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NET FLIX Free Resources
The juggling lessons don't come cheap.
The juggling lessons don't come cheap. Netflix has to make sure it's paying DVD player manufacturers to stock trial-offer literature as well as tie-ins at the retail level with companies like Best Buy (NYSE: BBY) and costly online ad campaigns. To be sure, last year the company spent $21 million in marketing costs to produce what amounted to just $26 million in gross profits. It has little choice but to keep pouring new water into the bucket with a hole.
Maybe this would be an acceptable business practice if there were some semblance of a profit at the end of the day, but there isn't. The company has amassed just over $140 million in accumulated deficits in its brief tenure. If this is all Reed wanted to do, he could have simply held on to his copy of Apollo 13 for another 291,666 years.
While the financials have been improving over the past few quarters, they are still no better than your garden variety Bond flick intro. You know, a shot is fired and the red ink runs down. Is there a catalyst to land Netflix into the camp of profitability? Just call me Dr. No.
Let's take a look at the company's most recent fiscal period. In the March quarter, Netflix posted revenue of $30.5 million. Gross profits of $15.4 million marked the first time the company's gross profit margins topped the 50% mark -- obviously a good sign -- until you begin to nickel and dime the operating expenses. With $7.9 million to placate the marketing tiki god and another $4.2 million to cover fulfillment costs, you're talking some razor-thin margins even before the other line items like technology, administrative, and stock-related expenses take their whacks.
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