Netflix Q4 Profits Up 45%, Streaming Gains ‘Momentum’
Online DVD rental and video streaming service
Netflix reported (pdf) better-than expected profits for the fourth-quarter (ended Dec. 31) and forecast 2009 revenue and earnings that met analysts' estimates. Subscriber acquisition costs were down nearly 23% from a year earlier.
"Consumers embraced the
Netflix experience in near record numbers last quarter," said Reed Hastings, Netflix cofounder and chief executive officer, "with growth in our core DVD offering and growing momentum with internet streaming."
GAAP net income for the fourth quarter was $22.7 million, or $0.38 per diluted share, compared with GAAP net income of $15.7 million, or $0.23 per diluted share, for the fourth quarter of 2007--and GAAP net income of $20.4 million, or $0.33 per diluted share, for the third quarter of 2008.
Q4 GAAP net income grew 45% on a year-over-year basis and GAAP EPS grew 65% on a year-over-year basis.
Non-GAAP net income was $24.6 million, or $0.41 per diluted share, for the fourth quarter of 2008, compared with non-GAAP net income of $17.7 million, or $0.26 per diluted share, for the fourth quarter of 2007 and non-GAAP net income of $22.1 million, or $0.36 per diluted share, for the third quarter of 2008.
(Non-GAAP net income equals net income on a GAAP basis before stock-based compensation expense, net of taxes.)
Revenue for the fourth quarter was $359.6 million, or 19% year-over-year growth from $302.4 million for the fourth quarter of 2007, and a 5% sequential increase from $341.3 million for the third quarter of 2008.
Netlix in October lowered revenue projections for Q4 to $353-$359 million.
Analysts had expected Q4 net earnings of $0.34 per share, adjusted earnings of $0.37 per share, and revenue of $354.2 million,
according to Reuters.
Gross margin for the fourth quarter of 2008 was 35.2%, compared with 33.8% for the fourth quarter of 2007 and 34.2% for the third quarter of 2008.
Full-Year 2008
GAAP net income for fiscal 2008 was $83.0 million, or $1.32 per diluted share compared with GAAP net income of $66.6 million, or $0.97 per diluted share, for fiscal 2007. GAAP net income grew 25% on a year-over-year basis and GAAP EPS grew 36% on a year-over-year basis.
Non-GAAP net income was $90.7 million, or $1.44 per diluted share, for fiscal 2008 compared with non-GAAP net income of $73.8 million, or $1.07 per diluted share, for fiscal 2007. Non-GAAP net income grew 23% on a year-over-year basis and non-GAAP EPS grew 35% on a year-over-year basis.
Revenue for fiscal 2008 was $1.365 billion, up 13% from $1.205 billion for fiscal 2007.
Gross margin for fiscal 2008 was 33.3% compared with 34.8% for fiscal 2007.
Business Outlook
The company's performance expectations for the first quarter of 2009 and full-year 2009:
First-Quarter 2009
- Ending subscribers of 10.1 million to 10.3 million
- Revenue of $387 million to $393 million
- GAAP net income of $15 million to $20 million
- GAAP EPS of $0.25 to $0.33 per diluted share
Full-Year 2009
- Ending subscribers of 10.6 million to 11.3 million
- Revenue of $1.58 billion to $1.635 billion
- GAAP net income of $88 million to $98 million
- GAAP EPS of $1.43 to $1.59 per diluted share
Other Financial Highlights
Subscribers: Netflix ended the fourth quarter of 2008 with approximately 9,390,000 total subscribers, or 26% year-over-year growth from 7,479,000 total subscribers at the end of the fourth quarter of 2007 and 8% sequential growth from 8,672,000 subscribers at the end of the third quarter of 2008.
- Net subscriber change in the quarter was an increase of 718,000, compared with an increase of 451,000 for the same period of 2007 and an increase of 261,000 for the third quarter of 2008.
- Gross subscriber additions for the quarter totaled 2,085,000, or 39% year-over-year growth from 1,495,000 gross subscriber additions in the fourth quarter of 2007 and 36% quarter-over-quarter growth from 1,528,000 gross subscriber additions in the third quarter of 2008.
- Of the 9,390,000 total subscribers at quarter's end, 98%, or 9,164,000, were paid subscribers. The other 2%, or 226,000, were free subscribers. Paid subscribers accounted for 98% of total subscribers at the end of the fourth quarter of 2007 and at the end of the third quarter of 2008.
Stock-based compensation was $3.2 million for the fourth quarter of 2008 and the fourth quarter of 2007 and $3.0 million for the third quarter of 2008. Stock-based compensation for fiscal 2008 was $12.3 million compared with $12.0 million for fiscal 2007. 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 for the fourth quarter of 2008 was $26.67 per gross subscriber addition, compared with $34.58 for the same period of 2007 and $32.21 for the third quarter of 2008. SAC for fiscal 2008 was $29.12 per gross subscriber addition compared with $40.86 for fiscal 2007.
Churn for the fourth quarter of 2008 was 4.2%, compared with 4.1% for the fourth quarter of 2007 and 4.2% for the third quarter of 2008. Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.
Free cash flow for the fourth quarter of 2008 was $51.0 million compared with $21.1 million in the fourth quarter of 2007 and $26.2 million for the third quarter of 2008. Free cash flow for fiscal 2008 was $94.7 million compared with $45.9 million in fiscal 2007.
Cash provided by operating activities for the fourth quarter of 2008 was $92.1 million compared with $87.6 million for the fourth quarter of 2007 and $60.5 million for the third quarter of 2008. Cash provided by operating activities for fiscal 2008 was $284.0 million compared with $277.4 million for fiscal 2007.
Stock Buyback
Netflix also announced that its Board of Directors has authorized a stock repurchase program for 2009. Based on the Board's authorization, the Company anticipates a repurchase program of up to $175 million.
