Income Statement and Balance Sheet Term Paper

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3% decline. The decrease in gross margin was primarily due to an increase in postage rates effective May 2007 and a reduction in the prices of Netflix's most popular subscription plans during the second quarter of 2007 caused by increased competition. The company is anticipating further pressures on gross margin in 2008 due to continued price competition and another slight increase in postage rates.

The company is anticipating a shift from postal delivery to Internet-based delivery of its content in the near future and surviving the transition will be critical to the company's long-term success. It has increased technology and development from $48, 379 million in FY 2006 to $71, 395 million in FY 2007; much of this is for the transition to Internet-delivered content. Netflix's balance sheet indicates its content library as one of its greatest assets other than cash and short-term investments.

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The value of the content library increased by 26.3% from 2006 to 2007 and is now valued at $132.5 million. Part of the reason for the increase is that Netflix is enhancing the content library with Internet-delivered content.

The content delivery industry is in transition with Internet delivery of content increasing. Netflix's past success came from recognizing that consumers would prefer postal delivery vs. having to go to brick-and-mortar stores to rent content. Now, it seems to be savvy enough to understand that its business model must change once again. Analysis of Netflix's income statement and balance sheet seem to indicate that it is adequately bracing for the new paradigm in content delivery. The company's balance sheet indicates that it is in a health financial position to do so. In FY 2007, Netflix had.....

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