8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

July 21, 2010

NETFLIX, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-49802	77-0467272
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

100 Winchester Circle

Los Gatos, CA

95032

(Address of principal executive offices)

(Zip Code)

(408) 540-3700

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On July 21, 2010, Netflix, Inc. (the “Company”) announced its financial results for the quarter ended June 30, 2010. The press release and management commentary, which is attached hereto as Exhibits 99.1 and 99.2 respectively, and incorporated herein by reference, discloses certain financial measures that may be considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States. 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. The non-GAAP information is presented using consistent methodology from quarter-to-quarter and year-to-year.

The information in this report shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, except as expressly stated by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1	Press release issued by Netflix, Inc. on July 21, 2010.
99.2	Management’s commentary on financial results for the quarter ended June 30, 2010.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	NETFLIX, INC.
Date: July 21, 2010	/s/     BARRY MCCARTHY
	Barry McCarthy Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
99.1*	Press release issued by Netflix, Inc. on July 21, 2010.
99.2*	Management’s commentary on financial results for the quarter ended June 30, 2010.

* These exhibits are intended to be furnished and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934.

The press release and management’s commentary will be attached as Exhibit 99.1 and 99.2, respectively.

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE	IR CONTACT:	Deborah Crawford
Wednesday, July 21, 2010		VP, Investor Relations
		(408) 540-3712
	PR CONTACT:	Steve Swasey
		VP, Corporate Communications
		(408) 540-3947

Netflix Announces Q2 2010 Financial Results

Subscribers – 15.0 million

Revenue – $519.8 million

GAAP Net Income – $43.5 million

GAAP EPS – $0.80 per diluted share

LOS GATOS, Calif., July 21, 2010 – Netflix, Inc. (Nasdaq: NFLX) today reported results for the second quarter ended June 30, 2010.

“Our rate of subscriber growth continues to accelerate and we added more than a million net new subscribers for the third consecutive quarter,” said Netflix Co-Founder and CEO Reed Hastings. “Consumers are clearly enthralled by our offering of unlimited movies and TV shows streamed over the Internet.”

Second-Quarter 2010 Financial Highlights

Subscribers. Netflix ended the second quarter of 2010 with approximately 15,001,000 total subscribers, representing 42 percent year-over-year growth from 10,599,000 total subscribers at the end of the second quarter of 2009 and 7 percent sequential growth from 13,967,000 subscribers at the end of the first quarter of 2010.

Net subscriber change in the quarter was an increase of 1,034,000 compared to an increase of 289,000 for the same period of 2009 and an increase of 1,699,000 for the first quarter of 2010.

Gross subscriber additions for the quarter totaled 3,059,000, representing 58 percent year-over-year growth from 1,936,000 gross subscriber additions in the second quarter of 2009 and 12 percent quarter-over-quarter decline from 3,492,000 gross subscriber additions in the first quarter of 2010.

Of the 15,001,000 total subscribers at quarter end, 97 percent, or 14,577,000, were paid subscribers. The other 3 percent, or 424,000, were free subscribers. Paid subscribers represented 98 percent of total subscribers at the end of the second quarter of 2009 and at the end of the first quarter of 2010.

Revenue for the second quarter of 2010 was $519.8 million, representing 27 percent year-over-year growth from $408.5 million for the second quarter of 2009, and 5 percent sequential growth from $493.7 million for the first quarter of 2010.

Gross margin¹ for the second quarter of 2010 was 39.4 percent compared to 34.1 percent for the second quarter of 2009 and 37.8 percent for the first quarter of 2010.

GAAP net income for the second quarter of 2010 was $43.5 million, or $0.80 per diluted share compared to GAAP net income of $32.4 million, or $0.54 per diluted share, for the second quarter of 2009 and GAAP net income of $32.3 million, or $0.59 per diluted share, for the first quarter of 2010. GAAP net income grew 34 percent on a year-over-year basis and GAAP EPS grew 48 percent on a year-over-year basis.

Percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie in the second quarter of 2010 was 61 percent compared to 37 percent for the same period of 2009 and 55 percent for the first quarter of 2010.

Subscriber acquisition cost² for the second quarter of 2010 was $24.37 per gross subscriber addition compared to $23.88 for the same period of 2009 and $21.54 for the first quarter of 2010.

Churn³ for the second quarter of 2010 was 4.0 percent compared to 4.5 percent for the second quarter of 2009 and 3.8 percent for the first quarter of 2010. Churn includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.

Free cash flow⁴ for the second quarter of 2010 was $34.2 million compared to $26.3 million for the second quarter of 2009 and $37.6 million for the first quarter of 2010.

Last twelve-month free cash flow for the second quarter of 2010 was $127.5 million compared to $118.6 million for the second quarter of 2009 and $119.6 million for the first quarter of 2010.

Cash provided by operating activities for the second quarter of 2010 was $60.3 million compared to $75.3 million for the second quarter of 2009 and $77.2 million for the first quarter of 2010.

Business Outlook

The Company’s performance expectations for the third and fourth quarters of 2010 and full-year 2010 are as follows:

Third-Quarter 2010

• Ending subscribers of 16.3 million to 16.7 million

• Revenue of $546 million to $554 million

• GAAP net income of $33 million to $40 million

• GAAP EPS of $0.61 to $0.74 per diluted share

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 Condensed Consolidated Statements of Operations divided by total gross subscriber additions during the quarter.

³ Churn is a monthly measure defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, then 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.

2

Fourth-Quarter 2010

• Ending subscribers of 17.7 million to 18.5 million

• Revenue of $580 million to $596 million

• GAAP net income of $32 million to $40 million

• GAAP EPS of $0.58 to $0.73 per diluted share

Full-Year 2010

• Ending subscribers of 17.7 million to 18.5 million, up from 16.5 million to 17.3 million

• Revenue of $2.14 billion to $2.16 billion, up from $2.11 billion to $2.16 billion

• GAAP net income of $141 million to $156 million, up from $132 million to $144 million

• GAAP EPS of $2.58 to $2.86 per diluted share, up from $2.41 to $2.63 per diluted share

Earnings Q&A Session

In conjunction with this earnings press release, the Company has posted management’s commentary to its Web site at http://ir.netflix.com. Netflix management will host a live Q&A session at 3:00 p.m. Pacific Time to discuss the Company’s financial results and business outlook, with questions submitted via email. Please email your questions to ir@netflix.com. (Please note this new email address). The company will read the questions aloud on the call and respond to as many questions as possible.

All media inquiries should be directed to Steve Swasey at (408) 540-3947 or sswasey@netflix.com.

A live webcast and the replay of the earnings Q&A session can be accessed on the investor relations section of the Netflix website at http://ir.netflix.com. For those without access to the Internet, a replay of the call will be available from 6:00 p.m. Pacific Time on July 21, 2010 through midnight on July 24, 2010. To listen to the replay, call (706) 645-9291, conference ID 84659036.

Use of Non-GAAP Measures

This press release and its attachments include reference to non-GAAP financial measures of free cash flow and non-GAAP net income. 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

With more than 15 million members, Netflix, Inc. (Nasdaq: NFLX) is the world’s largest subscription service streaming movies and TV episodes over the Internet and sending DVDs by mail. For $8.99 a month, Netflix members can instantly watch unlimited TV episodes and movies streamed to their TVs and computers and can receive unlimited DVDs delivered quickly to their homes. With Netflix, there are never any due dates or late fees. Members can select from a growing library of titles that can be watched instantly and a vast array of titles on DVD. Among the large and expanding base of devices that can stream movies and TV episodes from Netflix right to members’ TVs are Microsoft’s Xbox 360 and Sony’s PS3 game consoles and Nintendo’s Wii console; Blu-ray disc players from Samsung, LG and Insignia; Internet TVs from LG, Sony and VIZIO; the Roku digital video player and TiVo digital video recorders; and Apple’s iPad tablet. For more information, visit http://www.netflix.com.

3

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 2010 and the full-year 2010. The forward-looking statements in this release are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new subscribers and retain existing subscribers; our ability to manage our subscriber acquisition cost as well as the cost of content delivered to our subscribers; fluctuations in consumer usage of our service; the continued availability of content on terms and conditions acceptable to us; maintenance and expansion of device platforms for instant streaming; continued weakness in the U.S. economy and its affect on online commerce or the filmed entertainment industry; conditions that effect our delivery through the U.S. Postal Service, including regulatory changes and postal rate increases; changes in the costs of acquiring DVDs or electronic content; consumer spending on DVDs and related products; disruption in service on our website or with our computer systems; competition and widespread consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2010. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.

4

Netflix, Inc.

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2010			2010			2009			2010			2009
Revenues	$	519,819		$	493,665		$	408,509		$	1,013,484		$	802,607
Cost of revenues:
Subscription		265,387			259,560			227,316			524,947			444,772
Fulfillment expenses *		49,547			47,602			41,927			97,149			83,739
Total cost of revenues		314,934			307,162			269,243			622,096			528,511
Gross profit		204,885			186,503			139,266			391,388			274,096
Operating expenses:
Technology and development *		37,863			37,399			27,119			75,262			51,319
Marketing *		74,533			75,219			46,231			149,752			108,473
General and administrative *		17,119			17,193			13,252			34,312			26,266
Gain on disposal of DVDs		(1,972	)		(1,653	)		(118	)		(3,625	)		(1,215	)
Total operating expenses		127,543			128,158			86,484			255,701			184,843
Operating income		77,342			58,345			52,782			135,687			89,253
Other income (expense):
Interest expense		(4,893	)		(4,959	)		(674	)		(9,852	)		(1,344	)
Interest and other income		921			972			866			1,893			2,476
Income before income taxes		73,370			54,358			52,974			127,728			90,385
Provision for income taxes		29,851			22,086			20,531			51,937			35,579
Net income	$	43,519		$	32,272		$	32,443		$	75,791		$	54,806
Net income per share:
Basic	$	0.83		$	0.61		$	0.56		$	1.44		$	0.94
Diluted	$	0.80		$	0.59		$	0.54		$	1.39		$	0.91
Weighted average common shares outstanding:
Basic		52,486			52,911			57,872			52,697			58,301
Diluted		54,324			54,775			59,660			54,548			60,182
* Stock-based compensation included in expense line items:
Fulfillment expenses	$	307		$	176		$	102		$	483		$	222
Technology and development		2,376			1,869			1,190			4,245			2,261
Marketing		756			643			458			1,399			901
General and administrative		3,489			2,814			1,528			6,303			3,026
Reconciliation of Non-GAAP Financial Measures
(unaudited)
Non-GAAP net income reconciliation:
GAAP net income	$	43,519		$	32,272		$	32,443		$	75,791		$	54,806
Stock-based compensation		6,928			5,502			3,278			12,430			6,410
Income tax effect of stock-based compensation		(2,820	)		(2,234	)		(1,272	)		(5,054	)		(2,531	)
Non-GAAP net income	$	47,627		$	35,540		$	34,449		$	83,167		$	58,685
Non-GAAP net income per share:
Basic	$	0.91		$	0.67		$	0.60		$	1.58		$	1.01
Diluted	$	0.88		$	0.65		$	0.58		$	1.52		$	0.98
Weighted average common shares outstanding:
Basic		52,486			52,911			57,872			52,697			58,301
Diluted		54,324			54,775			59,660			54,548			60,182

5

Netflix, Inc.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share and par value data)

	As of
	June 30,		December 31,
	2010		2009
Assets
Current assets:
Cash and cash equivalents	$	107,327	$	134,224
Short-term investments		171,758		186,018
Current content library, net		93,123		37,329
Prepaid content		33,837		26,741
Other current assets		35,173		26,701
Total current assets		441,218		411,013
Content library, net		94,666		108,810
Property and equipment, net		123,292		131,653
Deferred tax assets		21,951		15,958
Other non-current assets		12,845		12,300
Total assets	$	693,972	$	679,734
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	120,031	$	91,475
Accrued expenses		34,746		33,387
Current portion of lease financing obligations		1,971		1,410
Deferred revenue		101,419		100,097
Total current liabilities		258,167		226,369
Long-term debt		200,000		200,000
Lease financing obligations, excluding current portion		35,185		36,572
Other non-current liabilities		23,980		17,650
Total liabilities		517,332		480,591
Stockholders’ equity:
Common stock, $0.001 par value; 160,000,000 shares authorized at June 30, 2010 and December 31, 2009; 52,358,171 and 53,440,073 issued and outstanding at June 30, 2010 and December 31, 2009, respectively		52		53
Accumulated other comprehensive income, net		802		273
Retained earnings		175,786		198,817
Total stockholders’ equity		176,640		199,143
Total liabilities and stockholders’ equity	$	693,972	$	679,734

6

Netflix, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2010			2010*			2009			2010			2009
Cash flows from operating activities:
Net income	$	43,519		$	32,272		$	32,443		$	75,791		$	54,806
Adjustments to reconcile net income to net cash provided by operating activities:
Acquisition of streaming content library		(66,157	)		(50,475	)		(9,343	)		(116,632	)		(31,434	)
Amortization of content library		65,143			62,292			53,235			127,435			102,539
Depreciation and amortization of property, equipment and intangibles		9,309			10,859			9,013			20,168			18,188
Amortization of discounts and premiums on investments		236			234			119			470			313
Amortization of debt issuance costs		137			98			—			235			—
Stock-based compensation expense		6,928			5,502			3,278			12,430			6,410
Excess tax benefits from stock-based compensation		(11,182	)		(7,424	)		(3,815	)		(18,606	)		(7,499	)
Loss on disposal of property and equipment		—			—			110			—			254
(Gain) loss on sale of short-term investments		(215	)		(264	)		101			(479	)		(471	)
Gain on disposal of DVDs		(3,058	)		(3,228	)		(506	)		(6,286	)		(2,539	)
Deferred taxes		(3,394	)		(2,761	)		5,898			(6,155	)		4,554
Changes in operating assets and liabilities:
Prepaid content		(2,133	)		(4,963	)		(1,613	)		(7,096	)		2,485
Other current assets		(9,211	)		548			(7,232	)		(8,663	)		(11,721	)
Accounts payable		19,263			16,878			(6,549	)		36,141			2,023
Accrued expenses		7,917			13,746			(34	)		21,663			2,911
Deferred revenue		1,310			12			(128	)		1,322			(2,632	)
Other assets and liabilities		1,840			3,879			325			5,719			2,748
Net cash provided by operating activities		60,252			77,205			75,302			137,457			140,935
Cash flows from investing activities:
Acquisitions of DVD content library		(24,191	)		(36,902	)		(43,224	)		(61,093	)		(89,723	)
Purchases of short-term investments		(21,795	)		(35,995	)		(28,769	)		(57,790	)		(81,153	)
Proceeds from sale of short-term investments		32,055			30,770			7,832			62,825			44,765
Proceeds from maturities of short-term investments		4,310			4,013			26,175			8,323			27,505
Purchases of property and equipment		(5,671	)		(6,393	)		(6,933	)		(12,064	)		(13,505	)
Acquisitions of intangible assets		—			(130	)		—			(130	)		(200	)
Proceeds from sale of DVDs		3,815			3,984			1,159			7,799			3,885
Other assets		10			(172	)		11			(162	)		9
Net cash used in investing activities		(11,467	)		(40,825	)		(43,749	)		(52,292	)		(108,417	)
Cash flows from financing activities:
Principal payments of lease financing obligations		(465	)		(361	)		(295	)		(826	)		(564	)
Proceeds from issuance of common stock		13,109			9,918			9,778			23,027			23,367
Excess tax benefits from stock-based compensation		11,182			7,424			3,815			18,606			7,499
Repurchases of common stock		(45,145	)		(107,724	)		(72,511	)		(152,869	)		(115,230	)
Net cash used in financing activities		(21,319	)		(90,743	)		(59,213	)		(112,062	)		(84,928	)
Net increase (decrease) in cash and cash equivalents		27,466			(54,363	)		(27,660	)		(26,897	)		(52,410	)
Cash and cash equivalents, beginning of period		79,861			134,224			115,131			134,224			139,881
Cash and cash equivalents, end of period	$	107,327		$	79,861		$	87,471		$	107,327		$	87,471
	Three Months Ended									Six Months Ended
	June 30, 2010			March 31, 2010			June 30, 2009			June 30, 2010			June 30, 2009
Non-GAAP free cash flow reconciliation:
Net cash provided by operating activities	$	60,252		$	77,205		$	75,302		$	137,457		$	140,935
Acquisitions of DVD content library		(24,191	)		(36,902	)		(43,224	)		(61,093	)		(89,723	)
Purchases of property and equipment		(5,671	)		(6,393	)		(6,933	)		(12,064	)		(13,505	)
Acquisitions of intangible assets		—			(130	)		—			(130	)		(200	)
Proceeds from sale of DVDs		3,815			3,984			1,159			7,799			3,885
Other assets		10			(172	)		11			(162	)		9
Non-GAAP free cash flow	$	34,215		$	37,592		$	26,315		$	71,807		$	41,401

* Certain prior period amounts have been reclassified.

7

	Twelve Months Ended
	June 30,			March 31,			June 30,
	2010			2010			2009
Non-GAAP free cash flow reconciliation:
Net cash provided by operating activities	$	321,585		$	336,635		$	293,530
Acquisitions of DVD content library		(164,414	)		(183,447	)		(156,846	)
Purchases of property and equipment		(44,491	)		(45,753	)		(30,202	)
Acquisitions of intangible assets		(130	)		(130	)		(262	)
Proceeds from sale of DVDs		15,078			12,422			12,367
Other assets		(100	)		(99	)		(20	)
Non-GAAP free cash flow	$	127,528		$	119,628		$	118,567

8

Netflix, Inc.

Consolidated Other Data

(unaudited)

(in thousands, except percentages, average monthly revenue per

paying subscriber, average monthly gross profit per paying

subscriber and subscriber acquisition cost)

	As of / Three Months Ended
	June 30,			March 31,			June 30,
	2010			2010			2009
Subscriber information:
Subscribers: beginning of period		13,967			12,268			10,310
Gross subscriber additions: during period		3,059			3,492			1,936
Gross subscriber additions year-to-year change		58.0	%		44.7	%		39.9	%
Gross subscriber additions quarter-to-quarter sequential change		(12.4	%)		24.6	%		(19.8	%)
Less subscriber cancellations: during period		(2,025	)		(1,793	)		(1,647	)
Subscribers: end of period		15,001			13,967			10,599
Subscribers year-to-year change		41.5	%		35.5	%		26.0	%
Subscribers quarter-to-quarter sequential change		7.4	%		13.8	%		2.8	%
Free subscribers: end of period		424			345			224
Free subscribers as percentage of ending subscribers		2.8	%		2.5	%		2.1	%
Paid subscribers: end of period		14,577			13,622			10,375
Paid subscribers year-to-year change		40.5	%		34.7	%		26.0	%
Paid subscribers quarter-to-quarter sequential change		7.0	%		14.5	%		2.6	%
Average monthly revenue per paying subscriber	$	12.29		$	12.90		$	13.29
Average monthly gross profit per paying subscriber	$	4.84		$	4.87		$	4.53
Percentage of subscribers who watched instantly more than 15 minutes of a TV episode or movie		61	%		55	%		37	%
Household penetration - Bay Area		26	%		24	%		21	%
Household penetration - Rest of Country		13	%		12	%		9	%
Churn		4.0	%		3.8	%		4.5	%
Subscriber acquisition cost	$	24.37		$	21.54		$	23.88
Margins:
Gross margin		39.4	%		37.8	%		34.1	%
Operating margin		14.9	%		11.8	%		13.0	%
Net margin		8.4	%		6.5	%		8.0	%
Expenses as percentage of revenues:
Technology and development		7.3	%		7.6	%		6.6	%
Marketing		14.3	%		15.2	%		11.3	%
General and administrative		3.3	%		3.5	%		3.2	%
Gain on disposal of DVDs		(0.4	%)		(0.3	%)		—
Total operating expenses		24.5	%		26.0	%		21.1	%
Year-to-year change:
Total revenues		27.2	%		25.3	%		21.0	%
Cost of subscription		16.7	%		19.4	%		17.3	%
Fulfillment expenses		18.2	%		13.8	%		15.4	%
Technology and development		39.6	%		54.5	%		22.2	%
Marketing		61.2	%		20.8	%		15.6	%
General and administrative		29.2	%		32.1	%		(1.2	%)
Gain on disposal of DVDs		1571.2	%		50.7	%		(94.8	%)
Total operating expenses		47.5	%		30.3	%		17.9	%

9

EX-99.2

Exhibit 99.2

Safe Harbor Statement

Today’s management commentary contains forward-looking statements relating to future events or future financial performance that involve risks and uncertainties. Actual results may differ materially from those anticipated in these statements based on a number of factors, including those identified in the company’s annual report on Form 10-K filed with the SEC on February 22, 2010.

This commentary also contains references to non-GAAP financial measures. A presentation of and reconciliation to the most directly comparable GAAP financial measure, where such can be done without unreasonable effort, can be found on our Web site at http://ir.netflix.com.

Reed Hastings, CEO, Netflix

Q2 was another amazing quarter for us. Our Y/Y subscriber growth accelerated to 42%, our revenue growth accelerated to 27%, and GAAP EPS grew 48%. For the last two quarters, the acceleration of our growth has been astounding, driven by the increasing appeal of streaming. This kind of rapid acceleration is unlikely to continue for long, but as our guidance for Q3 implies, we do see it continuing in the third quarter. The mid-point of our Q3 guidance represents an increase from Q2’s 42% Y/Y subscriber growth rate to a 49% annual growth rate. We’ll know more about Q4 in October, but for now we are being prudent in forecasting that we’ll maintain an amazing 48% annual growth rate for Q4.

Turning to the P&L for Q2, we spent less than expected on cost of subscription, and more than we initially planned on marketing. This quarter more subscribers streamed more content and our Y/Y disc shipment growth, while positive, was less than we had forecast. Within a given quarter, it’s difficult to license more streaming content on such short notice, so we split the upside from lower shipment growth between marketing, which drove more subscriber growth, and earnings. Looking forward at the next two quarters, we’ll be investing the upside in the combination of streaming content and marketing as both drive subscriber growth. If we find enough content deals where the terms make sense to us, we’ll be spending lots more on streaming content. Otherwise, we can spend more on marketing. Either way our goal is to continue to drive growth and deliver earnings consistent with our guidance.

1

We’re investing aggressively in streaming content because of the clear benefits to the business - faster subscriber growth due to the attractiveness of our offering that includes great streaming and less growth in disc shipments due to substitution.

In terms of streaming content, we are rapidly expanding our TV shows available for streaming and since our last call we have added thousands of TV episodes from new deals with Fox, MTV Networks and Warner Television. These shows include all seasons of 24, Futurama, Lie To Me, The Chapelle Show, Nip/Tuck and Veronica Mars, and in a few weeks all seasons of The Family Guy will be available to stream as well. We see TV shows as equally important to our franchise as movies.

As we evolve from DVD by mail into streaming, the role of exclusive content changes. Exclusives in the DVD arena don’t work because of the First Sale copyright doctrine, but are a core part of the Pay-TV market into which we are growing. To date, we’ve been an outlier in the Pay-TV segment by not having any exclusive content. At this point we can start to afford some major TV shows and movies on an exclusive basis, and plan going forward on a mix of more-expensive exclusive content and lower-cost non-exclusive content. Our willingness to license some higher-priced exclusive content will open up new licensing opportunities for us.

In our deal with Relativity Media, for example, we gained the exclusive rights for a set of their movies for subscription. We’re very excited to get these movies and are looking for more exclusive deals, especially on TV shows, as well as non-exclusive content.

As we add more content, and more platforms, we are fortunate to have no single deal for content or platform accounting for more than about 20% of our streaming viewing, so we have reasonable and not excessive concentration risks with our suppliers. As we add even more content and platforms, we expect this modest concentration risk to decline further.

We recently announced that we would be launching a pure streaming service in Canada in the fall and we will have more to say about that on our call in October. We chose Canada because it forms a great validation market for us in terms of pure streaming. Our future international streaming-only investments will be dependent on our learning in Canada.

2

In terms of streaming platforms, we are very pleased with our success in getting on even more devices. In Q2, we launched Netflix on Nintendo Wii and Apple iPad and saw the introduction of dozens of new TVs and Blu-ray players from partners such as LG, Samsung, Sanyo, Sharp, Sony, Toshiba and VIZIO and by the end of the year we expect Netflix to be available on over 100 million devices in consumers’ homes. Not only are we adding more platforms, but we are also making significant improvements in our existing platforms. Before our next call in October, we expect to be launching a major new version of our Sony PS3 user interface which doesn’t require a disc, and is dynamically updated continuously with the latest Netflix UI improvements.

Looking at competition, consumers have an enormous array of choices for their entertainment. A new choice consumers now have is Hulu Plus, which directly competes with us in subscription streaming. Once Hulu Plus has a few hundred thousand subscribers we’ll be able to learn from consumers what they like about Hulu Plus. Then we’ll work to incorporate what we find back into Netflix. The Hulu team is sharp, and we’re not going to underestimate them. In the long term, Hulu Plus and Netflix share the same major competitive threat, which is the MVPD’s (multichannel video programming distributor) getting so much better that fewer consumers choose to supplement with Netflix or Hulu Plus.

In summary, Q2 was a great quarter and we are very well positioned to continue to benefit from the growth of Internet video. We know, however, there are many risks for our business, and we are staying as vigilant and focused as ever in this time of astounding business acceleration.

Barry McCarthy, CFO, Netflix

Accelerating subscriber growth and record high profit were the dominant themes of our Q2 results. The faster subscriber growth was expected but not the record high profit, which is why we beat our guidance for Q2 earnings. The outperformance in Q2 has important implications for long term growth and profit. Why were profits so strong this quarter? The answer is “streaming”. More about that shortly.

Q2 Results

Gross margin for the quarter was 39.4%. That’s the largest Y/Y improvement (530bps) in the last four years. Disc shipments continue to grow on a Y/Y basis, but less than we had expected and less than revenue growth, which explains the margin improvement. In particular, lower disc usage per subscriber was the primary driver of margin improvement, owing first, to the increased popularity of our $8.99 plan, and second, to substitution behavior which depressed disc usage.

3

On the 2008 Q4 earnings call, I said there were signs of DVD usage declines among early adopters of streaming. I said, other things being equal, Netflix profit margins would expand if streaming substitution became a mainstream consumer behavior, with postage and packaging expense replaced by streaming delivery expense.

Now, six quarters later, the data clearly suggests that the substitution behavior first exhibited by early adopters is also being exhibited by mainstream subscribers. As previously mentioned, disc shipments are still growing on a Y/Y basis, but at a slower rate than last quarter. As a result, we saw lower disc usage in Q2 than we expected. More on the margin implications for guidance in a moment.

Subscriber acquisition cost (SAC) of $24.37 increased sequentially and on a Y/Y basis. This was a managed outcome. As the quarter progressed, and it became apparent we would ship fewer discs than forecast and overshoot our gross profit targets, we increased marketing spending in marginally less efficient marketing channels.

Churn of 4% was down 50 bps on a Y/Y basis. Consumer engagement with streaming continues to explain the improvement. Sequentially, churn increased 20 bps, but the seasonal increase was 10 bps better than a year ago because of the consumer appeal of streaming.

Guidance

The upward revision in our full-year guidance reflects the momentum we currently see in the business, particularly with respect to subscriber growth.

As Reed mentioned, we continue to invest aggressively in streaming content. We have several new deals in the pipeline. If we close those new deals, as expected, streaming content expense will increase significantly over the next two quarters, which will decrease gross margin from Q2 levels. By making the Netflix service a better value proposition and better user experience than it is today, we expect to recoup our streaming investment through incremental subscriber growth, lower churn, lower SAC, and increased operating profit and cash flow. These expectations are incorporated in our Q3 and Q4 guidance.

4

Given the nature of the business, it’s possible we’ll license less streaming content than we’re currently forecasting. In that event, you should expect us to redeploy funds to marketing, in which case subscribers would likely grow faster than we’re currently forecasting, at slightly higher SAC and slightly higher churn.

Much has been written lately about the prospect of postal rate increases in 2011 and beyond. I believe the impact on our margin structure will be small. The substitution effects I spoke of earlier, where content consumption continues to marginally shift from DVD by mail to streamed movies and TV, will more than offset the impact of postal rate changes on our margin structure.

Buyback Update

We continued to repurchase Netflix shares in the second quarter, even at record high prices. In total, we spent $44 million repurchasing 0.4 million shares at an average cost of $108.24 per share in the second quarter.

Cumulatively, we have returned $776 million to shareholders by repurchasing 21.5 million Netflix shares at an average cost of $36.06 per share. This represents 40% of the 54.3 million average fully diluted share count in Q2.

We finished the quarter with $279 million in cash and short-term investments and $200 million in long term debt. The balance sheet remains strong, with very modest leverage. We plan to keep it that way for the foreseeable future, with no plans for additional debt.

Closing Thoughts

If you’ve watched the Netflix streaming ecosystem grow over the past three years and wondered about the implications for our business model, or perhaps been frustrated by our limited disclosure of streaming metrics (for competitive reasons), the financial results year-to-date and our guidance through 2010 should give you confidence that the business model is working well and our financial results are solid.

5

1

Q2’10 Financial Highlights  |

July 21, 2010

This presentation contains forward-looking statements relating to

future

events

or

future

financial

performance

that

involve

risks

and

uncertainties. Actual results may differ materially from those anticipated

in these statements based on a number of factors, including those

identified in the company’s annual report on

Form 10-K filed with the SEC on February 22, 2010.

This presentation also contains references to non-GAAP financial

measures. A presentation of and reconciliation to the most directly

comparable GAAP financial measure, where such can be done

without

unreasonable

effort,

can

be

found

on

our

Web

site

at

http://ir.netflix.com.

Forward-Looking Statements and

Non-GAAP Financial Measurements

Netflix

Goals

>

Be a great Internet movie and TV show

service by

combining Internet

streaming with

DVD by mail

>

Materially grow

subscribers

and

EPS

every year

Q2 Results

Actual

Q2’10 Guidance

$517m

$525m

14,700k

15,000k

$34m

$40m

15,001k

$519.8m

$43.5m

Subscribers

Revenue

GAAP Net Income

(in thousands)

Netflix Subscribers

Subscriber Growth

Net Additions

(in thousands)

Net Subscriber Additions

Note:

Netflix

implemented

price

reductions

in

July

2007

Q2 Revenue

(in millions)

Total Revenue

Q2 GAAP Net Income & Fully Diluted EPS

(in millions)

Net Income

Earnings per Share

Churn

Subscriber Acquisition Cost

Free Cash Flow

2Q09

3Q09

4Q09

1Q10

2Q10

Non-GAAP Free Cash Flow

Reconciliation:

Net cash provided by operating

activities

$75,302

$78,311

$105,817

$77,205

$60,252

Purchases of property and

equipment

(6,933)

(9,994)

(22,433)

(6,393)

(5,671)

Acquisition of intangible asset

-

-

-

(130)

-

Acquisitions of DVD content library

(43,224)

(46,273)

(57,048)

(36,902)

(24,191)

Proceeds from sale of DVDs

1,159

3,345

3,934

3,984

3,815

Other assets

11

134

(72)

(172)

10

Non-GAAP Free Cash Flow

$26,315

$25,523

$30,198

$37,592

$34,215

(in thousands)

3Q10

4Q10

FY ’10

Subscribers

16.3 –

16.7M

17.7 –

18.5M

17.7 –

18.5M

Revenue

$546 –

554M

$580 –

596M

$2.14 –

2.16B

GAAP Net

Income

$33 –

40M

$32 –

40M

$141 –

156M

GAAP EPS*

$0.61 –

0.74

$0.58 –

0.73

$2.58 –

2.86

*Fully Diluted

Business Outlook

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

Subscribers (M)

10.3

10.6

11.1

12.3

14.0

15.0

Y/Y Change

25%

26%

28%

31%

35%

42%

Revenue (M)

$394

$409

$423

$445

$494

$520

Y/Y Change

21%

21%

24%

24%

25%

27%

Operating Profit (M)

$36

$53

$49

$53

$58

$77

Y/Y Change

138%

54%

45%

41%

60%

47%

Net Income (M)

$22

$32

$30

$31

$32

$44

Y/Y Change

68%

22%

48%

36%

44%

34%

EPS*

$0.37

$0.54

$0.52

$0.56

$0.59

$0.80

Y/Y Change

76%

29%

58%

47%

59%

48%

% of Subscribers

Watching Instantly > 15

minutes

36%

37%

41%

48%

55%

61%

Quarterly Summary Financials

*Fully Diluted

2005

2006

2007

2008

2009

Mid-point of

Guidance

2010

Subscribers (M)

4.2

6.3

7.5

9.4

12.3

18.1

Y/Y Change

60%

51%

18%

26%

31%

47%

Revenue (M)

$682

$997

$1,205

$1,365

$1,670

$2,150

Y/Y Change

36%

46%

21%

13%

22%

29%

Operating Profit (M)

$3

$65

$92

$122

$192

--

Y/Y Change

-86%

2387%

41%

32%

58%

Net Income (M)

$42

$49

$67

$83

$116

$149

Y/Y Change

96%

17%

36%

25%

40%

28%

EPS*

$0.64

$0.71

$0.97

$1.32

$1.98

$2.72

Y/Y Change

94%

11%

37%

36%

50%

37%

% of Subscribers

Watching Instantly > 15

minutes

NA

NA

NA

28%

48%

--

Fiscal Year Summary Financials

*Fully Diluted

15

Q2’10 Financial Highlights  |

July 21, 2010