Netflix Ain't Hurting: Fool by Numbers

On July 23, online DVD rental pioneer Netflix (Nasdaq: NFLX) released second-quarter earnings for the period ended June 30.

• For more analysis on Netflix, Foolish contributor Rick Munarriz digs into the earnings release.
• Solid earnings and sales, with a healthy cash balance and widening income margins -- you wouldn't know from the numbers that Netflix is in a bitter battle for market share with old-line incumbent Blockbuster (NYSE: BBI).
• That is, unless you also look at subscriber additions, where Netflix actually lost more customers than it gained this quarter -- for the first time in company history.
• In response to Blockbuster's aggressive value proposition for consumers, Netflix has cut its own plan rental prices and balanced that revenue sacrifice with a lower marketing budget. In the current situation, management thinks that presenting cheaper rentals is the way to win customers' hearts, rather than a full-on marketing blitz.
• Settling the patent lawsuit against Blockbuster added $4.1 million to net income, or $0.06 per share.
• Netflix is a two-star stock in CAPS, our free interactive stock database. That's a step up from Blockbuster's one-star (out of five) ranking.  

(Figures in millions, except per-share data)

Income Statement Highlights

	Q2 2007	Q2 2006	Change
Sales	$303.7	$239.4	26.9%
Net Profit	$25.6	$17.0	50.1%
EPS	$0.37	$0.25	48.0%
Diluted Shares	69.9	69.2	1.0%

Get back to basics with the income statement.

Margin Checkup

	Q2 2007	Q2 2006	Change*
Gross Margin	35.2%	37.2%	(2.0)
Operating Margin	12.6%	10.0%	2.6
Net Margin	8.4%	7.1%	1.3

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q2 2007	Q2 2006	Change
Cash + ST Invest.	$378.0	$341.7	10.6%
Content Library	$113.9	$79.0	44.1%

Liabilities	Q2 2007	Q2 2006	Change
Accounts Payable	$70.8	$70.8	0.0%
Long-Term Debt	$0.0	$0.0	N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

	Q2 2007	Q2 2006	Change
Cash From Ops.	$72.1	$53.3	35.3%
Capital Expenditures	$9.0	$3.9	130.4%
Free Cash Flow	$63.2	$49.4	27.8%

Free cash flow is a Fool's best friend.

Related Foolishness:

• Red Mailers, Blue Investors
• Foolish Forecast: Netflix Is the Cat's Meow
• Blockbuster's Joy-Buzzer Handshake
• Fool.com: Wrath of the DVD [Post of the Day] February 14, 2007

Netflix is an official Motley Fool Stock Advisor recommendation and an honorary Rule Breaker. Read all about it with a handful of free 30-day trial passes.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund was a Netflix shareholder, but had no other position in any company mentioned. Fool rules are here.