NetFlix 2005 Annual Report Download - page 7

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DEAR FELLOW SHAREHOLDERS:
In the seven years since Netfl ix invented the online DVD subscription rental business,
we have achieved rapid growth and sustained our market leadership by focusing
intensely on delivering an outstanding customer experience.
We continued that rapid growth in 2005. Subscribers were up 60 percent year-over-
year. Net subscriber additions continued to accelerate, strengthening our leadership
of a growing and still-young market.
2005 also demonstrated that we can deliver strong earnings. Refl ecting the benefi ts
of increasing scale, we produced $24 million of free cash fl ow and GAAP net income
of $42 million, which included a one-time tax benefi t of $35 million.
We achieved these great results by delighting and engaging our customers, a core
value proposition we believe in deeply. We offer the broadest selection of movies,
an intuitive and personalized Web site, and a distribution system that enables delivery
in about one business day to the vast majority of our subscribers. Those attributes are
why we were independently ranked number one in online retail customer satisfaction
by ForeSee Results for the second consecutive year and why 95 percent of our
surveyed subscribers say they would recommend us to their friends. And they are
among the reasons our churn dropped to a record low 4.0 percent in the last quarter
of 2005. Consumers are signing up for and staying with Netfl ix.
DELIGHTING MILLIONS OF SUBSCRIBERS, ONE AT A TIME
The core of our customer relationships is our unique ability to offer each of our
subscribers a personalized experience that introduces them to movies they love.
Software developed and refi ned over the past seven years analyzes our more than one
billion subscriber movie ratings to generate personalized recommendations that
help subscribers discover great movies they may not know about. One result is
increased customer satisfaction. Another is broader usage of our movie library:
NETFLIX 2005 ANNUAL REPORT 5