previous
D subscribers
mestic Outlo
are providing
on that basis
es. In the past
iding to sepa
t income and
criptions, as t
subscribers.)
DVD subscrip
nges. Our we
and in future
e any addition
fully deprecia
ideo game dis
ong time, as t
ds without ac
nlimited DVD
nd, as such, fa
t our domest
stly DVD user
ying $7.99 for
g subscription
new prices. T
me time, we c
nued strength
in October du
remain stron
r. Overall for
7 million new
ed to last yea
r ago. New su
w 44% year‐o
s within expe
t. Domestic o
s margin targe
s as well as lo
ook
g guidance fo
s going forwa
t, we have gu
rate contribu
EPS. Similarly
they drive rev
Nevertheles
ptions will dec
eekly rate of
quarters we
nal material in
ated; so at $7
scs. The decis
they serve so
ccess to high s
D‐by‐mail com
aster delivery
tic streaming
s, but paying
r it. Those su
ns. This cance
he wave peak
continue to se
h of the strea
ue to the canc
ng, net additio
r the quarter
w subscribers,
ar, but SAC of
ubscribers are
over‐year to $
ectations as su
operating prof
et of 14% due
wer overall D
or both our do
rd so investo
ided to a tota
ution profit ra
y, we will be f
venue for eac
s, we do antic
cline sharply
DVD cancella
expect DVD s
nvestment in
.99, the segm
sion will have
me unique ne
speed broadb
mpetitor, and
y.
segment, we
for both DVD
ubscribers are
ellation wave
ked a few we
ee year‐over‐
ming value p
cellation wav
ons will be ab
we expect sli
or nearly 20%
f $15 was com
e coming for
$799 million i
ubscriber can
fit of $120 m
e to fewer DV
DVD usage.
omestic DVD
rs have great
al domestic o
anges for each
focused on, a
ch of our dom
cipate that to
this quarter,
ation is steadi
subscriptions
equipment o
ment is profita
e little financia
eeds for com
band. Our $7
our service is
started the c
D and streami
e cancelling st
was triggere
eks ago and c
‐year growth
roposition. W
e referred to
bout flat in No
ghtly negativ
% year‐over‐y
mparable to Q
our market‐le
n Q3. Despit
ncellations we
illion, represe
VD shipments
and streamin
ter transpare
perating mar
h segment, as
and therefore
mestic segmen
otal unique U
as reflected i
ily shrinking,
to shrink mo
or other PP&E
able. We hav
al impact eith
pleteness, fo
7.99 pricing is
s better beca
current quart
ing and not u
treaming, wh
ed by the deb
cancellations
in weekly gro
We expect str
above, and a
ovember, and
ve streaming
year growth.
Q2’11 before
eading stream
e lower subsc
ere back‐load
enting 15% o
s than expect
ng segments,
ncy on the re
rgin target. G
s well as prov
e guiding to, s
nts (rather th
.S. subscriber
in our guidan
as the price e
ore modestly.
E and a major
ve yet to decid
her way. We
r simplicity, a
s a full 20% lo
use we have
ter with some
using streamin
ich reduces r
it and credit c
are now stea
oss additions,
reaming net a
as the wave s
d strongly pos
net additions
Not only wa
the brand hit
ming service.
cribers than
ded in the qua
perating mar
ed, in part du
and will be
espective
Going forward
viding guidanc
streaming and
han total uniq
rs will be sligh
ce, due to ou
effect washes
. We don’t
rity of our DV
de whether o
e still expect D
and for those
ower than ou
more distribu
e subscribers
ng enough to
revenue and
card bills arri
adily declining
, demonstrat
additions will
ubsides and g
sitive in
s. Streaming
3
as
t, and
arter
gin,
ue to
d, we
ce on
d
ue
htly
ur
s
VD
or not
DVDs
r
ution
who
ving
g.
ing
be
gross
hours are
streaming
The contr
of guidan
COGS and
increasing
almost at
the range
streaming
about 100
New Do
We have c
Specifical
CW, as we
competito
and Lions
new films
Sony, Mir
“The Rum
available t
“The Kille
soon for N
Our recen
season se
with Netf
Television
young adu
expanded
Communi
the servic
U.S. broad
Netflix S
There are
on quanti
concentra
titles we h
movie or T
continuing to
g hours year‐t
ribution marg
ce, due to ou
d marketing; i
g our content
par with wha
e and quality o
g member bas
0 basis points
omestic Con
continued to
ly, we have re
ell as an ongo
ors in the yea
gate relative
s in addition t
amax, MGM,
m Diaries” and
to Netflix sub
r Elite.” Curre
Netflix subscr
nt agreement
erialized telev
lix members
n respectively
ults like “Gos
d deals with A
ications, PBS,
ce in recent w
dcast networ
Streaming C
e various ways
ty, but that le
ating solely on
have. Instead
TV series gets
o climb, as m
to‐date are u
gin for domest
r increased st
it doesn’t incl
t spending, an
at HBO, the b
of content on
se over comin
s every quarte
ntent
rapidly expan
ecently closed
oing deal with
ars to come. A
to the big Ho
o the hundre
Universal, an
d the epic acti
bscribers excl
ent box office
ribers.
s with AMC a
vision in the co
like “Mad Me
y, we’ve adde
sip Girl” and
ABC, NBC Univ
and Sony Pic
weeks. At this
ks and 95% o
Content Qu
s to evaluate
eads to the lic
n quality, as m
, we think ab
s watched rel
embers who
p over 3 time
tic streaming
treaming con
lude our glob
nd in 2012 wi
biggest of the
n Netflix the b
ng quarters, w
er.
nd new conte
d output dea
h AMC, all of w
As more movi
ollywood stud
eds of movies
nd Warner Br
ion film “The
usively in the
e hits like “Pa
and the CW w
oming years.
en” and “Brea
d “The Walki
“Vampire Dia
versal, FOX, C
ctures Televis
s point, Netfli
of the U.S. cab
uality – 10x
the content o
censing of tho
measured by
bout the value
lative to othe
use streamin
es from a year
g will be low in
ntent spend. (
bal G&A or Te
ll nearly doub
premium TV
best it has eve
we plan to ta
ent on the ser
ls with Dream
which will pro
ies come from
dios, Netflix m
recently add
ros. In the nex
Immortals” w
e pay TV wind
ranormal Act
will assure the
On top of sh
aking Bad,” lic
ng Dead” fro
aries” from Th
CBS, Viacom M
sion, and we’v
x now offers
ble networks.
x of Starz
of a video‐str
ousands of ra
the number o
e of our conte
er titles, for ho
ng mostly stay
r ago, and set
n Q4, at arou
(Note: contrib
ch&Dev). W
ble what we’v
networks, sp
er been. As w
ke the stream
rvice both do
mWorks Anim
ovide a uniqu
m “mini‐majo
members will
ded from part
xt few weeks
will open in th
dow. Other re
tivity 3” and “
e flow of exclu
hows that hav
censed from
m AMC and s
he CW. Add t
Media Netwo
ve added aro
prior season
.
reaming servi
arely watched
of Oscar‐nom
ent as a funct
ow long and
y with Netflix
t new records
nd 8% assum
bution profit
We’ve been ag
ve spent this
pends in the U
we grow the d
ming contribu
omestically an
mation, Open
ue differentia
ors” like Open
enjoy a stead
tners includin
s, the new Joh
heaters and b
ecent films inc
“Footloose” w
usive – and ad
ve proven ext
Lionsgate and
series that ap
his to just ren
orks, Discover
und 3,800 ne
television co
ice. One way
d titles. At th
minated or Em
tion of how m
by how many
x streaming. O
s most weeks
ming the mid‐p
is revenue le
ggressively
year, putting
U.S. and maki
omestic
ution margin u
nd internation
Road, and Th
tor from our
n Road, Relati
dy stream of g
ng Paramount
hnny Depp fil
be among the
clude “Drive”
will also be co
ddictive – prio
tremely popu
d Sony Pictur
ppeal to teens
newed or
ry
ew TV episode
ntent from a
y is to focus p
e other extre
mmy‐nominat
much a given
y members. F
4
Our
s.
point
ss
g us
ing
up
nally.
he
vity
great
t,
m
e films
and
oming
or
ular
res
s and
es to
ll 5
urely
eme is
ted
From
that persp
because s
We have t
because w
merchand
non‐Starz
ago, the 6
streaming
Using a si
including
and that c
content th
subscribe
content se
Hulu Plus
content, w
rather tha
complem
far more c
think mos
and other
Netflix i
Radio stat
online evo
With radio
exclusivity
Sony Mus
Pandora,
offering a
In televisi
differentia
HBO has a
Netflix ha
television
strategic v
much the
pective, an Os
subs are watc
the Starz offe
we have adde
dising). In oth
z title. Includi
6% figure wou
g content sele
milar techniq
the TV progra
content contr
hat is availab
rs. Therefore
election expla
is harder to a
which Netflix
an paying for
entary conten
complete tha
st people who
r devices.
s the Conte
tions and tele
olution of mu
o, automatic,
y over the mu
sic exclusively
Rhapsody, Sp
nearly comp
on, by contra
ate among th
an exclusive l
s signed exclu
, exclusives a
value in keep
same reason
scar‐nominat
ching the real
ering within o
ed so many ot
her words, 94
ing the Sony f
uld rise to abo
ection of full S
que, we have
ams announc
ributes a sma
le on Netflix r
e, when evalu
ains why we h
analyze becau
does not car
the Plus‐spec
nt model to u
an Hulu Plus, a
o pay for Hulu
ent Leader
evision netwo
usic and video
, non‐negotia
usic played by
y. As music m
potify, iTunes
plete selection
ast, the netwo
hemselves. A
icense to rece
usive licenses
are also the no
ing it exclusiv
n.
ted film may b
ity show mor
our service, an
ther movies a
4% of the time
films from Sta
out 10%. Fro
Starz, in term
analyzed all t
ced but not ye
ll fraction of
represents m
uating Amazo
have not seen
use we think
ry, such as th
cific content.
us, like sports
and our movi
u Plus are doi
– but Video
orks develope
o streaming se
able, statutory
y different rad
moved online
, Amazon, an
n of songs.
orks (ABC, FX
s video move
ent Universal
s for DreamW
orm. Netflix
ve. Netflix lic
be of less valu
re than the Os
nd it is curren
and TV shows
e members st
arz, which Sta
m this perspe
s of what con
the video con
et live. We h
Netflix viewin
ore than half
on Prime as a
n much usage
most Hulu Pl
is week’s SNL
In this sense
or news subs
ie content is v
ing so for last
o is not Mu
ed with differ
ervices to a la
y music licens
dio stations.
from radio, t
nd others – co
, etc.) have lo
es online, so t
l movies that
Works Animat
doesn’t licen
censes “Mad M
ue to Netflix s
scar‐nominat
ntly running a
s (with no bia
tream from N
arz removed f
ective, Netflix
nsumers actu
ntent offered
ave essential
ng. Specifical
f of hours view
competitive s
e of Amazon
us subs are p
L clips, on the
e, Hulu Plus c
scriptions. O
vastly larger t
t‐night’s TV e
usic
ent content l
arge extent re
sing meant th
Clear Channe
he music labe
ontinued this
ong relied upo
too has this p
includes its o
ion, for Relat
se “Deadwoo
Men” and “H
subscribers t
ted movie.
about 6% of v
s one way or
Netflix, they a
from Netflix s
x has about te
ally choose to
through Ama
lly all of this c
lly, the duplic
wed for only
stand‐alone o
Prime in our
paying to get c
eir TV‐connec
current seaso
Our prior seas
than Hulu Plu
pisodes on th
icensing mod
eflects that le
hat there wou
el, for examp
els and major
non‐exclusiv
on exclusive c
ractice of exc
online HBO G
tivity, and oth
od” from HBO
ouse of Card
han “Pawn St
viewing hours
the other in
are watching a
several mont
en times the
o watch.
azon Prime,
content on Ne
cative Amazo
2% of our
offering, this
research.
current seaso
cted devices,
on TV is just a
son TV offerin
us, but, again,
heir PS3, iPad
dels, and the
egacy.
uld be no
ple, doesn’t ge
r music servic
e practice,
content to
clusive conten
O, for examp
hers. In episo
O because the
s” exclusively
5
tars,”
s
our
a
hs
etflix,
n
low
on TV
ng is
, we
s,
et
ces –
nt.
ple.
odic
ey see
y for
We have d
existing li
carved up
one anoth
exception
While we
cable, we
very low p
experienc
specificall
they’ll enj
We don’t
television
which allo
we do pro
have only
But with p
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2,460 68$
1.19 $
1.16 $
52,569 5
53,870 5
Three Mont
30, Septemb
1 201
8,610 553$
8,203 292
1,775 52
9,978 344
8,632 208
7,865 42
4,983 81
0,670 15
3,518 139
5,114 69
5,303) (4
1,013
0,824 65
2,610 27
8,214 37$
1.30 $
1.26 $
2,470 5
3,909 5
ths Ended
ber 30, Septemb
0 201
3,219 2,32$
2,406 1,27
2,063 18
4,469 1,46
8,750 86
2,108 17
1,238 28
5,903 8
9,249 55
9,501 31
4,945) (1
853
5,409 30
7,442 11
7,967 19$
0.73 $
0.70 $
52,142 5
53,931 5
Ni
ber 30, Septem
11 201
29,002 1,56$
7,018 81
7,728 14
4,746 96
4,256 60
8,250 11
8,350 23
3,460 4
0,060 39
4,196 20
5,083) (1
3,574
2,687 19
1,780 7
90,907 11$
3.63 $
3.53 $
52,599
54,008
ne Months Ended
13
ber 30,
10
66,703
17,353
49,212
66,565
00,138
17,370
30,990
46,590
94,950
05,188
14,797)
2,746
93,137
79,379
13,758
2.17
2.09
52,510
54,341
d
Netflix, In
Consolida(unaudited
(in thousan
Assets
Current ass
Cash a
Short‐te
Current
Prepaid
Other c
To
Content l ib
Property a
Deferred ta
Other non‐
To
Liabilities a
Current l ia
Accoun
Accrued
Current
Deferre
To
Long‐term d
Lease finan
Other non‐
To
Stockholde
Additiona
Accumula
Retained
To
To
Common
authorize
52,504,0
Septembe
nc.
ated Balance Sd)
nds, except sha
sets:
nd cash equiva
erm investment
t content l ibrar
d content
current assets
otal current ass
brary, net
nd equipment, n
ax assets
‐current assets
otal assets
and Stockholder
bil ities:
nts payable
d expenses
t portion of leas
ed revenue
otal current l iab
debt
ncing obligation
‐current l iabilit
otal l iabil ities
ers' equity:
al paid‐in capit
ated other comp
earnings
otal stockholde
otal l iabil ities a
stock, $0.001 p
ed at September
91 and 52,781,
er 30, 2011 and
Sheets
re and par valu
lents
ts
y, net
sets
net
rs' Equity
se financing ob
bilities
ns, excluding cu
ies
tal
prehensive inco
ers' equity
and stockholde
par value; 160,0
r 30, 2011 and D
949 issued and
d December 31,
ue data)
l igations
urrent portion
ome, net
rs' equity
000,000 shares
December 31, 2
d outstanding at
2010, respectiv
Sep
$
$
$
$
010;
t
vely
tember 30, D
2011
159,199 $
206,573
705,398
77,146
41,797
1,190,113
570,210
143,993
28,743
28,499
1,961,558 $
750,107 $
54,671
2,259
160,929
967,966
200,000
32,400
372,840
1,573,206
53
‐
588
387,711
388,352
1,961,558 $
As of
December 31,
2010
194,499 $
155,888
181,006
62,217
43,621
637,231
180,973
128,570
17,467
17,826
982,067 $
222,824 $
36,489
2,083
127,183
388,579
200,000
34,123
69,201
691,903
53
51,622
750
237,739
290,164
982,067 $
14
Netflix, Inc.
Consolidated(unaudited)
(in thousands
Cash flows fro
Net income
Adjustments
provided b
Additions
Change i
Amortiza
Amortiza
Deprecia
Stock‐bas
Excess ta
Other no
Deferred
Changes
Prepaid
Other c
Other a
Accrue
Deferre
Other n
Net
Cash flows fro
Acquisitions
Purchases of
Proceeds fro
Proceeds fro
Purchases of
Other assets
Net
Cash flows fro
Principal pa
Proceeds fro
Excess tax be
Repurchases
Net
Net increase (
Cash and cas
Cash and cash
Non‐GAAP free
Net cash pro
Acquisitions
Purchases of
Other assets
Non‐GAAP fr
d Statements of Ca
s)
om operating activiti
to reconcile net inc
by operating activitie
s to streaming conte
n streaming content
tion of streaming co
tion of DVD content
tion and amortizatio
sed compensation ex
ax benefits from stoc
n‐cash items
taxes
in operating assets
d content
current assets
accounts payable
d expenses
ed revenue
non‐current assets a
cash provided by op
om investing activitie
of DVD content l ibr
f short‐term investm
om sale of short‐term
om maturities of sho
f property and equip
cash used in investi
om financing activitie
yments of lease fina
om issuance of comm
enefits from stock‐ba
s of common stock
cash used in financ
(decrease) in cash an
h equivalents, begin
h equivalents, end of
e cash flow reconcilia
ovided by operating a
of DVD content l ibr
f property and equip
ree cash flow
ash Flows
es:
ome to net cash
es:
ent l ibrary
liabil ities
ontent l ibrary
library
on of property, equip
xpense
ck‐based compensati
and l iabil ities:
nd l iabil ities
perating activities
es:
ary
ments
m investments
rt‐term investments
pment
ing activities
es:
ncing obligations
mon stock
ased compensation
ing activities
nd cash equivalents
ning of period
f period
ation:
activities
ary
pment
pment and intangibl
ion
September 30,
2011
62,460 $
(539,285)
314,720
187,446
23,000
es 11,913
15,705
(11,761)
(1,745)
(5,281)
(17,335)
(8,578)
(5,422)
20,920
13,992
(11,218)
49,531
(20,826)
(7,673)
37
1,805
(14,080)
(844)
(41,581)
(526)
4,409
11,761
(39,602)
(23,958)
(16,008)
175,207
159,199 $
September 30,
2011
49,531 $
(20,826)
(14,080)
(844)
13,781 $
Thr
Thr
June 30, Sep
2011
68,214 $ $
(612,595)
419,832
144,466
24,000
10,182
15,536
(17,868)
(802)
(3,927)
14,787
4,015
(4,465)
17,941
3,892
3,184
86,392
(19,065)
(40,597)
16,510
15,985
(8,626)
844
(34,949)
(520)
7,418
17,868
(51,421)
(26,655)
24,788
150,419
175,207 $ $
June 30, Sep
2011
86,392 $ $
(19,065)
(8,626)
844
59,545 $ $
ree Months Ended
ree Months Ended
ptember 30, Septe
2010
37,967 $
(115,149) (1
58,638
44,568
32,578
8,678
7,296
(16,093)
(1,754)
3,194
(25,485)
(3,374)
(10,914)
18,003
1,567
2,507
42,227
(29,900)
(15,379)
42,238
1,995
(7,342)
2,782
(5,606)
(470)
10,927
16,093
(57,390)
(30,840)
5,781
107,327
113,108 $
ptember 30, Septe
2010
42,227 $
(29,900)
(7,342)
2,782
7,767 $
ember 30, Septem
2011 20
190,907 1$
1,344,187) (2
816,620
417,849
73,990 1
31,921
43,505
(45,283)
(3,472)
(14,190)
(14,928)
4,935
4,948
61,531
33,746
(5,646)
252,246 1
(62,010)
(100,536)
31,508 1
18,440
(39,026)
1,419
(150,205)
(1,547)
18,589
45,283
(199,666) (2
(137,341) (1
(35,300)
194,499 1
159,199 1$
ember 30, Septem
2011 20
252,246 1$
(62,010)
(39,026)
1,419
152,629 $
Nine Months Ende
Nine Months Ende
15
mber 30,
010
113,758
231,781)
88,197
93,091
111,490
28,846
19,726
(34,699)
(7,814)
(2,961)
(32,581)
(12,037)
1,246
39,666
2,889
2,648
179,684
(90,993)
(73,169)
105,063
10,318
(19,406)
10,289
(57,898)
(1,296)
33,954
34,699
210,259)
142,902)
(21,116)
134,224
113,108
mber 30,
010
179,684
(90,993)
(19,406)
10,289
79,574
ed
ed
Netflix, Inc
Other Data
(unaudited)
Domestic su
Subscribe
Gross sub
Gross su
Gross su
Less subsc
Net subsc
Subscribe
Subscri
Subscri
Free subscr
Free subsc
Paid subscr
Paid subs
Paid subs
Average mo
Domestic ch
Domestic su
Consolidate
Gross mar
Operating
Net margi
Consolidate
Technolog
Marketing
General a
Total op
Consolidate
Total reve
Cost of su
Fulfi l lmen
Technolog
Marketing
General a
Total op
(in thousan
subscriber a
c.
a
ubscriber informa
ers: beginning of
bscriber addition
ubscriber additio
ubscriber additio
criber cancellati
riber additions: d
ers: end of period
bers year‐to‐yea
bers quarter‐to‐q
ibers: end of per
cribers as percen
ribers: end of per
cribers year‐to‐y
cribers quarter‐t
nthly revenue pe
hurn
ubscriber acquisit
d margins:
rgin
g margin
n
d expenses as pe
gy and developme
g
nd administrativ
perating expenses
d year‐to‐year ch
enues
bscription
nt expenses
gy and developme
g
nd administrativ
perating expenses
ds, except percen
and subscriber a
ation:
period
ns: during period
ons year‐to‐year
ons quarter‐to‐qu
ons: during perio
during period
d
r change
quarter sequentia
iod
ntage of ending s
riod
year change
to‐quarter seque
er paying subscri
tion cost
ercentage of reve
ent
ve
s
hange:
ent
ve
s
ntages, average m
acquisition cost)
change
uarter sequentia
od
al change
ubscribers
ntial change
ber
enues:
monthly revenue
S
l change
$
$
S
per paying
September 30,
2011
24,594
4,714
18.9%
(11.3%)
(5,519)
(805)
23,789
41.6%
(3.3%)
946
4.0%
22,843
44.0%
(1.8%)
11.56$
6.3%
15.25$
September 30,
2011
34.7%
11.8%
7.6%
8.5%
10.8%
3.6%
22.9%
48.6%
61.4%
24.5%
65.0%
9.7%
87.3%
35.3%
As o
June 30,
2011
22,
5,
73
(15
(3,
1,
24,
63
7
1,
5
23,
59
8
11$
4
15$
June 30,
2011
37
14
8
7
12
4
23
5
6
24
52
27
102
43
of / Three Month
Three Months E
Septemb
2010
797 1
315
3.7%
5.6%)
518) (
797
594 1
3.9%
7.9%
331
5.4%
263 1
9.6%
8.7%
1.49 $
4.2%
5.09 $
Septemb
2010
7.9%
4.6%
8.6%
7.3%
2.0%
4.0%
3.3%
1.7%
1.4%
4.7%
2.8%
7.4%
2.5%
3.9%
hs Ended
nded
16
ber 30,
0
15,001
3,965
81.9%
29.6%
(2,166)
1,799
16,800
51.2%
12.0%
937
5.6%
15,863
46.4%
8.8%
12.12
3.8%
20.03
ber 30,
0
37.7%
12.6%
6.9%
7.6%
14.7%
2.8%
25.1%
30.7%
25.4%
23.4%
40.3%
38.7%
60.0%
41.4%
Netflix, Inc
Segment In
(unaudited)
Domestic
Free sub
Paid su
Total subs
Revenue
Cost of rev
Contributi
Other ope
Segment o
Internationa
Free sub
Paid su
Total subs
Revenue
Cost of rev
Contributi
Consolidate
Free sub
Paid su
Total subs
Revenue
Cost of rev
Contributi
Other ope
Operating
Other inco
Provision
Net Incom
* Contributi
(in thousand
** “Technolo
have been re
c.
nformation
bscribers at end o
bscribers at end
scribers at end of
venues and mark
ion profit*
rating expenses
operating income
al**
bscribers at end o
bscribers at end
scribers at end of
venues and mark
ion profit (loss)*
d
bscribers at end o
bscribers at end
scribers at end of
venues and mark
ion profit*
rating expenses
g income
ome (expense)
for income taxes
me
on profit (loss) i
ds)
ogy and Developm
eclassified to con
of period
of period
f period
keting expenses
of period
of period
f period
keting expenses
of period
of period
f period
keting expenses
s
s defined as reve
ment” and “Gene
nform to the curr
September 30
2011
946
22,843
23,789
799,152$
579,720
219,432
99,272
120,160$
491
989
1,480
22,687$
46,005
(23,318
1,437
23,832
25,269
821,839$
625,725
196,114$
99,272
96,842
(3,219
31,163
62,460$
enues less cost of
As
ral and Administ
rent period prese
0, June 30,
2011
6 1,331
3 23,263
9 24,594
2 769,714$
0 556,719
2 212,995
2 88,535
0 124,460$
1 110
9 857
0 967
7 18,896$
5 28,242
8) (9,346
7 1,441
2 24,120
9 25,561
9 788,610$
5 584,961
4 203,649
2 88,535
2 115,114$
9) (4,290
3 42,610
0 68,214$
f revenues and m
of / Three Month
trative” amounts
ntation.
September 3
2010
93
15,86
16,80
553,21$
423,01
130,20
58,01
72,19$
13
‐
13
$
2,69
) (2,69
1,07
15,86
16,93
553,21$
425,70
127,51
58,01
69,50$
) (4,09
27,44
37,96$
arketing expense
hs Ended
reported in the In
0, September
2011
37
63 22,
00 23,
19 2,275,$
13 1,655,
06 619,
11 261,
95 357,$
33
33 1,
‐ 53,$
94 97,
94) (43,
70 1,
63 23,
33 25,
19 2,329,$
07 1,753,
12 575,
11 261,
01 314,$
92) (11,
42 111,
67 190,$
es.
As of / N
nternational segm
r 30, Septemb
201
946
,843 1
,789 1
,140 1,56$
,828 1,19
,312 37
,710 16
,602 20$
491
989
,480
,862 $
,268
,406) (
,437
,832 1
,269 1
,002 1,56$
,096 1,19
,906 36
,710 16
,196 20$
,509) (1
,780 7
,907 11$
Nine Months End
ment in prior per
17
ber 30,
0
937
15,863
16,800
66,703
94,861
71,842
63,960
07,882
133
‐
133
‐
2,694
(2,694)
1,070
15,863
16,933
66,703
97,555
69,148
63,960
05,188
12,051)
79,379
13,758
ded
riods
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