NetFlix 2003 Annual Report Download - page 27

As of December 31,
1999 2000 2001 2002 2003
(in thousands)
Balance Sheet Data:
Cash and cash equivalents ...................... $14,198 $ 14,895 $ 16,131 $ 59,814 $ 89,894
Short-term investments ......................... 6,322 — — 43,796 45,297
Working (deficit) capital ........................ 11,085 (1,655) (6,656) 66,649 75,927
Total assets .................................. 34,773 52,488 41,630 130,530 176,012
Capital lease obligations, less current portion ....... 811 2,024 1,057 460 44
Notes payable, less current portion ................ 3,959 1,843 — — —
Subordinated notes payable ..................... — — 2,799 — —
Redeemable convertible preferred stock ............ 51,819 101,830 101,830 — —
Stockholders’ (deficit) equity .................... (32,028) (73,267) (90,504) 89,356 112,708
As of / Year Ended December 31,
1999 2000 2001 2002 2003
(in thousands, except subscriber acquisition cost)
Other Data:
Total subscribers at end of period ................. 107 292 456 857 1,487
Gross subscriber additions during period ........... 127 515 566 1,140 1,571
Subscriber acquisition cost (1) ................... $110.79 $ 49.96 $ 37.16 $ 31.39 $ 31.79
(1) Subscriber acquisition cost is defined as total marketing expenses divided by total gross subscriber additions
during the period.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction
with our financial statements and related notes under “Item 8. Financial Statements and Supplementary Data”
of this annual report on Form 10-K.
Overview
Our Business
We are the largest online movie rental subscription service in the United States, providing more than
1,487,000 subscribers access to a comprehensive library of more than 18,000 movie, television and other filmed
entertainment titles. Our standard subscription plan of $19.95 per month allows subscribers to have three titles
out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they
want in a month. Subscribers select titles at our Web site (www.netflix.com) aided by our proprietary
recommendation service, receive them on DVD by first-class mail and return them to us at their convenience
using our prepaid mailers. Once a title has been returned, we mail the next available title in a subscriber’s queue.
Key Business Metrics
For the year ended December 31, 2003, we generated total revenues of $272.2 million and net income of
$6.5 million. Management periodically reviews certain key business metrics in order to evaluate the effectiveness
of our operational strategies, allocate resources and maximize the financial performance of our business. These
key business metrics include the following:
•Subscriber Churn: Subscriber churn is a monthly measure defined as customer cancellations in the
quarter divided by the sum of beginning subscribers and gross subscriber additions, then divided by
three months. We grow our subscriber base either by adding new subscribers or by retaining existing
subscribers. Subscriber churn is the key metric which allows management to evaluate if we are retaining
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