Net Working Capital Contributes $135 Million Of Netflix'$79.3 Million In Adjusted Free Cash Flow, Sub Acquisition Costs Surge By 33%

Some highlights from the just released Netflix earnings presentation:

  • Guidance for Q2:
    • Domestic subscribers: 24.0 - 24.8 million
    • Domestic revenues: $762-$778 million
    • Operating income: $100-$116 million
    • Internation subs: 900K to 1.050MM
    • Revenue: $16-$20MM
    • Operating loss: ($14) MM to ($10) MM
    • Global net income $50-62 mm
    • EPS: $0.93 - $1.15 
  • Other guidance:
    • Domestic operating margin of approximately 14%
    • International operating losses of approximately $50-70m in 2H 2011
  • "Free Cash Flow" of $79.3 million in Q1 net of $38.4 million in acquisition of DVD content library and purchases of PP&E.
    • Change in net working capital is a contributor of a ridiculous $134.9 million in cash! Ex- NWC changes the company would have burned about $55 million in cash.
  • Domestic churn increases both sequentially and Y/Y: from 3.8% in Q1 2010, and 3.7% in Q4 2010, to 3.9% in Q1, 2011.
  • And the kicker: subscriber acquisition costs surge from $10.87 to $14.38 sequentially. Oops
  • The company also adds this warning: Looking forward, our prior period comps for net adds are going to get tougher, and while we expect our net adds the rest of this year to continue to exceed those of the prior year, it won’t be at a pace of nearly 2X like in Q1. With net adds forecast to grow every quarter on a Y/Y basis, we remain in the first half of the S curve of adoption. As always, we will remain focused on improving our service, keeping Netflix in the first half of the curve, and thereby increasing Y/Y net adds, as long as possible.

For now, stock not too happy with the news:

Full report can be found here. Good luck asking live questions on the Q&A.