Subscribers - 15.0 million
Revenue - $519.8 million
GAAP Net Income - $43.5 million
GAAP EPS - $0.80 per diluted share
LOS GATOS, Calif., July 21 -- Netflix, Inc. (Nasdaq: NFLX) today reported results for the second quarter ended June 30, 2010.
“Our rate of subscriber growth continues to accelerate and we added more than a million net new subscribers for the third consecutive quarter,” said Netflix Co-Founder and CEO Reed Hastings. “Consumers are clearly enthralled by our offering of unlimited movies and TV shows streamed over the Internet.”
Second-Quarter 2010 Financial Highlights
Subscribers. Netflix ended the second quarter of 2010 with approximately 15,001,000 total subscribers, representing 42 percent year-over-year growth from 10,599,000 total subscribers at the end of the second quarter of 2009 and 7 percent sequential growth from 13,967,000 subscribers at the end of the first quarter of 2010.
Net subscriber change in the quarter was an increase of 1,034,000 compared to an increase of 289,000 for the same period of 2009 and an increase of 1,699,000 for the first quarter of 2010.
Gross subscriber additions for the quarter totaled 3,059,000, representing 58 percent year-over-year growth from 1,936,000 gross subscriber additions in the second quarter of 2009 and 12 percent quarter-over-quarter decline from 3,492,000 gross subscriber additions in the first quarter of 2010.
Of the 15,001,000 total subscribers at quarter end, 97 percent, or 14,577,000, were paid subscribers. The other 3 percent, or 424,000, were free subscribers. Paid subscribers represented 98 percent of total subscribers at the end of the second quarter of 2009 and at the end of the first quarter of 2010.
Revenue for the second quarter of 2010 was $519.8 million, representing 27 percent year-over-year growth from $408.5 million for the second quarter of 2009, and 5 percent sequential growth from $493.7 million for the first quarter of 2010.
Gross margin(1) for the second quarter of 2010 was 39.4 percent compared to 34.1 percent for the second quarter of 2009 and 37.8 percent for the first quarter of 2010.
GAAP net income for the second quarter of 2010 was $43.5 million, or $0.80 per diluted share compared to GAAP net income of $32.4 million, or $0.54 per diluted share, for the second quarter of 2009 and GAAP net income of $32.3 million, or $0.59 per diluted share, for the first quarter of 2010. GAAP net income grew 34 percent on a year-over-year basis and GAAP EPS grew 48 percent on a year-over-year basis.
Percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie in the second quarter of 2010 was 61 percent compared to 37 percent for the same period of 2009 and 55 percent for the first quarter of 2010.
Subscriber acquisition cost(2) for the second quarter of 2010 was $24.37 per gross subscriber addition compared to $23.88 for the same period of 2009 and $21.54 for the first quarter of 2010.
Churn(3) for the second quarter of 2010 was 4.0 percent compared to 4.5 percent for the second quarter of 2009 and 3.8 percent for the first quarter of 2010. Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.
Free cash flow(4) for the second quarter of 2010 was $34.2 million compared to $26.3 million for the second quarter of 2009 and $37.6 million for the first quarter of 2010.
Last twelve-month free cash flow for the second quarter of 2010 was $127.5 million compared to $118.6 million for the second quarter of 2009 and $119.6 million for the first quarter of 2010.
Cash provided by operating activities for the second quarter of 2010 was $60.3 million compared to $75.3 million for the second quarter of 2009 and $77.2 million for the first quarter of 2010.
Business Outlook
The Company’s performance expectations for the third and fourth quarters of 2010 and full-year 2010 are as follows:
Third-Quarter 2010
* Ending subscribers of 16.3 million to 16.7 million
* Revenue of $546 million to $554 million
* GAAP net income of $33 million to $40 million
* GAAP EPS of $0.61 to $0.74 per diluted share
Fourth-Quarter 2010
* Ending subscribers of 17.7 million to 18.5 million
* Revenue of $580 million to $596 million
* GAAP net income of $32 million to $40 million
* GAAP EPS of $0.58 to $0.73 per diluted share
Full-Year 2010
* Ending subscribers of 17.7 million to 18.5 million, up from 16.5 million to 17.3 million
* Revenue of $2.14 billion to $2.16 billion, up from $2.11 billion to $2.16 billion
* GAAP net income of $141 million to $156 million, up from $132 million to $144 million
* GAAP EPS of $2.58 to $2.86 per diluted share, up from $2.41 to $2.63 per diluted share
Earnings Q&A Session
In conjunction with this earnings press release, the Company has posted management’s commentary to its Web site at http://ir.netflix.com. Netflix management will host a live Q&A session at 3:00 p.m. Pacific Time to discuss the Company’s financial results and business outlook, with questions submitted via email. Please email your questions to [email protected]. (Please note this new email address). 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) 540-3947or [email protected].
A live webcast and the replay of the earnings Q&A session can be accessed on the investor relations section of the Netflix website at http://ir.netflix.com. For those without access to the Internet, a replay of the call will be available from 6:00 p.m. Pacific Time on July 21, 2010 through midnight on July 24, 2010. To listen to the replay, call (706) 645-9291, conference ID 84659036.
Use of Non-GAAP Measures
This press release and its attachments include reference to non-GAAP financial measures of free cash flow and non-GAAP net income. 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 15 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 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; and Apple’s iPad tablet. For more information, visit http://www.netflix.com.
