Netflix Coasts Into 2008: Fool by Numbers

On Jan. 23, online video pioneer Netflix (Nasdaq: NFLX  ) released earnings for the 2007 fiscal year -- a period ended Dec. 31, 2007.

  • My prediction of 7.5 million subscribers proved correct -- 6% growth from the previous quarter and 18% year over year.
  • On the other hand, it cost Netflix only $40.88 to attract each new customer in 2007, compared to $42.96 per head in 2006. Light marketing at the end of the year helped the company cross the finish line at just $34.60 per gross addition in the fourth quarter.
  • Ponder this chain reaction: 18% more subscribers begat 21% higher sales, which in turn sired 36% fatter net profits, father of 37% EPS growth. This is one efficient business machine.

(Figures are in millions, except per-share data.)

Income Statement Highlights

FY 2007

FY 2006

Change

Sales

$1,205.3

$996.7

20.9%

Net Profit

$67.0

$49.1

36.4%

EPS

$0.97

$0.71

36.6%

Diluted Shares

68.9

69.1

(0.3%)

Get back to basics with the income statement.

Margin Checkup

FY 2007

FY 2006

Change*

Gross Margin

34.8%

37.1%

(2.3)

Operating Margin

7.6%

6.5%

1.1

Net Margin

5.6%

4.9%

0.6

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

FY 2007

FY 2006

Change

Cash + Short-term Investments

$385.1

$400.4

(3.8%)

Content Library

$132.5

$104.9

26.3%

Liabilities

FY 2007

FY 2006

Change

Accounts Payable

$104.4

$93.9

11.3%

Long-Term Debt

$0.0

$0.0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

FY 2007

FY 2006

Change

Cash From Ops.

$290.1

$247.9

17.1%

Capital Expenditures

$44.3

$27.3

61.9%

Free Cash Flow

$245.9

$220.5

11.5%

Owner Earnings

$247.4

$178.8

38.3%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

Apple (Nasdaq: AAPL  )

$122,193

30.5

***

Amazon.com (Nasdaq: AMZN  )

$30,711

85.4

**

Time Warner Cable (NYSE: TWC  )

$24,228

23.3

**

Netflix

$1,563

25.1

**

Blockbuster (NYSE: BBI  )

$674

N/A

*

Using the latest reported numbers from Capital IQ. Keep your partners close and the competition in your vest pocket.

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