NetFlix 2006 Annual Report Download - page 34

As of December 31,
2002 2003 2004 2005 2006
(in thousands)
Balance Sheet Data:
Cash and cash equivalents ...................... $ 59,814 $ 89,894 $174,461 $212,256 $400,430
Short-term investments ........................ 43,796 45,297 — — —
Working capital .............................. 66,649 75,927 92,436 106,104 234,971
Total assets .................................. 130,530 176,012 251,793 364,681 608,779
Capital lease obligations, less current portion ....... 460 44 — — —
Stockholders’ equity ........................... 89,356 112,708 156,283 226,252 414,211
As of / Year Ended December 31,
2002 2003 2004 2005 2006
(in thousands, except subscriber acquisition cost)
Other Data:
Total subscribers at end of period ................ 857 1,487 2,610 4,179 6,316
Gross subscriber additions during period ........... 1,140 1,571 2,716 3,729 5,250
Subscriber acquisition cost (1) ................... $ 32.83 $ 32.80 $ 37.02 $ 38.77 $ 42.96
Notes:
(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
Overview
Our Business
We are the largest online movie rental subscription service providing more than 6,300,000 subscribers
access to a comprehensive library of more than 70,000 movie, television and other filmed entertainment titles on
DVD. We offer a variety of subscription plans, starting at $4.99 a month. There are no due dates, no late fees and
no shipping fees. Subscribers select titles at our Web site aided by our proprietary recommendation service,
receive them on DVD by U.S. mail and return them to us at their convenience using our prepaid mailers. After a
DVD has been returned, we mail the next available DVD in a subscriber’s queue. The terms and conditions by
which subscribers utilize our service and a more detailed description of how our service works can be found at
www.netflix.com/TermsOfUse.
We derive substantially all of our revenues from monthly subscription fees. Our business has grown rapidly
since inception, resulting in substantially increased revenues. Our growth has been fueled by the rapid adoption
of DVDs as a medium for home entertainment as well as increased awareness of online DVD rentals. We expect
that our business will continue to grow as the market for online DVD rentals continues to grow, a reflection of
both the convenience and value of the subscription rental model.
We continued to see strong growth in 2006, with revenues achieving 46% growth from a year ago. This growth
can be attributed to an expanding subscriber base. We added approximately 2.1 million net new subscribers in 2006,
growing from 4.2 million at December 31, 2005 to 6.3 million subscribers at December 31, 2006.
Recent Developments and Initiatives
We continue to face direct competition from Blockbuster. It remains possible that other potential entrants will
offer competing services, either directly or in conjunction with others or that Blockbuster will gain more traction in
its current business. We continue to focus on retaining our leadership position and growing our business.
Our core strategy is to grow a large DVD subscription business and to expand into Internet-based movie
delivery as that market develops. We believe that the DVD format, along with its successor formats of HD DVD
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