Taking a cue from eBay
Revenue for the quarter leapt 74% to $63 million. Netflix signed on 327,000 new trial subscribers -- 71% more than last year -- driving total subs to 1.14 million. Average monthly subscriber churn dropped to 5.6% from 6.7%, low enough to make the AOL
Excluding stock-based compensation, the quarter's $5 million in net income, or $0.16 per share, topped expectations. On a generally accepted accounting principles (GAAP) basis, net income totaled $3.3 million, or $0.11 per share. Non-GAAP free cash flow came in at $4.3 million, or 7% of revenue, down from previous quarters. Why?
In the conference call, management explained that DVD purchases were intentionally high, as Netflix bought up to 60% of all new DVDs in its inventory. Traditionally, the company has leased up to 65% of its DVDs (on which it must then share any rental revenue). DVD purchase rates will decline in coming quarters, but marketing costs will rise.
Not unlike a young Amazon.com
Gross margins have fluctuated as Netflix has grown, as did Amazon's; nonetheless, management raised its non-GAAP profit guidance for 2003 by about 20%, and upped the range of its revenue guidance. The company expects to close 2003 with more than 1.4 million subscribers, non-GAAP net income of $6 million to $11 million and as much as $270 million in sales.
Expectations were high to be sure -- which likely explains this morning's sell-off. On the whole, though, a pretty solid report.
Netflix has outperformed the S&P 500 since being selected by David Gardner in Motley Fool Stock Advisor, a newsletter that offers two stock picks a month.Stock Advisorwas rated the No. 1 stock newsletter performer in the last year by Hulbert Digest.