On Oct. 22, movies-by-mail pioneer Netflix (NASDAQ:NFLX) released third-quarter earnings for the period ended Sept. 30, 2007.

  • To go beyond the numbers, read the earnings take from Fool Rick Munarriz to see why there are 7 million reasons to like Netflix.
  • When the competition ends a very effective marketing campaign that it can't afford ... Netflix picks up growth right where it left off. We saw that one coming.
  • Few balance sheets are as easy to read as this one. Netflix records all sales as cash, so there are no accounts receivable, and the company is debt-free. It's as close to cash accounting as a company with $1.1 billion in annual sales can get.
  • Netflix grew its subscriber count by 4.2% sequentially over last quarter after reporting its first-ever sequential drop in the second quarter. The monthly churn rate pulled back 0.4 percentage points to 4.2%, and the company spent $38 in marketing for each new subscriber -- down from $44 last quarter and $45 a year ago.

(Figures in millions, except per-share data)

Income Statement Highlights

Q3 2007

Q3 2006

Change

Sales

$294.0

$256.0

14.9%

Net Profit

$15.7

$12.8

23.1%

EPS

$0.23

$0.18

27.8%

Diluted Shares

68.1

70.3

(3.2%)

Get back to basics with the income statement.

Margin Checkup

Q3 2007

Q3 2006

Change*

Gross Margin

33.9%

38%

(4.1)

Operating Margin

7.3%

6.7%

0.7

Net Margin

5.4%

5%

0.4

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q3 2007

Q3 2006

Change

Cash + ST Invest.

$386.2

$368.7

4.7%

Liabilities

Q3 2007

Q3 2006

Change

Accounts Payable

$89.5

$82.0

9.1%

Long-Term Debt

$0.0

$0.0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

Q3 2007

Q3 2006

Change

Cash From Ops.

$77.6

$61.5

26.2%

Capital Expenditures

$7.4

$5.2

41.7%

Free Cash Flow

$70.2

$56.2

24.8%

Owner Earnings

$27.6

$14.3

92.9%

Free cash flow is a Fool's best friend.

Competitive Context

Market Cap

Trailing P/E Ratio

CAPS Rating

Bull Ratio

Netflix

$1,617

21.3

**

79%

Blockbuster (NYSE:BBI)

$1,019

N/A

*

47%

Amazon.com (NASDAQ:AMZN)

$37,433

124.7

**

55%

Apple (NASDAQ:AAPL)

$150,883

43.2

***

88%

Movie Gallery (NASDAQ:MOVI)

$6.6

N/A

*

8%

Using the latest reported numbers from Capital IQ.

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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 had shares in Netflix to go along with his longtime subscription, and a rarely used Blockbuster membership card. Other than that, he had no position in any company mentioned. No, not even an iPod. Fool rules are here.