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Netflix Guides to GAAP Profitability for 2Q 2003 Adopts SFAS No. 123 for Expensing Stock Options

Jun 09, 2003
Netflix Guides to GAAP Profitability for 2Q 2003 Adopts SFAS No. 123 for Expensing Stock Options

LOS GATOS, CA – June 9, 2003 -- Netflix, Inc. (Nasdaq: NFLX) updated guidance today for the second quarter ending June 30, 2003.

The Company expects to generate GAAP net income of between $3.0 and $4.0 million, its first profitable quarter ever on a GAAP net income basis.

Revised Guidance

The Company revised guidance for the second quarter as follows:


  • Ending subscribers of 1,130 to 1,150 thousand, from 1,110 to 1,160 thousand.
  • Average monthly subscriber churn of 5.7 to 5.9%, from 5.0 to 6.25%.
  • Revenue of $62 to $64 million, from $60 to $64 million.
  • Gross margin of 43 to 45%, from 42 to 44%.
  • Subscriber acquisition cost of $31 to $33, from $32 to $36.
  • Non-GAAP net income of $4.4 to $5.9 million, from $0.5 to $3.0 million.
  • GAAP net income of $3.0 to $4.0 million, from a net loss of $600 thousand to net income of $400 thousand.
  • EBITDA of $14.5 to $16.5 million, from $10 to $13 million.

Expensing of Stock Options

The Company will adopt the fair value based method of recording stock-based compensation expense, which is contained in SFAS No. 123, Accounting for Stock-Based Compensation when it reports results for the second quarter. The Company will adopt SFAS No.123 in accordance with the Retrospective Restatement Method contained in SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123. In accordance with the Retrospective Restatement Method, the Company will restate prior periods in order to provide consistency and comparability between periods. Historically, the Company has recorded stock-based compensation expense in accordance with Accounting Principles Board Opinion No. 25 and related interpretations. The Company expects no material financial impact in the second quarter related to the adoption of fair value accounting for stock option expense but does expect to incur additional expense in future quarters related to this change in accounting.

About Netflix

Launched in 1998, Netflix is the world's largest online movie rental service, providing more than one million subscribers with access to a comprehensive library of more than 15,000 DVD titles. For $19.95 a month, Netflix subscribers can rent as many DVDs as they want, with three movies out at a time, and keep them for as long as they like. There are no due dates and no late fees. DVDs are delivered directly to the subscriber's address by first-class mail from shipping centers throughout the United States. Netflix can reach more than half of its subscribers with generally next-day delivery. The company also provides background information on DVD releases, including critic reviews, member reviews and ratings and personalized movie recommendations. For more information on the company, visit

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the securities laws, including statements regarding our ending subscribers, churn, revenue, gross margin, subscriber acquisition costs, non-GAAP net income, GAAP net income and EBITDA for the second quarter of 2003. These statements 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, fluctuation in the number of DVDs shipped to our subscribers and variations in the mix between revenue sharing titles and titles not subject to revenue sharing that are delivered to our subscribers; disruption in service on our website or with our computer systems; as well as conditions that affect our delivery through the U.S. Postal Service. 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 Annual Report on Form 10-K filed with the SEC on March 31, 2003. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.

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