Essay Netflix

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In July 2000, Reed Hastings, chairman and CEO of, Inc., faced a critical decision. Three months earlier, following one of the worst episodes on record for the NASDAQ market, NetFlix had submitted its S-1 filing for its initial public offering (IPO).1 As a result of the market downturn, many Internet companies had been forced to withdraw their IPOs. Investment bankers indicated to Hastings that NetFlix would need to show positive cash flows within a twelve-month horizon in order to have a successful offering. Hastings knew that NetFlix was at a crucial stage. With revenues doubling every six months, NetFlix was enjoying tremendous success. But continued success depended on the company’s ability to sustain …show more content…

The NetFlix web site also integrated movies currently showing in theaters by providing the ability to check local listings and show times, as well as the ability to view movie trailers on its web site. In addition, the NetFlix web site kept track of each subscriber’s preference for various types of movies and provided an individualized predicted rating for all of the movies on the web site. Since launching its web site in April 1998, NetFlix had experienced rapid growth. Revenues had grown from $1.4 million in 1998 to $5.0 million in 1999. The number of full-time employees increased from 46 in December 1998 to 270 in December 1999. By March 31, 2000, NetFlix had over 120,000 paying subscribers. Typical of most Internet startups, however, NetFlix had not yet earned a profit, reporting net losses of $11.1 and $29.8 million in 1998 and 1999, respectively. Exhibit 1 and Exhibit 2 provide annual financial statements for 1998 and 1999. Exhibit 3 provides quarterly operating results for 1999. The NetFlix business model focused exclusively on the new DVD format technology. Management had four main reasons for focusing on this specific segment of the home video market. • DVD players were the fastest growing segment of the video player market. Because of the rapid adoption of the new DVD technology, sales were

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