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Running Head: LEAF 515 NETFLIX, INC.: Financial Analysis1
Financial Analysis
of
NETFLIX, INC.
Kim E. Kerrigan
LEAF 515
Joseph F. Winter, CPA, MBA
February 25, 2014
NETFLIX, INC.: Financial Analysis 2
Abstract
The purpose of this paper is to discuss an overall financial analysis from the publicly
traded company, Netflix, Inc. Included in this discussion will be the recent financial statements
from Netflix, along with the company’s most recent performance, how the company achieved its
goals and created value to its shareholders, and finally, my recommendation as to whether or not
invest in this company, and if so, why? In addition, the analysis of Netflix will be integrated with
a comparison of the basic financial statements and the comparative year’s ratio calculations (as
discussed throughout the LEAF 515 class).
NETFLIX, INC.: Financial Analysis 3
Introduction
Gone are the days of heading to a video store with giddy excitement and high anticipation
of renting the latest blockbuster movie, only to arrive seconds from the last copy being grabbed
from the shelf directly in front of you. Or becoming frustrated with the pricy late fees that most
movie video rental places charged, even if the video was returned within a minute of when the
video was due. Reed Hastings, the creative genesis behind Netflix, Inc., thought the same when,
back in 1997, he received a late fee of $40.00 for the movie, Apollo 13 (Abkowitz, 2009).
Embarrassed by the high fee, he began to think that there was a large market and possibly a new
business venture for renting movies by mail instead (Abkowitz, 2009). As a result, the inventive
powerhouse of Netflix, Incorporation, a multi-million dollar, Internet television network, began.
Who is Netflex, Inc.?
Reed Hastings’ began his career as a math teacher for the Peace Corps and taught in
Swaziland. After he completed graduate school, he began his first company, called Pure
Software and the company became one of the largest software companies in the world (Schorn,
2006). Surprisingly, the company was bought for a reportedly three quarters of a billion dollars
which allowed Hastings’ to be able to start Netflix, Inc. (Schorn, 2006). On August 29, 1997,
Netflix, Inc. began in Los Gatos, California and currently, the Internet subscription network has
over 33 million subscribers, in over 40 countries throughout the world (Reuters, 2014).
In addition to creating Nelflix, Inc. (Netflix), Hastings’ is also the Chief Executive
Officer, President, and Chairman of the Board. His current management team is composed of
highly educated and trained individuals from many different parts of the world (see Appendix 1).
The management team, includes many common positions such as a: Chief Marketing Officer,
Chief Communications Officer, Chief Product Officer; however, Netflix also employs a Chief
NETFLIX, INC.: Financial Analysis 4
Talent Officer, who leads the company's distinctive corporate culture, hires new talent and keeps
the organization effective and versatile despite tremendous growth (Netflix, 2014).
Netflix functions with three different services, specifically: Domestic DVD and Blu-ray
discs delivered directly to homes by means of U.S. ground mail services, or better known as
“DVD-by-mail” (Reuters, 2014, n.p.), along with direct Domestic and International streaming
services. Each of the three services derives revenues from a monthly subscription service with
subscriber access available through the Company’s Website (Reuters, 2014).
Although the DVD Subscription service was the main focus when the company began,
this service has been diminishing throughout the past several years. Back in 2006, more than five
million people in the United States received their movies by the skinny, red envelope that Netflix
has become famous for (Schorn, 2006). Subscribers, while paying one low monthly price, order
and keep movies for as long as they like and there are no late fees. There were over 40
warehouses around the country that housed over 65,000 different titles and a astounding “… 26
million DVD’s, row after row of big ticket blockbusters, box office bombs, TV shows and
thousands of other videos…” (Schorn, 2006, n.p.). In 2006, this service flourished as more than
1.5 million DVD’s were moved nationally every day and made Netflix a top ten customer for
first-class mail from the U.S. Post Office. Each and every red Netflix envelope was handled
individually and “… examined for scratches before the ones on order were repacked and shipped
out again by late afternoon…” (Schorn, 2006, n.p.). Unique Netflix software kept the DVD’s in
an almost continuous distribution and many of the returned movies were immediately sent back
out again without being returned to the warehouse shelves (Schorn, 2006). The distinctive, user-
generated software also allowed for an individual rating system element and continuously
recommended other movie and television show choices to the user. Hastings’ believed, “… the
NETFLIX, INC.: Financial Analysis 5
recommendations have transformed the movie business by giving new life to thousands of
forgotten or overlooked films, like Hotel Rwanda" (Schorn, 2006, n.p.). By 2011, 14 million
subscribers continued to pay Netflix for DVD’s and Blu-ray discs of movies and TV shows sent
through the mail. In contrast, in October 2013, the number of subscribers was down to seven
million and possibly even less (Roettgers, 2013). The diminishing DVD/Blu-ray discs
subscribers service stemmed “… when Netflix decided to split up its two offerings in the
summer of 2011, essentially asking people to pay $8 each for its DVD and streaming plans,
whereas it had previously offered both for the same price” (Roettgers, 2013, n.p.). Since 2011,
the decline has balanced out; however, warehouses and distribution centers around the country
are continuing to close down, with approximately 39 centers currently open nationwide,
compared with as many as 58 centers back in 2010-2011 (Roettgers, 2013). Although many
analysts predict that Netflix will be getting out of the DVD service sooner rather than later,
Netflix executives have long maintained that DVD/Blu-ray discs will be associated with its
business for many years to come (Roettgers, 2013).
In contrast, Netflix’s streaming services has become the Company’s main focus over the
last several years. In the United States, the Company’s Domestic streaming services has
increased to over 27 million subscribers and offers members the ability to “… watch as much as
they want, anytime, anywhere, on nearly any Internet-connected screen” (Netflix, 2014). In
addition, according to Reuters (2014):
The access to a range of exclusive, non-exclusive and original content delivered
over the Internet to a host of connected devices, including personal computer
(PCs) and Macs, game consoles, such as playstations, smart TVs, Blu-ray layers,
home theater systems, Internet video players, such as Apple TV and Roku,
NETFLIX, INC.: Financial Analysis 6
digital video recorders, and mobile devices (n.p.).
The Company continues to focus on the growth of its streaming subscription business
domestically and internationally while still competing with other companies, such as: HBO,
Amazon.com Inc., Hulu LLC, Time Warner, Comcast Corporation, DirecTV, LLC, EchoStar
Corporation, AT&T Inc., Verizon, Google, Wal-Mart, Blockbuster LLC, Redbox Automated
Retail, LLC, and Best Buy (Roettgers, 2013).
Most Recent Performance of Netflix, Inc.
On January 22, 2014, Netflix (NFLX) released its current, fourth-quarter, Financial
Statements, including the Company’s: Balance Sheet (see Appendix 2), Income Statement (see
Appendix 3), Cash Flow Statement (see Appendix 4), and Key Statistics Statement (see
Appendix 5) (Edgar Online and US Financials, 2014). Overall, the Company is up 33% from last
year with over 44 million members at the end of 2013 (Hiltzik, 2014). Total Assets and Total
Liabilities were balanced at $5.413 billion (Appendix 2). Gross Profit was recorded at
$1,291,306 billion and Net Income was $112,403 million (Appendix 3). The recorded upsurge
was in all probability due to the fact that the predicted customer growth topped analysts’
estimations; in addition, the Company stated that they “…may charge new users more to share
accounts” (Edwards, 2014, n.p.). Furthermore, as of Monday, February 17, 2004, Netflix
obtained their 52-Week High of $435.51 (Gurujx, 2014). Shares were traded at approximately
$435.51 with a Price to Earnings Ratio (P/E ratio) of $235.50 and a Price to Sales Ratio (P/S
ratio) of 6.05. Over the last ten years, Netflix is estimated to have an annual average earnings
growth of 43.40% (Gurujx, 2014). According to Gurujx (2014), “CEO Reed Hastings sold
15,238 shares of NFLX stock on 01/27/2014 at the average price of $387.39.
NETFLIX, INC.: Financial Analysis 7
Netflix, Inc. created value to its shareholders
While Netflix has had both positive and negative financial activity over the last few years
and concerned many financial analysts, the Company has unquestionably been the top winner
among companies in the technology industry. From the Company’s run-up in 2010, the
unexpected crashing of the Company’s stocks in 2011, and finally the Company’s amazing
turnaround story in 2012, Netflix has remained steadfast and continues to be positioned well to
succeed (Hartung, 2013). Many have believed that what makes Netflix a great company is due in
part to Reed Hastings, the Company’s CEO. Together with his executive team, Hastings’
pioneered the “ship to your home” (Hartung, 2010) DVD rental business concept which
eliminated the need for DVD stores, such as Blockbuster. However, Netflix did not remain
consumed on competing for DVD rentals and sales or “protecting its core” business (Hartung,
2010, n.p.). Instead, the company focused on the future and predicted that renting digital movies
was going to be considerably greater than renting the physical DVD’s (Hartung, 2010). Studying
all of the Company’s competitors, a first-rate solution was created that was vital for the entire
company (Hartung, 2010). According to Hartung, 2010:
Without abandoning its traditional business, Netflix calmly moved forward
with its digital download business -- which is cheaper than the traditional
business and will not only cannibalize historical sales but make the traditional
business completely obsolete (n.p.).
Although moving from one product line to another within a business or “jumping the curve”
(Hartung, 2010, n.p.) is rarely successful, Netflix was able to accomplish this but not without
great efforts. Between 2010 and 2011, Netflix stocks skyrocketed to $300.00 per share only to
plummet 80% to $60.00 per share by the end of 2011 (Hartung, 2013). This unpredictability
NETFLIX, INC.: Financial Analysis 8
shocked the Company’s Stockholders and investors and many feared the high valuations
(Hartung, 2010). However, Netflix did not waiver; instead, Hastings split the company into two
businesses – DVD and streaming – and permitted the two businesses to price in competition with
each other for customer business (Hartung, 2013). This unprecedented move, led to an increase
in prices by 60% for any customer who choose to buy both of Netflix’s products. Many
customers decided to discontinue one of the products and many analysts predicted that this
would be the demise of Netflix (Hartung, 2013). On the contrary, Hastings’ decision did not end
the company, but in fact, the Company began:
Pulling profits and cash out of it to pay for building the faster growing, but lower
margin, streaming business. This allowed Netflix to actually grow revenue, and
grow profits, while making the market transition from one platform (DVD) to
another (streaming) (Hartung, 2013, n.p.).
Many companies have an extremely hard time accomplishing this kind of transition or according
to Hartung (2013) “… cannibalize its own DVD business by aggressively promoting streaming
…” (n.p.). The result, however, for Netflix was unexpectedly positive and the company is “…
adding around 2 million new streaming customers/quarter, while losing 400,000 DVD
subscribers” (Hartung, 2013, n.p.). As a result of the new price changes, this has permitted
Netflix “… to add content and expand internationally – and increase profit!” (Hartung, 2013,
n.p.). In addition, this has created astounding value to the Company’s shares and for the
Company’s shareholders.
Goals and Future Trend of Netflix, Inc
Netflix’s decision to split the company into two businesses and not remain focused on the
shrinking established foundation of DVD subscribers pushed their customers to make quick
NETFLIX, INC.: Financial Analysis 9
decisions regarding their Netflix services. This, in turn, allowed the Company to be able to
convert most of their customers to the new streaming business before the customers bought the
service from one of Netflix’s competitors (Hartung, 2013). Although Netflix’s competitors, such
as Hulu and Redbox, may do well within the growing streaming market for the next several
years, Netflix will benefit overall from being the first and the biggest. This is due in part because
the Company has the most cash flow to invest in added growth, has the biggest subscriber base to
attract content providers earlier, in addition to, offering them the most money (Hartung, 2013).
Netflix has not and will not fear cannibalization for future growth. Administrating forceful
cannibalization was strategically the correct solution given how quickly smartphone and tablet
sales grew and drove up the demand for streaming entertainment. Securing the growth market
was highly advantageous rather than trying to defend the business destined for dying out
(Hartung, 2013). The Company looked to the future and “ …merely did its planning looking out
the windshield, at what the market was going to look like in 3 years, rather than trying to protect
what it saw in the rear view mirror” (Hartung, 2013, n.p.). The market was destined to quickly
change and affect the content delivery and content creation of computer companies and
television, alike (Hartung, 2013). Positioning to be a winner, Netflix implemented the strategies
and tactics to work despite widespread skepticism. Furthermore, Netflix’s goal has always been
to move “…into the cold, but fast moving, water of the new streaming market as aggressively as
possible…” (Hartung, 2013, n.p.). The Company had the courage to not continue to rent DVD’s
for too long of a period of time and quickly cannibalize the DVD’s business. This commitment
to the new marketplace, in the end, prevented the Company from bankruptcy court similar to the
fate of Blockbuster (Hartung, 2013).
NETFLIX, INC.: Financial Analysis 10
As of January, 2014, Netflix is enjoying enormous success after another strong earnings
report. On the positive side, are “… the addition of the award-winning original series like
“House of Cards” and an expanded library of TV shows and films that have made it a proven
force in Hollywood with 35.6 million U.S. subscribers” (Richwine, L. and Grover, R., 2014).
The impending result and the expectation that Netflix will now raise prices sent the Company’s
stock increasing by more than 16 percent to $388.72 on January 16, 2014, beating their all-time
closing high, at that time, of $380.58 (Richwine, L. and Grover, R., 2014). In order to determine
an increase in prices, the Company is investigating tiered pricing plans to substitute or
supplement the $8 price currently paid by most of its U.S. members and emphasizing that
existing customers will be able to keep the $8 price for the time being (Richwine, L. and Grover,
R., 2014). The Company has made their intentions clear that the possibility of a price increase
will be made cautiously as a result of the 2011 price increase when the Company lost more than
800,000 U.S. customers (Richwine, L. and Grover, R., 2014). As Netflix recently accomplished
in Ireland, the Company expects to raise the core domestic price for new members in the U.S.
from $1 to $9 and ensure the current price for existing members for two years, helping to reduce
cancellations (Richwine, L. and Grover, R., 2014). Although a new pricing structure may take
over a year to implement, not every analyst agrees that Netflix should change the Company’s
pricing proposal. Several believe that since the Company is making money, raising prices should
be the last choice and should only be recommended if Netflix’s margins minimize due to
additional costs needed to secure content or deliver content online (Richwine, L. and Grover, R.,
2014). According to Edwards (2014), Netflix is continuing to research to determine the best way
the Company will move forward. Conversely, the Company is also planning on raising $400
million dollars in additional debt to finance international expansion and increase original
NETFLIX, INC.: Financial Analysis 11
programming for the next several years. With the 2013 fourth-quarter sales increasing by 24% to
$1.18 billion dollars from $945.2 million in 2012 and topping all estimations, Netflix’s future
forecast looks optimistic (Edwards, 2014). Clearly stated, Netflix has two elements working in
conjunction within the entire company that signifies a successful future:
1. Netflix is in an extremely fast growing market – streaming entertainment. In today’s
world, people have an inexhaustible desire for entertainment, and the Internet
subscription market has grown at an incredible rate and will continue to grow
exceedingly quickly for at least several more years. Only time will tell where the growth
rate may end for content delivery. In the interim, Netflix will remain in a market that
offers tremendous growth for all participants (Hartung, 2013).
2. Netflix leadership has proved the correct strategies to remain a market leader even while
being severely criticized for reacting quickly to market shifts. In particular for choosing
to swiftly cannibalize its own DVD business by insistently endorsing streaming,
although at lower margins, which indicates Netflix chooses growth over defensiveness
(Hartung, 2013).
As of the close of business for the New York Stock Exchange on Friday, February, 21,
2014, at 4:00 pm EST, Netflix (NFLX) stocks were $432.32, down 2.63 (0.60%) (Edgar Online
and US Financials, 2014).
Leadership at Netflix
When asked back in 2006 by CBS News correspondent, Lesley Stahl, if Netflix founder
and Chief Executive Officer, Reed Hastings was a good CEO during his time with his first
company, Pure Software, Hastings replied that he “…was not a good CEO and needed to turn
that over to somebody else…” (Schorn, 2006, n.p.) Additionally he acknowledged that although
NETFLIX, INC.: Financial Analysis 12
the company became one of the 50 largest software companies in the world, he “…definitely
struggled as CEO …” (Schorn, 2006, n.p.). Jump ahead to 2011 when Hastings’ was named as
one of the most influential people in the world by Time Magazine (Spacey, 2011). Hastings’
innovation on how the entertainment business reaches out to consumers and how consumers are
able to access content while “… giving consumers what they want and how they want it — or
even better, how they never even knew they could have it — is the business model of the future
(Spacey, 2011). Not only has Hastings been innovative within the products that he sells, he is
also pioneering in the area of leadership and organizational culture. During the early days of
Netflix, along with Netflix’s Chief Talent Officer, Patty McCord, the two trendsetters wrote the
Company’s core values; however, not in the standard way, such as using words like “excellence”
or “respect” but instead McCord recommended that they “…write down the things we expect in
people” (Ricketts, C. (Editor), 2013, n.p.). The simple recommendation led to an
exceptional document, along with the Company’s philosophy and has become better known as
the, “Netflix Culture: Freedom & Responsibility” (Ricketts, C. (Editor), 2013, n.p.). The
document was made into a soundless, 126 page PowerPoint Presentation
and has gone viral, with over seven million views (SlideShare, 2014). The
document and the PowerPoint Presentation are a set of living “behaviors and
skills” (Ricketts, C. (Editor), 2013, n.p.) that the Netflix management team
updates constantly and meticulously and urges towards a single point: “a
company is like a pro sports team, where good managers are good coaches,
and the goal is to field stars in every position (Ricketts, C. (Editor), 2013,
n.p.). Sheryl Sandberg, COO of Facebook, has called this document “the
most important document ever to come out of the [Silicon] Valley” (Ricketts,
NETFLIX, INC.: Financial Analysis 13
C. (Editor), 2013, n.p.). Many of the concepts within the culture of Netflix have been
controversial especially the unlimited vacation policy. However, with over 900 employees,
Hastings has stated that keeping unlimited vacations necessitates mature, responsible employees
who are mindful about high-quality work (Ricketts, C. (Editor), 2013, n.p.).
Hastings is an extraordinary leader and hires only the most qualified leaders and
managers within the Netflix organization. Because of this, the longevity of the leadership at
Netflix will more than likely be around for many years to come.
So What? Now What?
Recommendations: Would I invest in this company, and if so, why?
Yes! I would invest in Netflix, Inc. and recommend this company to others as a
worthwhile investment selection. Netflix is not only a great story but also a superb investment
opportunity as it acquires the market leadership for entertainment distribution (Hartung, 2010).
When I began in the LEAF 515 class, I did not know anything regarding financial or business
concepts, nor did I know anything regarding financial market philosophies. To say that I have
learned a tremendous amount over the last seven weeks is an understatement. However, I am
definitely not an expert, not even close and I have a long way to go to fully understand and
comprehend the numerous concepts and formulas that we were taught in the class. In association
with class, while I was conducting my research and reading numerous articles and documents
concerning my chosen company, Netflix, Inc., I have learned not only about the history and
financial status of the company, but I also learned many valuable leadership and business
practices and principles. Therefore, I have two reasons for recommending this company. First,
are from several different lessons as stated by Hartung, (2013) and second, are due in part from
my overall financial analysis of the company.
NETFLIX, INC.: Financial Analysis 14
Hartung, (2013), stated that there are some good lessons that can be learned for everyone
from what has occurred with Netflix over the last several years:
“Think long-term, not short-term” (Hartung, 2013, n.p.). In particular, companies should
not be forced into giving up a long-term victory for short-term profits.
“Growth covers a multitude of sins!” and “Anytime you have a choice, go for the fast
growing market!!” (Hartung, 2013, n.p.). Back in 2011 when Netflix initiated the 2-
division campaign the results were disastrous. However, the market grew at a 100%+
and Netflix was able to quickly recover and grew the Company’s streaming subscriber
base by more than 50%.
“Follow the trend! Never fight the trend!” (Hartung, 2013, n.p.). With the tablet and
smartphone sales quickly increasing over DVD sales, the smart move was for Netflix to
go where the trend was headed. Although the Company had to cannibalize itself to do
so, being first on the trend has greatly paid off. Moving slowly usually causes death to a
company.
“Don’t forget to be profitable!” (Hartung, 2013, n.p.). A company must capitalize on the
profits of an outdated product line as fast as possible, even if this means raising prices on
dated solutions that will eventually become obsolete. Do not try to preserve and prolong a
product as these tactics will use up cash and resources instead of contributing to future
success.
“Cannibalizing your installed base is smart when markets shift” and “regardless the
margin concerns (Hartung, 2013, n.p.). Companies must move fast and force the
cannibalization early in order for existing customers to have the opportunity to convert to
the company’s solution and keep them, instead of going to an up-and-coming competitor.
NETFLIX, INC.: Financial Analysis 15
“When you need to move into a new market set up a new division to attack it” (Hartung,
2013, n.p.). Give permission to the new division to do whatever it takes regardless that
the actions may irritate existing customers and industry competitors. Press them to learn
quickly, grow fast and aggressively address old concepts, for example, bundled pricing.
My second reason for recommending Netflix as a worthwhile investment opportunity is
due to the financial analysis calculations that I conducted and as shown in Appendix 5. In
addition to the Most Recent Performance of Netflix, Inc. Section (as mentioned previously),
Netflix had an excellent year and was extremely successful in 2013. Overall, while some of the
Company’s financial ratios were low (such as Gross Profit Margin, Profit Margin, and Times
Interest Earned) and possibly due to the increase in demand and cost control, the Company did
achieve an increase in profitability (CSI Market Company, 2014). Netflix, Inc., with a current
total number of employees of 2,045, has a Working Capital of +$904,560, a total revenue of +
$4,374,562 (an increase of +$765,280 from 2012 to 2013) and a Net Income of $112,403 (an
increase of +$95,251, from 2012 to 2013). Additionally, the Quick Ratio and the Current Ratio
are slightly low; however, this may possibly be due to the increase in current liabilities. Lastly,
the current P/E ratio indicates anticipated future earnings for Netflix; however, because this is
determined as indicated by industry, CSI Market Company (2014) states:
Despite shareprice increase of 31.27 %, from beginning of IV. Quarter Netflix,
Inc.'s current Price to earnings ratio has contracted due to EPS growth of
507.69 %, to P/E of 233.64, from average Price to earnings ratio in III. Quarter
of 249.12.
NETFLIX, INC.: Financial Analysis 16
NETFLIX, INC.: Financial Analysis 17
Appendix 1
Current Netflix, Inc. Officers and Directors (Source: Netflix.com Retrieved from http://ir.netflix.com/management.cfm)
Officers:
Reed Hastings, Founder and CEO, co-founded Netflix in 1997. Reed received a BA from Bowdoin College in 1983, and an MSCS in Artificial Intelligence from Stanford University in 1988. Reed served in the Peace Corps as a high school math teacher in Swaziland.
Kelly Bennett became Netflix Chief Marketing Officer in 2012 after approximately a decade at Warner Bros. where he led international online campaigns for Warner Bros. movies.
Tawni Cranz became Chief Talent Officer in October 2012 and now leads the team that continues the company's unique corporate culture, hires new talent and keeps the organization lean and flexible regardless of enormous growth. Tawni joined Netflix in 2007 as a director and became Vice President of Talent in 2011.
Jonathan Friedland, Chief Communications Officer began at Netflix in February 2011 from The Walt Disney Company, where he was SVP, Corporate Communications.
Neil Hunt has been at Netflix since 1999 and serves as Chief Product Officer, leading the product team, which designs, builds and optimizes the Netflix experience.
David Hyman has served as Netflix General Counsel since 2002. He also serves as the Company’s Secretary.
Greg Peters is Chief Streaming and Partnerships Officer for Netflix, responsible for the global partnerships with consumer electronics companies, Internet service providers and multi-channel video programming distributors that enable Netflix to deliver movies and TV shows across a full range of devices and platforms.
Ted Sarandos has directed content acquisition for Netflix since 2000.
David Wells has served as the Company's Chief Financial Officer since December 2010.
Board of Directors: Reed Hastings, Chief Executive Officer, President, Chairman of the Board, Richard Barton has served as one of the Company's directors since May 2002, A. George (Skip) Battle, Investor, has served as one of the Company's directors since June 2005, Timothy M. Haley has served as one of the Company's directors since June 1998, Jay Hoag has served as one of the Company's
NETFLIX, INC.: Financial Analysis 18
directors since June 1999, Leslie Kilgore served as the Company's Chief Marketing Officer from 2000 until 2012, Ann Mather has served as a member of our board of directors since 2010.
Appendix 2
Netflix, Inc. Balance Sheet, as February 14, 2014(US Financials data provided by Edgar Online and all other Financials provided by Capital IQ IN Yahoo Finance, Retrieved from http://finance.yahoo.com/q/bs?s=NFLX+Balance+Sheet&annual)
(US Financials data provided by Edgar Online and all other Financials provided by Capital IQ IN Yahoo Finance, Retrieved from http://finance.yahoo.com/q?s=NFLX. As of February 22, 2014)
NETFLIX, INC.: Financial Analysis 19
Appendix 3
Netflix, Inc., Income Statement, as of February 14, 2014(US Financials data provided by Edgar Online and all other Financials provided by Capital IQ IN Yahoo Finance, Retrieved from http://finance.yahoo.com/q/is?s=NFLX+Income+Statement&annual)
NETFLIX, INC.: Financial Analysis 20
Appendix 4
Netflix, Inc., Cash Flow Statement, as of February 14, 2014(US Financials data provided by Edgar Online and all other Financials provided by Capital IQ IN Yahoo Finance, Retrieved from http://finance.yahoo.com/q/cf?s=NFLX+Cash+Flow&annual)
NETFLIX, INC.: Financial Analysis 21
Appendix 5
Comparison of Netflix’s basic financial statements and Key Financial Information (from class) for the Most Recent Quarter of December 31, 2013
(As of February 14, 2014. All numbers in thousands)
Netflix’s basic financial statementsKey Financial
Information (from class)
My interruption of the financial
information Working Capital (Current Assets – Current Liabilities) 3,058,769 – 2,154,203 = +904,560
+ $904,560 The number should always be positive Excellent number
Income StatementTotal Revenue (Total Sales) $4,374,562 - + $765,280 from
2012 to 2013.Net Income $112,403 - + $95,251 from 2012
to 2013.Times Interest Earned (TIE) Ratio 6.9
A good number is 8 or higher
6.9 is slightly low number
Financial StrengthQuick Ratio 0.60 A good number is 1 or
better0.60 is slightly low
Current Ratio 1.42 A good number is 2 or better
1.42 is slightly low
Total Debt to Equity 0.37 A good number is 1 or less
0.37 is a good number
Total Debt to Total Assets 0.75 A good number is .5 or less
.75 is a slightly high number
ProfitabilityGross Profit 1,291,306 - + $983,416 from
2012 to 2013Gross Profit Margin 29.52% A good number is 50%
or higher29.52% is slightly low
Profit Margin 2.57% The higher the number the better
2.57% is slightly low
EBIT Earnings Before Interest and Taxes $200,216
Depends on the industry
This number +$149,750 from 2012 - 2013
Management EffectivenessReturn on Assets (ROA) 3.04% The smaller the number
the better3.04% is a good number
Return on Equity10.82%
A good number is double the amount of the ROA
10.82% is more than double the ROA – good number
AssetsAsset Turnover 0.81 The higher the number
the better 0.81 is slightly low
Receivable Turnover N/A N/A N/AValuation
P/E Ratio $235.41 A high P/E ratio generally indicates increased demand because investors anticipate earnings growth in the future
$235.41, good number, indicates anticipated future earnings
NETFLIX, INC.: Financial Analysis 22
References
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Money. Cable News Network. A Time Warner Company. Atlanta: Georgia. Retrieved
from http://money.cnn.com/2009/01/27/news/newsmakers/hastings_netflix.fortune/
Capital IQ. (2014, February 14). Source from US Financials data provided by Edgar
Online and all other Financials provided by Capital IQ IN Yahoo Finance, Retrieved
from Retrieved from http://finance.yahoo.com/q/bs?s=NFLX+Balance+Sheet&annual;
http://finance.yahoo.com/q/is?s=NFLX+Income+Statement&annual;
http://finance.yahoo.com/q/cf?s=NFLX+Cash+Flow&annual
CSI Market Company. (2014, February 22). Netflix, Inc. (NFLX). CSIMarket.com. Retrieved
from http://csimarket.com/stocks/single_company_valuation_ttm.php?code=NFLX&pe
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NETFLIX, INC.: Financial Analysis 23
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NETFLIX, INC.: Financial Analysis 24
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