NetFlix 2008 Annual Report Download - page 3

Netfl ix ended 2008 with 9.4 million subscribers, up 25 percent from a year earlier, and fully
diluted earnings per share of $1.32, up 36 percent from the prior year. That’s solid performance,
particularly in the challenging and uncertain economic environment we faced in the second
half of 2008.
Two key factors contributed to our strong results in 2008 and will play a major role in our future:
• The continuing strength of our core DVD-by-mail o ering, which enables us to deliver
strong subscriber and earnings growth while investing in the future of our business.
• The growing traction of Internet streaming, which we believe contributed to faster
subscriber growth, lower subscriber acquisition costs, and higher profi t in the fourth
quarter of 2008.
Continuing strength in our core business
Our results make it clear that consumers fi nd our service compelling. We combine a superior
value proposition with an outstanding customer experience, and we continuously improve
our product o ering through investments in our Web site, content, distribution, and customer
care. The result is a powerful competitive advantage, refl ected in our number-one ranking,
for eight consecutive surveys, in Foresee Result’s independent survey of e-commerce
customer satisfaction.
Our leadership in customer satisfaction helps drive subscriber growth. Our large subscriber
base, in turn, gives us the advantage of scale, which enables us to deliver consistent earnings
growth while investing in both DVD-by-mail and streaming, which we believe will be an important
contributor to our growth in the future.
Growing momentum in streaming
As streaming began to gain traction, we expanded our investment in content, ending 2008
with more than 12,000 movie and TV choices, up eight-fold since we introduced instant
watching two years ago. And we expanded the array of consumer electronics manufacturers
including Netfl ix streaming capability in their devices. Consumers can now stream Netfl ix
content to their TVs through Blu-ray players, stand alone set top boxes, TiVo DVRs, Xbox
video game consoles, and soon, directly through Internet-connected TVs.
We believe our strong performance in the fourth quarter of 2008 partially refl ected the
emergence of instant watching as an increasingly compelling attraction to potential
subscribers and a competitive di erentiator for potential consumer electronics partners.
Looking ahead
In 2009, we will maintain our focus on improving our core service as well as gaining even
greater traction with streaming. We expect DVD-by-mail to grow for many years, and
anticipate increasing momentum in streaming as we continue to invest in content expansion
and partner with consumer electronics manufacturers to o er Netfl ix streaming on a broad
array of Internet-connected devices.
We remain focused on our long-term goals: To be a great Internet movie service by combining
DVD-by-mail with Internet streaming; and to deliver growing EPS and subscribers every year.
With a service our subscribers love and recommend, the skill, commitment and creativity
of our employees, and the support of our investors, we believe we are well positioned to
continue to make progress in a di cult economic environment.
Sincerely,
Reed Hastings
Chief Executive O cer,
President and Co-founder
Dear Fellow Shareholders