Netflix (NFLX) 8-K Netflix Announces Q2 2009 Financial Results

Exhibit 99.1

FOR IMMEDIATE RELEASE	IR CONTACT:	Deborah Crawford
Thursday, July 23, 2009		VP, Investor Relations
		408 540-3712
	PR CONTACT:	Steve Swasey
		VP, Corporate Communications
		408 540-3947

Netflix Announces Q2 2009 Financial Results

Subscribers – 10.6 million

Revenue – $408.5 million

GAAP Net Income – $32.4 million

GAAP EPS – $0.54 per diluted share

LOS GATOS, Calif., July 23, 2009 – Netflix, Inc. (Nasdaq: NFLX) today reported results for the second quarter ended June 30, 2009.

“We continued to execute very well in the second quarter and are on track to deliver a record 2009,” said Reed Hastings, Netflix co-founder and chief executive officer. “As our subscriber base and disc shipments continue to expand and as we offer more opportunities to watch instantly via the Internet, we believe we are striking the right balance between growth, investment and earnings.”

Second-Quarter 2009 Financial Highlights

Subscribers. Netflix ended the second quarter of 2009 with approximately 10,599,000 total subscribers, representing 26 percent year-over-year growth from 8,411,000 total subscribers at the end of the second quarter of 2008 and 3 percent sequential growth from 10,310,000 subscribers at the end of the first quarter of 2009.

Net subscriber change in the quarter was an increase of 289,000 compared to an increase of 168,000 for the same period of 2008 and an increase of 920,000 for the first quarter of 2009.

Gross subscriber additions for the quarter totaled 1,936,000, representing 40 percent year-over-year growth from 1,384,000 gross subscriber additions in the second quarter of 2008 and 20 percent quarter-over-quarter decline from 2,413,000 gross subscriber additions in the first quarter of 2009.

Of the 10,599,000 total subscribers at quarter end, 98 percent, or 10,375,000, were paid subscribers. The other 2 percent, or 224,000, were free subscribers. Paid subscribers represented 98 percent of total subscribers at the end of the second quarter of 2008 and at the end of the first quarter of 2009.

Revenue for the second quarter of 2009 was $408.5 million, representing 21 percent year-over-year growth from $337.6 million for the second quarter of 2008, and a 4 percent sequential increase from $394.1 million for the first quarter of 2009.

Gross margin¹ for the second quarter of 2009 was 34.1 percent compared to 31.8 percent for the second quarter of 2008 and 34.2 percent for the first quarter of 2009.

GAAP net income for the second quarter of 2009 was $32.4 million, or $0.54 per diluted share compared to GAAP net income of $26.6 million, or $0.42 per diluted share, for the second quarter of 2008 and GAAP net income of $22.4 million, or $0.37 per diluted share, for the first quarter of 2009. GAAP net income grew 22 percent on a year-over-year basis and GAAP EPS grew 29 percent on a year-over-year basis.

Non-GAAP net income was $34.4 million, or $0.58 per diluted share, for the second quarter of 2009 compared to non-GAAP net income of $28.7 million, or $0.45 per diluted share, for the second quarter of 2008 and non-GAAP net income of $24.2 million, or $0.40 per diluted share, for the first quarter of 2009. Non-GAAP net income grew 20 percent on a year-over-year basis and non-GAAP EPS grew 29 percent on a year-over-year basis.

Non-GAAP net income equals net income on a GAAP basis before stock-based compensation expense, net of taxes.

Stock-based compensation was $3.3 million for the second quarter of 2009, compared to $2.9 million for the second quarter of 2008 and $3.1 million for the first quarter of 2009. 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 cost² for the second quarter of 2009 was $23.88 per gross subscriber addition compared to $28.89 for the same period of 2008 and $25.79 for the first quarter of 2009.

Churn³ for the second quarter of 2009 was 4.5 percent compared to 4.2 percent for the second quarter of 2008 and for the first quarter of 2009. Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.

Free cash flow⁴ for the second quarter of 2009 was $26.3 million compared to $12.7 million in the second quarter of 2008 and $15.1 million for the first quarter of 2009.

Cash provided by operating activities for the second quarter of 2009 was $75.3 million compared to $67.4 million for the second quarter of 2008 and $65.6 million for the first quarter of 2009.

¹ Gross margin is defined as revenues less cost of subscription and fulfillment expenses divided by revenues.

² Subscriber acquisition cost is defined as the total marketing expense, which includes stock-based compensation for marketing personnel, on the Company’s Consolidated Statements of Operations divided by total gross subscriber additions during the quarter.

³ Churn is defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, divided by three months.

⁴ Free cash flow is defined as cash provided by operating activities and investing activities excluding the non-operational cash flows from purchases and sales of short-term investments and cash flows from investment in business.

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Business Outlook

The Company’s performance expectations for the third and fourth quarters of 2009 and full-year 2009 are as follows:

Third-Quarter 2009

• Ending subscribers of 10.9 million to 11.1 million

• Revenue of $416 million to $422 million

• GAAP net income of $23 million to $28 million

• GAAP EPS of $0.39 to $0.47 per diluted share

Fourth-Quarter 2009

• Ending subscribers of 11.6 million to 12 million

• Revenue of $431 million to $445 million

• GAAP net income of $21 million to $26 million

• GAAP EPS of $0.36 to $0.44 per diluted share

Full-Year 2009

• Ending subscribers of 11.6 million to 12 million, up from 11.2 million to 11.8 million

• Revenue of $1.65 billion to $1.67 billion, up from $1.63 billion to $1.67 billion

• GAAP net income of $99 million to $109 million, up from $96 million to $106 million

• GAAP EPS of $1.65 to $1.82 per diluted share, up from $1.56 to $1.72 per diluted share

Earnings Call

The Netflix earnings call will be webcast today at 6:00 p.m. Eastern Time / 3:00 p.m. Pacific Time, and may be accessed athttp://ir.netflix.com. The call will consist of prepared remarks, followed by a Q&A with questions submitted via email. Please email your questions todcrawford@netflix.com. The company will read the questions aloud on the call and respond to as many questions as possible.

Following completion of the call, a replay of the webcast will be available athttp://ir.netflix.com. The telephone replay of the call will be available from approximately 6:00 p.m. Pacific Time on July 23, 2009 through midnight on July 27, 2009. To listen to a replay, call (719) 457-0820, access code 4688984.

Use of Non-GAAP Measures

Management believes that non-GAAP net income is a useful measure of operating performance because it excludes the non-cash impact of stock option accounting. In addition, management believes that free cash flow is a useful measure of liquidity because it excludes the non-operational cash flows from purchases and sales of short-term investments, cash flows from investment in business and cash flows from financing activities. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. A reconciliation to the GAAP equivalents of these non-GAAP measures is contained in tabular form on the attached unaudited financial statements.

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About Netflix

Netflix, Inc. (NASDAQ: NFLX) is the world’s largest online movie rental service, with more than ten million subscribers. For one low monthly price, Netflix members can get DVDs delivered to their homes and can instantly watch movies and TV episodes streamed to their TVs and PCs, all in unlimited amounts. Members can choose from over 100,000 DVD titles and a growing library of more than 12,000 choices that can be watched instantly. There are never any due dates or late fees. DVDs are delivered free to members by first class mail, with a postage-paid return envelope, from 58 distribution centers. More than 97 percent of Netflix members live in areas that generally receive shipments in one business day. Netflix is also partnering with leading consumer electronics companies to offer a range of devices that can instantly stream movies and TV episodes to members’ TVs from Netflix. For more information, visithttp://www.netflix.com/.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding our subscriber growth, revenue, GAAP net income and earnings per share for the third and fourth quarters of 2009 and the full-year 2009. The forward-looking statements in this release are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new subscribers and retain existing subscribers, especially in the current uncertain economic environment; our ability to manage our subscriber acquisition cost as well as the cost of content delivered to our subscribers; fluctuations in consumer usage of our service; the continued availability of content on terms and conditions acceptable to us; the deterioration of the U.S. economy and its affect on online commerce or the filmed entertainment industry; conditions that effect our delivery through the U.S. Postal Service, including regulatory changes and postal rate increases; changes in the costs of acquiring DVDs or electronic content; consumer spending on DVDs and related products; disruption in service on our website or with our computer systems; competition and widespread consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2009. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.

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Netflix, Inc.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

	Three Months Ended									Six Months Ended
	June 30, 2009			March 31, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Revenues	$	408,509		$	394,098		$	337,614		$	802,607		$	663,797
Cost of revenues:
Subscription		224,858			215,299			193,769			440,157			380,925
Fulfillment expenses *		44,385			43,969			36,318			88,354			71,967
Total cost of revenues		269,243			259,268			230,087			528,511			452,892
Gross profit		139,266			134,830			107,527			274,096			210,905
Operating expenses:
Technology and development *		27,119			24,200			22,186			51,319			42,453
Marketing *		46,231			62,242			39,984			108,473			94,879
General and administrative *		13,252			13,014			13,419			26,266			27,158
Gain on disposal of DVDs		(118	)		(1,097	)		(2,263	)		(1,215	)		(3,096	)
Total operating expenses		86,484			98,359			73,326			184,843			161,394
Operating income		52,782			36,471			34,201			89,253			49,511
Other income (expense):
Interest expense on lease financing obligations		(674	)		(670	)		(681	)		(1,344	)		(1,104	)
Interest and other income (expense)		866			1,610			2,404			2,476			10,064
Income before income taxes		52,974			37,411			35,924			90,385			58,471
Provision for income taxes		20,531			15,048			9,345			35,579			18,548
Net income	$	32,443		$	22,363		$	26,579		$	54,806		$	39,923
Net income per share:
Basic	$	0.56		$	0.38		$	0.43		$	0.94		$	0.64
Diluted	$	0.54		$	0.37		$	0.42		$	0.91		$	0.62
Weighted average common shares outstanding:
Basic		57,872			58,734			61,782			58,301			62,262
Diluted		59,660			60,709			63,857			60,182			64,341
*Stock-based compensation included in expense line items:
Fulfillment expenses	$	102		$	120		$	108		$	222		$	214
Technology and development		1,190			1,071			849			2,261			1,845
Marketing		458			443			455			901			964
General and administrative		1,528			1,498			1,493			3,026			3,012
Reconciliation of Non-GAAP Financial Measures
(unaudited)
Non-GAAP net income reconciliation:
GAAP net income	$	32,443		$	22,363		$	26,579		$	54,806		$	39,923
Stock-based compensation		3,278			3,132			2,905			6,410			6,035
Income tax effect of stock-based compensation		(1,272	)		(1,259	)		(755	)		(2,531	)		(2,032	)
Non-GAAP net income	$	34,449		$	24,236		$	28,729		$	58,685		$	43,926
Non-GAAP net income per share:
Basic	$	0.60		$	0.41		$	0.47		$	1.01		$	0.71
Diluted	$	0.58		$	0.40		$	0.45		$	0.98		$	0.68
Weighted average common shares outstanding:
Basic		57,872			58,734			61,782			58,301			62,262
Diluted		59,660			60,709			63,857			60,182			64,341

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Netflix, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and par value data)

	As of
	June 30, 2009			December 31, 2008
Assets
Current assets:
Cash and cash equivalents	$	87,471		$	139,881
Short-term investments		167,498			157,390
Prepaid expenses		11,430			8,122
Prepaid revenue sharing expenses		14,671			18,417
Current content library, net		33,519			18,691
Deferred tax assets		5,594			5,617
Other current assets		22,381			13,329
Total current assets		342,564			361,447
Content library, net		100,316			98,547
Property and equipment, net		120,346			124,948
Deferred tax assets		17,225			22,409
Other assets		11,542			10,595
Total assets	$	591,993		$	617,946
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	101,634		$	100,344
Accrued expenses		27,782			31,394
Current portion of lease financing obligations		1,275			1,152
Deferred revenue		80,495			83,127
Total current liabilities		211,186			216,017
Lease financing obligations, excluding current portion		37,301			37,988
Other liabilities		19,135			16,786
Total liabilities		267,622			270,791
Stockholders’ equity:
Common stock, $0.001 par value; 160,000,000 shares authorized at June 30, 2009 and December 31, 2008; 57,415,726 and 58,862,478 issued and outstanding at June 30, 2009 and December 31, 2008, respectively		64			62
Additional paid-in capital		375,574			338,577
Treasury stock at cost (6,295,073 and 3,491,084 shares at June 30, 2009 and December 31, 2008, respectively)		(215,250	)		(100,020	)
Accumulated other comprehensive income		725			84
Retained earnings		163,258			108,452
Total stockholders’ equity		324,371			347,155
Total liabilities and stockholders’ equity	$	591,993		$	617,946

6

Netflix, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Three Months Ended									Six Months Ended
	June 30, 2009			March 31, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Cash flows from operating activities:
Net income	$	32,443		$	22,363		$	26,579		$	54,806		$	39,923
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment and intangibles		9,013			9,175			8,188			18,188			14,772
Amortization of content library		53,235			49,304			57,012			102,539			114,582
Amortization of discounts and premiums on investments		119			194			177			313			316
Stock-based compensation expense		3,278			3,132			2,905			6,410			6,035
Excess tax benefits from stock-based compensation		(3,815	)		(3,684	)		(2,554	)		(7,499	)		(3,374	)
Loss on disposal of property and equipment		110			144			—			254			—
Loss (gain) on sale of short-term investments		101			(572	)		78			(471	)		(4,242	)
Gain on disposal of DVDs		(506	)		(2,033	)		(4,059	)		(2,539	)		(6,651	)
Deferred taxes		5,404			(623	)		(2,502	)		4,781			(3,361	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(8,845	)		(391	)		(10,947	)		(9,236	)		(8,197	)
Content library		(9,343	)		(22,091	)		(7,982	)		(31,434	)		(31,394	)
Accounts payable		(6,549	)		8,572			7,092			2,023			15,772
Accrued expenses		(234	)		4,331			(14,551	)		4,097			(6,724	)
Deferred revenue		(128	)		(2,504	)		(489	)		(2,632	)		(3,779	)
Other assets and liabilities		1,019			316			8,433			1,335			7,764
Net cash provided by operating activities		75,302			65,633			67,380			140,935			131,442
Cash flows from investing activities:
Purchases of short-term investments		(28,769	)		(52,384	)		(65,937	)		(81,153	)		(157,891	)
Proceeds from sale of short-term investments		7,832			36,933			21,017			44,765			195,436
Proceeds from maturities of short-term investments		26,175			1,330			665			27,505			1,565
Purchases of property and equipment		(6,933	)		(6,572	)		(14,662	)		(13,505	)		(27,093	)
Acquisitions of intangible asset		—			(200	)		(1,000	)		(200	)		(1,000	)
Acquisitions of content library		(43,224	)		(46,499	)		(44,410	)		(89,723	)		(95,726	)
Proceeds from sale of DVDs		1,159			2,726			5,379			3,885			9,886
Investment in business		—			—			—			—			(6,000	)
Other assets		11			(2	)		20			9			28
Net cash used in investing activities		(43,749	)		(64,668	)		(98,928	)		(108,417	)		(80,795	)
Cash flows from financing activities:
Principal payments of lease financing obligations		(295	)		(269	)		(230	)		(564	)		(352	)
Proceeds from issuance of common stock		9,778			13,589			4,524			23,367			13,066
Excess tax benefits from stock-based compensation		3,815			3,684			2,554			7,499			3,374
Repurchases of common stock		(72,511	)		(42,719	)		—			(115,230	)		(99,885	)
Net cash (used in) provided by financing activities		(59,213	)		(25,715	)		6,848			(84,928	)		(83,797	)
Net decrease in cash and cash equivalents		(27,660	)		(24,750	)		(24,700	)		(52,410	)		(33,150	)
Cash and cash equivalents, beginning of period		115,131			139,881			168,989			139,881			177,439
Cash and cash equivalents, end of period	$	87,471		$	115,131		$	144,289		$	87,471		$	144,289
Non-GAAP free cash flow reconciliation:
Net cash provided by operating activities	$	75,302		$	65,633		$	67,380		$	140,935		$	131,442
Purchases of property and equipment		(6,933	)		(6,572	)		(14,662	)		(13,505	)		(27,093	)
Acquisitions of intangible asset		—			(200	)		(1,000	)		(200	)		(1,000	)
Acquisitions of content library		(43,224	)		(46,499	)		(44,410	)		(89,723	)		(95,726	)
Proceeds from sale of DVDs		1,159			2,726			5,379			3,885			9,886
Other assets		11			(2	)		20			9			28
Non-GAAP free cash flow	$	26,315		$	15,086		$	12,707		$	41,401		$	17,537

7

Netflix, Inc.

Consolidated Other Data

(unaudited)

(in thousands, except percentages, average monthly revenue per paying subscriber, average monthly gross profit per paying subscriber and subscriber acquisition cost)

	As of / Three Months Ended
	June 30, 2009			March 31, 2009			June 30, 2008
Subscriber information:
Subscribers: beginning of period		10,310			9,390			8,243
Gross subscriber additions: during period		1,936			2,413			1,384
Gross subscriber additions year-to-year change		39.9	%		29.6	%		34.6	%
Gross subscriber additions quarter-to-quarter sequential change		(19.8	)%		15.7	%		(25.7	)%
Less subscriber cancellations: during period		(1,647	)		(1,493	)		(1,216	)
Subscribers: end of period		10,599			10,310			8,411
Subscribers year-to-year change		26.0	%		25.1	%		24.8	%
Subscribers quarter-to-quarter sequential change		2.8	%		9.8	%		2.0	%
Free subscribers: end of period		224			194			176
Free subscribers as percentage of ending subscribers		2.1	%		1.9	%		2.1	%
Paid subscribers: end of period		10,375			10,116			8,235
Paid subscribers year-to-year change		26.0	%		24.9	%		24.6	%
Paid subscribers quarter-to-quarter sequential change		2.6	%		10.4	%		1.6	%
Average monthly revenue per paying subscriber	$	13.29		$	13.63		$	13.78
Average monthly gross profit per paying subscriber	$	4.53		$	4.66		$	4.39
Churn		4.5	%		4.2	%		4.2	%
Subscriber acquisition cost	$	23.88		$	25.79		$	28.89
Margins:
Gross margin		34.1	%		34.2	%		31.8	%
Operating margin		12.9	%		9.3	%		10.1	%
Net margin		7.9	%		5.7	%		7.9	%
Expenses as percentage of revenues:
Technology and development		6.6	%		6.1	%		6.6	%
Marketing		11.3	%		15.8	%		11.8	%
General and administrative		3.2	%		3.3	%		4.0	%
Gain on disposal of DVDs		0.0	%		(0.2	)%		(0.7	)%
Total operating expenses		21.1	%		25.0	%		21.7	%
Year-to-year change:
Total revenues		21.0	%		20.8	%		11.2	%
Subscription		16.0	%		15.0	%		16.1	%
Fulfillment expenses		22.2	%		23.3	%		21.6	%
Technology and development		22.2	%		19.4	%		18.0	%
Marketing		15.6	%		13.4	%		(11.6	)%
General and administrative		(1.2	)%		(5.3	)%		(2.9	)%
Gain on disposal of DVDs		(94.8	)%		31.7	%		(0.8	)%
Total operating expenses		17.9	%		11.7	%		6.9	%

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