NetFlix 2009 Annual Report Download - page 27

• announcements of developments affecting our business, systems or expansion plans by us or others;
• competition, including the introduction of new competitors, their pricing strategies and services;
• market volatility in general;
• the level of demand for our stock, including the amount of short interest in our stock; and
• the operating results of our competitors.
As a result of these and other factors, investors in our common stock may not be able to resell their shares at
or above their original purchase price.
Following certain periods of volatility in the market price of our securities, we became the subject of
securities litigation. We may experience more such litigation following future periods of volatility. This type of
litigation may result in substantial costs and a diversion of management’s attention and resources.
We record substantial stock compensation expenses related to our issuance of stock options and shares
under our employee share purchase program that may have a material negative impact on our operating
results for the foreseeable future.
Our stock-based compensation expenses totaled $12.6 million, $12.3 million and $12.0 million during 2009,
2008 and 2007, respectively. We expect our stock-based compensation expenses will continue to be significant in
future periods, which will have an adverse impact on our operating results. The lattice-binomial model used to
value our stock option grants and the black-scholes models used to value shares granted under our employee
share purchase program both require the input of highly subjective assumptions, including the price volatility of
the underlying stock. If facts and circumstances change and we employ different assumptions for estimating
stock-based compensation expense in future periods, or if we decide to use a different valuation model, the future
period expenses may differ significantly from what we have recorded in the current period and could materially
affect the fair value estimate of stock-based payments, our operating income, net income and net income per
share.
Financial forecasting by us and financial analysts who may publish estimates of our performance may
differ materially from actual results.
Given the dynamic nature of our business, the current uncertain economic climate and the inherent
limitations in predicting the future, forecasts of our revenues, gross margin, operating expenses, number of
paying subscribers, number of DVDs shipped per day and other financial and operating data may differ
materially from actual results. Such discrepancies could cause a decline in the trading price of our common
stock.
Item 1B. Unresolved Staff Comments
None.
21