NetFlix 2003 Annual Report Download - page 44

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the same time, along with other enhancements to our service, resulted in improved subscriber retention. If the
retention rate is not maintained or improved as necessary to offset the costs resulting from any increased usage,
or if other mitigating factors do not offset such costs, our operating results will be adversely affected.
We have a limited operating history and may not maintain our level of profitability.
Although we have achieved profitability in 2003, we are still an early stage company and experienced
significant net losses prior to 2003. Further, given the significant operating and capital expenditures associated
with our business plan, we may experience net losses in the future. In view of the rapidly evolving nature of our
business and our limited operating history, we cannot be certain that we will be able to sustain or increase
profitability.
Our operating results are difficult to predict due to a number of factors that also will affect our long-term
performance.
We expect our operating results to fluctuate in the future based on a variety of factors, many of which are
outside our control and difficult to predict. As a result, period-to-period comparisons of our operating results may
not be a good indicator of our future or long-term performance. The following factors may affect us from period
to period and may affect our long-term performance:
• changes by our competitors to their product and service offerings;
• our ability to improve or maintain gross margins in our business;
• our ability to effectively manage the development of new business segments and markets;
• our ability to maintain and develop new and existing marketing relationships;
• the amount and timing of operating costs and capital expenditures relating to expansion of our business,
operations and infrastructure;
• our ability to manage our fulfillment processes to handle significant increases in the number of
subscribers and subscriber selections;
• price competition;
• our ability to maintain an adequate breadth and depth of titles;
• our ability to manage our inventory levels;
• changes in promotional support offered by studios;
• our ability to maintain, upgrade and develop our Web site, our internal computer systems and our
fulfillment processes and efficiently utilize our shipping centers;
• fluctuations in consumer spending on DVD players, DVDs and related products;
• fluctuations in the use of the Internet for the purchase of consumer goods and services such as those
offered by us;
• technical difficulties, system downtime or Internet disruptions;
• our ability to attract new and qualified personnel in a timely and effective manner and retain existing
personnel;
• our ability to successfully manage the integration of operations and technology resulting from
acquisitions;
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