NetFlix 2004 Annual Report Download - page 46

future expansion will likely place significant demands on our managerial, operational, administrative and
financial resources. If we are not able to respond effectively to new or increased demands that arise because of
our growth, or, if in responding, our management is materially distracted from our current operations, our
business may be affected adversely. In addition, if we do not have sufficient breadth and depth of the titles
necessary to satisfy increased demand arising from growth in our subscriber base, our subscriber satisfaction may
be affected adversely.
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. In particular, we have a limited operating history and have faced
limited direct competition. 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 and new entrants into our business;
• price competition;
• 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;
• 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;
• governmental regulation and taxation policies; and
• general economic conditions and economic conditions specific to the Internet, online commerce and the
movie industry.
In addition to these factors, our operating results may fluctuate based upon seasonal fluctuations in DVD
player sales and in the use of the Internet. During our limited operating history, we have experienced greater
additions of new subscribers during late fall and the winter months, and these seasonal fluctuations may continue
in future periods.
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