"We continued to execute very well in the second quarter and are on track to deliver a record 2009," said Reed Hastings, Netflix co-founder and chief executive officer. "As our subscriber base and disc shipments continue to expand, and as we offer more opportunities to watch instantly via the Internet, we believe we are striking the right balance between growth, investment and earnings."

Second-Quarter 2009 Financial Highlights

Subscribers. Netflix ended the second quarter of 2009 with approximately 10,599,000 total subscribers, representing 26 percent year-over-year growth from 8,411,000 total subscribers at the end of the second quarter of 2008 and 3 percent sequential growth from 10,310,000 subscribers at the end of the first quarter of 2009.

Net subscriber change in the quarter was an increase of 289,000 compared to an increase of 168,000 for the same period of 2008 and an increase of 920,000 for the first quarter of 2009.

Gross subscriber additions for the quarter totaled 1,936,000, representing 40 percent year-over-year growth from 1,384,000 gross subscriber additions in the second quarter of 2008 and 20 percent quarter-over-quarter decline from 2,413,000 gross subscriber additions in the first quarter of 2009.

Of the 10,599,000 total subscribers at quarter end, 98 percent, or 10,375,000, were paid subscribers. The other 2 percent, or 224,000, were free subscribers. Paid subscribers represented 98 percent of total subscribers at the end of the second quarter of 2008 and at the end of the first quarter of 2009.

Revenue for the second quarter of 2009 was $408.5 million, representing 21 percent year-over-year growth from $337.6 million for the second quarter of 2008, and a 4 percent sequential increase from $394.1 million for the first quarter of 2009.

Gross margin(1) for the second quarter of 2009 was 34.1 percent compared to 31.8 percent for the second quarter of 2008 and 34.2 percent for the first quarter of 2009.

GAAP net income for the second quarter of 2009 was $32.4 million, or $0.54 per diluted share compared to GAAP net income of $26.6 million, or $0.42 per diluted share, for the second quarter of 2008 and GAAP net income of $22.4 million, or $0.37 per diluted share, for the first quarter of 2009. GAAP net income grew 22 percent on a year-over-year basis and GAAP EPS grew 29 percent on a year-over-year basis.

Non-GAAP net income was $34.4 million, or $0.58 per diluted share, for the second quarter of 2009 compared to non-GAAP net income of $28.7 million, or $0.45 per diluted share, for the second quarter of 2008 and non-GAAP net income of $24.2 million, or $0.40 per diluted share, for the first quarter of 2009. Non-GAAP net income grew 20 percent on a year-over-year basis and non-GAAP EPS grew 29 percent on a year-over-year basis.

Non-GAAP net income equals net income on a GAAP basis before stock-based compensation expense, net of taxes.

Stock-based compensation was $3.3 million for the second quarter of 2009, compared to $2.9 million for the second quarter of 2008 and $3.1 million for the first quarter of 2009. Stock-based compensation is presented in the same lines of the Consolidated Statements of Operations as cash compensation paid to the same individuals.

Subscriber acquisition cost(2) for the second quarter of 2009 was $23.88 per gross subscriber addition compared to $28.89 for the same period of 2008 and $25.79 for the first quarter of 2009.

Churn(3) for the second quarter of 2009 was 4.5 percent compared to 4.2 percent for the second quarter of 2008 and for the first quarter of 2009. Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.

Free cash flow(4) for the second quarter of 2009 was $26.3 million compared to $12.7 million in the second quarter of 2008 and $15.1 million for the first quarter of 2009.

Cash provided by operating activities for the second quarter of 2009 was $75.3 million compared to $67.4 million for the second quarter of 2008 and $65.6 million for the first quarter of 2009.

   1. Gross margin is defined as revenues less cost of subscription and      fulfillment expenses divided by revenues.    2. Subscriber acquisition cost is defined as the total marketing expense,      which includes stock-based compensation for marketing personnel, on      the Company's Consolidated Statements of Operations divided by total      gross subscriber additions during the quarter.    3. Churn is defined as customer cancellations in the quarter divided by      the sum of beginning subscribers and gross subscriber additions,      divided by three months.    4. Free cash flow is defined as cash provided by operating activities and      investing activities excluding the non-operational cash flows from      purchases and sales of short-term investments and cash flows from      investment in business.    Business Outlook   

The Company's performance expectations for the third and fourth quarters of 2009 and full-year 2009 are as follows:

   Third-Quarter 2009   --  Ending subscribers of 10.9 million to 11.1 million   --  Revenue of $416 million to $422 million   --  GAAP net income of $23 million to $28 million    --  GAAP EPS of $0.39 to $0.47 per diluted share     Fourth-Quarter 2009   --  Ending subscribers of 11.6 million to 12 million   --  Revenue of $431 million to $445 million   --  GAAP net income of $21 million to $26 million    --  GAAP EPS of $0.36 to $0.44 per diluted share     Full-Year 2009   --  Ending subscribers of 11.6 million to 12 million, up from 11.2 million       to 11.8 million   --  Revenue of $1.65 billion to $1.67 billion, up from $1.63 billion to       $1.67 billion   --  GAAP net income of $99 million to $109 million, up from $96 million to       $106 million    --  GAAP EPS of $1.65 to $1.82 per diluted share, up from $1.56 to $1.72       per diluted share     Earnings Call  

The Netflix earnings call will be webcast today at 6:00 p.m. Eastern Time / 3:00 p.m. Pacific Time, and may be accessed at http://ir.netflix.com/. The call will consist of prepared remarks, followed by a Q&A with questions submitted via email. Please email your questions to dcrawford@netflix.com. The company will read the questions aloud on the call and respond to as many questions as possible.

Following completion of the call, a replay of the webcast will be available at http://ir.netflix.com/. The telephone replay of the call will be available from approximately 6:00 p.m. Pacific Time on July 23, 2009 through midnight on July 27, 2009. To listen to a replay, call (719) 457-0820, access code 4688984.

Use of Non-GAAP Measures

Management believes that non-GAAP net income is a useful measure of operating performance because it excludes the non-cash impact of stock option accounting. In addition, management believes that free cash flow is a useful measure of liquidity because it excludes the non-operational cash flows from purchases and sales of short-term investments, cash flows from investment in business and cash flows from financing activities. However, these non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income and net cash provided by operating activities, or other financial measures prepared in accordance with GAAP. A reconciliation to the GAAP equivalents of these non-GAAP measures is contained in tabular form on the attached unaudited financial statements.

About Netflix

Netflix, Inc. is the world's largest online movie rental service, with more than ten million subscribers. For one low monthly price, Netflix members can get DVDs delivered to their homes and can instantly watch movies and TV episodes streamed to their TVs and PCs, all in unlimited amounts. Members can choose from over 100,000 DVD titles and a growing library of more than 12,000 choices that can be watched instantly. There are never any due dates or late fees. DVDs are delivered free to members by first class mail, with a postage-paid return envelope, from 58 distribution centers. More than 97 percent of Netflix members live in areas that generally receive shipments in one business day. Netflix is also partnering with leading consumer electronics companies to offer a range of devices that can instantly stream movies and TV episodes to members' TVs from Netflix. For more information, visit http://www.netflix.com/.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding our subscriber growth, revenue, GAAP net income and earnings per share for the third and fourth quarters of 2009 and the full-year 2009.