A Term Paper Presented to Meet Partial

Requirements for Managerial Finance 300 A

Course Professor: Mr. William Sarsfield

L JANS and Associates, LP: Alicia (Hui Man

Chan), Jenny, Licia, Nina, & Scott

Friday, December 30, 2011

[Type the company name]

Table of Contents I. Executive Summary ........................................................................................................................................................ 4

Consultant Bio: ................................................................................................................................................................. 4

Client’s Background: ........................................................................................................................................................ 4

Client’s Proposition and Request Objective: ................................................................................................................ 5

Consultant’s Final Analysis Report and Recommendation: ....................................................................................... 5

II. Fast Facts: Netflix Corporation and Targeted Companies ....................................................................................... 6

III. Statistical DVD Rental and Streaming Market Data and Information for Consumer and Industry (As of July

2011) ................................................................................................................................................................................. 7

General News Current News Releases for Consumer and Industry: ....................................................................... 7

Netflix: Content and Pricing Model ................................................................................................................................ 8

Sandvine Networks Analytics Top-Ten Internet Traffic Analysis Chart for North America: Upstream % ....... 9

Sandvine Networks Analytics Top-Ten Internet Traffic Analysis Chart for North America: Downstream % 10

Sandvine Networks Analytics Top-Ten Internet Traffic Analysis Chart for North America: % Differential

between Upstream and Downstream ...................................................................................................................... 10

Percentage of Subscriber Website Visitations Graph (From September 22 to September 29) ..................... 11

Per-Subscriber Usage Overlay Graph (From September 22 to September 29) .............................................. 11

Comcast: Content and Pricing Model .......................................................................................................................... 12

Redbox: Content and Pricing Model ............................................................................................................................ 12

Blockbuster: Content and Pricing Model .................................................................................................................... 12

Hulu: Content and Pricing Model ................................................................................................................................. 13

Amazon: Content and Pricing Model ........................................................................................................................... 13

IV. Du Pont Model Functionality and Utilization Analysis ............................................................................................. 14

V. Balance Sheet Comparative Analysis Charts and Graphs ..................................................................................... 14

Selected Financial Measurements and Corresponding Equation Matrix Sample, Based on Balance Sheet

Data for Year-End 2010 ................................................................................................................................................ 14

Equation Matrix Sample: ............................................................................................................................................... 15

Balance Sheet Synopsis and Overview of a Few Key Performance Statistics: Firm vs. Industry ..................... 16

VI. Financial Performance Ratios and Comparative Analysis Charts and Graphs ................................................... 19

Quick and Current Ratio Performance Comparative Analysis: Netflix vs. Comcast (2006-2010) ..................... 19

NOWC Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010) ......... 20

TOC Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010) .............. 20

NOPAT Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010) ........ 21

FCF Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010) .............. 22

ROIC Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010) ............ 22

M/B Ratio Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010) ..... 23

VII. Consultant’s Closing Comments and Final Recommendation ............................................................................ 23

Opinions: .......................................................................................................................................................................... 23

Recommendations: ........................................................................................................................................................ 24

VIII. Client’s Q & A Session .............................................................................................................................................. 24

Source Citations, Appendages, and Miscellany ............................................................................................................ 25

I. Executive Summary

Consultant Bio:

L JANS & Associates, LLP is an accounting consultancy firm, specializing in corporate evaluation and

due diligence for auditing purposes in areas of mergers and acquisitions, LBOs and liquidations for

Fortune 500 companies worldwide. Established in 2001 by a 25-member team of experienced

accounting professionals and MBA graduates from SMU Cox School of Business, Wharton School of

Business, Stern School of Business, and GGU Edward Ageno School of Business our firm now staffs

over 1,500 CFA and CPA qualified consultants from those prestigious institutions in addition to

several others, specializing in various industries such as engineering, commercial and investment

banking and financial services, insurance, government, hospitality, law, manufacturing, medical and

pharmaceutical, aerospace, commercial real estate, mining and agriculture, televised sports and

entertainment, and news media.

Our unique proprietary brand of products and services allows us to consistently and effectively

execute with the highest degree of integrity and efficiency under full compliance of local, state, and

federal regulations any number of our customers’ various complex and sophisticated financial

evaluation needs, comprehensively and expediently. Since inception, we have managed to maintain

an above-average Return on Capital Investment ratio for our clients’ acquisitions in their particular

industry, a statistical performance record that is factual and irrefutable.

Client’s Background:

Our client, Netflix, Inc., is a $2.2 billion (sales revenue) subscriber-based video tape and disc rental

and Internet video streaming business for the distribution of both TV and movie content and by which

is operated by 2,180 employees. Its services span worldwide and are organized and offered in two

segments: U.S. territory and international region. Incorporated in 1997 and headquartered in Los

Gatos, California, the company is currently led by Chief Executive Officer Reed Hastings, a position

held since September 1998 - but yet also serving as Chairman of the Board since the company’s

founding in 1997. The company is publically traded on NASDAQ under the symbol NFLX and is

currently traded on the exchange at around $273 a share.

Client’s Proposition and Request Objective:

On May 16, 2011, L JANS & Associates (lead consultant) was approached by company executives of

the Netflix Corporation (client) to make a formal inquiry and request proposal to provide evaluation

analysis services on Comcast, Inc. (primary targeted competitor) to supplement and facilitate

resource allocation action plans for Netflix management team’s impending investment strategy for the

furtherance of market expansion into their existing online video content streaming business. In

addition to the previous request, Netflix has also made a formal Merger and Acquisition proposal

request to our firm to execute preliminary due diligence and financial analysis on the Redbox

Corporation as a possible acquisition candidate. A third item presented to our firm by Netflix, to be

included in the terms of the pending agreement, is to perform a non-comprehensive M & A prospect

assessment and forecast analysis on the Blockbuster Corporation, pre- and post-Chapter 11 phases,

to examine leverage probability ratios for possible acquisition transaction long-run.

Consultant’s Final Analysis Report and Recommendation:

On this date, August 1, 2011, L JANS & Associates has fully completed all services requested by our

client, Netflix, Inc., in a written proposal submitted to us on May 16, 2011, and have formalized our

results and final conclusions, and, based on our final assessment, offer the following

recommendations in this auditing report.

II. Fast Facts: Netflix Corporation and Targeted Companies

Companies Involved in Report Netflix, Inc. Comcast Corp

Redbox Automated Retail, LLC (Wholly-owned subsidiary of

Coinstar, Inc.) Blockbuster, Inc.

Headquarters Address:

100 Winchester Circle Los Gatos, CA 95032

United States

One Comcast Center Philadelphia, PA 19103-2838

USA

One Tower Lane Suite 1200 Oakbrook Terrace, IL 60181

United States 1201 Elm Street Dallas, TX

75270 USA

Date of Incorporation:

August 1997 , DE, United States

December 2001 , PA, United States Founded in 2004

October 1989 , DE, United States

Number of Employees: 4,329 102,000 CoinStar: 2,585 48,000

Chief Executive Officer:

Reed Hastings, Chairman & CEO Brian

Coinstar: Paul Davis, CEO: Redbox: Mr. Mitch Lowe,

President Bruce Lewis, SVP & CFO

Gross Revenue: $2.2 billion $38 billion Coinstar: $1.6 billion $3.5 billion

Exchange Listing: NASDAQ NASDAQ Coinstar: NASDAQ Delisted

Symbol: NFLX

CMCSA-Class A Common Stock: CMCSK-Class A Special Common Stock Coinstar: CSTR Delisted

Number of Outstanding Shares (as July 17, 2011): 52,782,000 20,391,697 Coinstar: 31,355,000 219,000,000

Number of Institutions Holding Shares: 539 (Up) 217 773 Coinstar: 275 3

Current 52 Week High/Low: $297.35/$95.33 $27.16/$16.76 Coinstar: $67.56/$37.80 $0.28/$0.03

Most Recent Dividend Distribution Amount:

Netflix has never paid a cash dividend on capital

stock. July 1, 2011 @ $0.113

Coinstar has never paid cash dividend on capital stock.

Coinstar is restricted to pay any cash dividends under its current

credit facility. June 2, 2005 @ $0.02

Historical Stock Splits:

Executed a 2-for-1 stock split on February 12, 2004.

Executed a 3-for-2 stock split on February 22, 2007; 2-for-1 split on May 6, 1999: 3-for-2 on February 3, 1994; 3-for-2 split on October 25, 1989. Coinstar: None None

Notable M & A Historical Events:

Coinstar purchased 47% of Redbox in 2005: Later in 2009 purchased the remaining 53%

stake in Redbox.

Current Status: Public Public

Publically held as a wholly-owned subsidiary of Coinstar, Inc.-

Parent Company Chapter 11

Miscellaneous Notes:

Coinstar sold their Entertainment business in September 2009,

roughly nine months following the purchase of the remaining stake

in Redbox in January 2009.

III. Statistical DVD Rental and Streaming Market Data and Information for Consumer

and Industry (As of July 2011)

General News Current News Releases for Consumer and Industry:

According to Nielson Company, the average viewers spent four hours and thirty-nine minutes

watching Internet video in

January, up 45% from a year

ago. According to Sandvine

Network Analytics chart to the

right, as of Year End 2010, it

shows domestic data usage for

subscribers using various

packages during the year. In

addition, average daily content downloading in North America for the entire year during 2010

over the Internet for fixed access

devices was led by Real-Time

Entertainment traffic at 45.7%,

which includes such companies

like Netflix, Comcast, Redbox, and

Blockbuster, according to the

Sandvine Network Analytics chart

to the left.

In 2011, CEO of Netflix, Reed Hastings, has joined Facebook’s board of directors in a new

slot, which is sometimes a precursor to an eventual initial public offering, or IPO.

Due to SEC regulatory requirement which stipulates that any firm involving 500 or more

investors must disclose their financial statements, Facebook who is expected to surpass that

figure must fully comply and disclose company’s financial statements

Broadband content provider, NBCU (NBC Universal), a subunit of Comcast Corporation, had

been reported as formulating discussions with Netflix for a new distribution deal in 2011.

On April 26, 2011, a U.S. Bankruptcy Court judge approved a majority sale of Blockbuster’s

assets to Dish Network for a reported $320 million.

Netflix: Content and Pricing Model

Netflix maintains the largest library of online content than any other service provider company

of its kind. The following graph on the ensuing page indicates annual revenue sales from 2006

to 2010:

0

84.8

71.3

47.3

12.8 13.1 15.8 20.2 20.1 17.2

26.5 24.9 18.8

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

45,000.00

0

10

20

30

40

50

60

70

80

90

1999200020012002200320042005200620072008200920102011

Internet Publishing and Broadcasting in the U.S.

Revenue $ million

Growth %

According to Sandvine Network Analytics, Netflix ranked in the top ten in both upstream and

downstream Internet traffic in North America’s fixed networks in 2010 (see charts below on the

following page).

Sandvine Networks Analytics Top-Ten Internet Traffic Analysis Chart for North America: Upstream %

996,660,000

1,205,340,000 1,364,661,000

1,670,269,000

2,162,625,000

0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

2006 2007 2008 2009 2010

Total Annual Revenues

Total Annual Revenues

34.31%

12.36% 11.18%

4.34% 3.28% 2.99% 2.47% 2.46% 2.41% 2.28%

1.BitTorrent

2. HTTP3. Gnutella4. Netflix5. Skype6. SSL7.YouTube

8. MGCP9.PPStream

10.Facebook

Upstream Percent of Traffic: Year-End 2010

Upstream Percent of Traffic

Sandvine Networks Analytics Top-Ten Internet Traffic Analysis Chart for North America: Downstream %

Sandvine Networks Analytics Top-Ten Internet Traffic Analysis Chart for North America: % Differential between Upstream and Downstream

22.70%

20.61%

9.85%

8.39%

6.14%

6.13%

2.58%

2.44%

2.12%

1.61%

2. HTTP

4. Netflix

7. YouTube

1. BitTorrent

0. Flash Video

0. RTMP

0. iTunes

10. Facebook

3. Gnutella

0. Xbox Live

Downstream Percent of Traffic: Year-End 2010

Downstream Percent of Traffic

-75.55%

83.66%

-81.04%

374.88%

0.00% 0.00%

298.79%

0.00% 0.00%

-0.81%

Netflix: Top-Ten Internet Traffic Performance Analysis: Year-End 2010

Percentage Difference in Ranking (Upstream vs. Downstream) ±

As of September 22, 2010, the company expanded its enterprise operations to Canada and is

currently experiencing promising results in the early stages of market development and

product and service integration. The following graphs indicate the percentage of subscribers

who visited Netflix.Com and per-subscriber usage comparative analysis between Netflix and

YouTube during a one-week span immediately following full deployment.

Percentage of Subscriber Website Visitations Graph (From September 22 to September 29)

Per-Subscriber Usage Overlay Graph (From September 22 to September 29)

Netflix will hike fees for online video streaming downloads and DVD’s by mail as high as 60%:

Rates are scheduled to take effect on September 1.

New monthly fee rates will consist of a dual package of online video streaming and one DVD at

$16, and increase from current rate of $10: Monthly online streaming only rate remains @ $8.

Blockbuster now offers thousands of movie rentals for 99¢ a day: New releases cost $2.99.

At the end of October 2010, Blockbuster had 1.2 million mail-order subscribers, compared to

23 million for Netflix at the time.

Comcast: Content and Pricing Model

As a fractional part of their monthly cable subscription plan ($60 for a basic plan), Comcast

new movie release fees run about $5 – usually offered the very same day of its DVD release,

giving Comcast more recent movie streaming content than Netflix ; $2 for older ones.

Redbox: Content and Pricing Model

Redbox’s kiosk each holds 200 newly-released rentals that are available no fewer than 30

days prior to the movie’s distribution via DVD, a contractual restriction similar to Netflix’s plan.

With over 27,000 bright-red kiosks stationed at various locations nationally in the U.S., mainly

at grocery stores and drugstores, Redbox rent DVDs and Blu-Ray movies for $1 and $1.50 per

night, respectively.

Blockbuster: Content and Pricing Model

Blockbuster makes the claim that their movie downloads are available well in advance before

they become available through Netflix.

Currently Blockbuster has 1,700 stores remaining.

Blockbuster does not offer a monthly plan, for which Netflix does.

In order to compete favorably with Coinstar’s Redbox, Dish Network’s Blockbuster move to a

per-day pricing model that introduces $3 rates for just-released films, $2 for other newly

released movies, and $1 for each additional day thereafter.

Blockbuster monthly mail-delivery rentals are pricier than Netflix: The company charges a

monthly rate of $12 for one movie or game at a time and $17 for unlimited two-at-a-time

rentals, compared to Netflix’s DVD-only monthly rental rate of $8 for one or $12 for two.

Hulu: Content and Pricing Model

The Hulu company, owned by The Disney Company, News Corp, and Comcast, offers

thousands of TV show episodes and movies via Hulu Plus @ $8 per month.

Amazon: Content and Pricing Model

Amazon’s Instant Video.Com does not offer exclusive online monthly rates. It offers roughly

3,500 online movies and television show rentals at prices ranging from $1 to $5.

Amazon delivers about 6,000 movies and TV shows over the Internet, compared to 20,000 for

Netflix.

IV. Du Pont Model Functionality and Utilization Analysis

Comments and Remarks: Netflix shares are held by 570 institutions - accounting for 87.05%

of all shares held. Among the top 5-10 institutions holding Netflix shares are Vanguard Group,

Inc., American Centuries Companies, Inc., State Street Corp, Blackrock Institutional trust Corp,

& Bank of New York Mellon Corp. In 2010 the company’s stock price increased 219%.

Although the company has stabilized its price point for several, since its inception, the recent

decision to change that pricing model by restructuring the monthly subscription fee package

and increasing its rate slightly roused investors and caused major concern, due to irrational

expectations. However, the slight price increase is still relatively below industry standard.

V. Balance Sheet Comparative Analysis Charts and Graphs

Selected Financial Measurements and Corresponding Equation Matrix Sample, Based on Balance Sheet Data for Year-End 2010

Performance Measures Comparison Chart (%, unless

noted otherwise), as of Year End 2010 Netflix, Inc. Comcast Corp

Redbox Automated Retail, LLC (Wholly-owned subsidiary of

Coinstar, Inc.) Blockbuster, Inc.

NOWC (Net Operating Working Capital) 116,192,000 1,880,000,000 -125,461,000 198,800,000

TOC (Total Net Operating Capital) 244,762,000 25,395,000,000 319,226,000 448,200,000

NOPAT (Net Operating Profit After Tax) 170,185,000 4,788,000,000 85,924,200 -213,120,000

Netflix-2010

Comcast-2010

Netflix-2009

Comcast-2009

Netflix-2008

Comcast-2008

Netflix-2007

Comcast-2007

Netflix-2006

Comcast-2006

ROE % (Net) 65.75 8.35 42.42 8.75 21.29 6.21 15.85 6.27 15.33 6.22

ROA % (Net) 19.36 3.14 17.86 3.22 13.09 2.24 10.66 2.31 10.08 2.37

010203040506070

0

5

10

15

20

25

Netflix versus Comcast Probability Performance Comparison Chart (2006-2010)

FCF (Free Cash Flow) 103,767,000 -463,000,000 92,174,200 -115,820,000

ROIC (Return on Investment Capital) 70% 19% 26.92% -48%

Market/Book (M/B) Ratio 50.20 1.15 9.54 -2.70

Comments and Remarks: The two most notable balance sheet stats, or balance sheet-related

statistical numbers, are seen in the figures regarding return on invested capital (ROIC) and

market/book (M/B) ratios, indicating a decisively clear financial positioning for the company and its

investors. These percentage and ratio figures strongly illustrate the company’s dedication and

commitment to its capital infrastructure and investors. Netflix has long been able to secure

confidence from its investors due to its predication of its original mission and standing to be investor-

oriented and –friendly. Because the industry they service and offer products to is a niche market,

there are few competitors who provide their brand of product and services to match or even exceed

the company’s revenue and profitability performance. The following are a few business activities

which has played a crucial role for the company’s historical growth and current accelerated success:

Product paradigm shift from DVDs to online movie and TV shows streaming

Content obtained from studios via fixed-fee licenses, revenue-sharing pacts, & direct

purchases.

Added 8 million subscribers in 2010, bringing total to 20 million

In 2010, revenue catapulted up 29%: Net income up 39%

Equation Matrix Sample: Netflix Liquidity Measures: Year 2010

Net Operating Working Capital

(2010) = Operating Current Assets − Operating Current

Liabilities

= 375,505 − 259,313

= 116,192 Conversion 116,192,000 Net Operating Working Capital

(2009) = Operating Current Assets − Operating Current

Liabilities

= 171,553 − 124,862

= 46,691 Conversion 46,691,000 Total Net Operating Capital (2010)

= Net Operating Working Capital + Net Operating Long-Term

Assets

= 116,192 + 128,570

= 244,762 Conversion 244,762,000

Total Net Operating Capital (2009) =

Net Operating Working Capital + Net Operating Long-Term Assets

= 46,691 + 131,653

= 178,344 Conversion 178,344,000

NOPAT = Earnings Before Interest Taxes X (1 - Tax Rate)

= 283,641 X 0.60

= 170,185 Conversion 170,185,000 New Investment in Operating Capital (Current

Year's Total Net Operating Capital - Previous Year's Total Net Operating Capital) +

Depreciation

Free Cash Flow (FCF) = (NOPAT + Depreciation) − = 306,764 − 202,997

= 103,767 Conversion 103,767,000

Return on Investment Capital (2010) =

NOPAT ÷ Total Net Operating Capital

= 170,185 ÷ 244,762

= 70%

Balance Sheet Synopsis and Overview of a Few Key Performance Statistics: Firm vs. Industry

Comments and Remarks: Our original assessment of the leverage position of our two

targeted acquisition candidates is highly illustrated in the chart above. First, because of the

industry shift from a brick and mortar business model to an e-commerce, Redbox Automated

Retail’s profit margin has been impacted severely and performed well below the industry

standard in 2010. Secondly, the substantial discrepancy reported for Blockbuster, Inc. is, of

course, prefaced by the company’s preliminary status of Chapter 11 bankruptcy. Nonetheless,

in spite of the recent purchase of Blockbuster, Inc. by the Dish Network Corp, to aid

7.44

9.58

3.55

0

4.8

9.6

5.7 4.5

Netflix, Inc. Comcast Corp Redbox AutomatedRetail, LLC (Wholly-owned subsidiary of

Coinstar, Inc.)

Blockbuster, Inc.

2010 Financial Ratio Comparison: Company vs. Industry

Profit Margin: Company Profit Margin: Industry

Blockbuster’s current restructuring efforts, we, L JANS & Associates, remain optimistic that

Blockbuster, once removed from U.S. Chapter 11 bankruptcy, will still be a viable acquisition

target in the near future. The following few statistical graphs further support our original

acquisition recommendation proposal:

Comments and Remarks: The company’s noticeable above-industry standard debt ratio is

described as modest and reflects the company current migration and transformational activity

of hybrid business model incorporating both legacy operational infrastructure (i.e., brick and

mortar product and services) to a contemporary model strictly involving e-retail and e-

commerce. The legacy operations are currently in phase one of the migration stage and full

and complete e-commerce migration efforts are expected to exceed 90% prominence in

operational activity. Although Redbox has a lower debt ratio spread, the company’s business

model is considered antiquated and stagnant and growth potential is highly restricted and

limited, as previously noted. This fact and future forecast of Redbox future financial leverage

and positioning is a going concern, and we now would suggest a defocus of Redbox

Automated Retail as a primary, secondary, and tertiary acquisition targets and shift full

commitment to Blockbuster as sole candidate.

70.5%

33.4%

63.4%

120.4%

51.9% 53.9% 51.9% 65.2%

Netflix, Inc. Comcast Corp Redbox AutomatedRetail, LLC (Wholly-owned subsidiary of

Coinstar, Inc.)

Blockbuster, Inc.

2010 Financial Ratio Comparison: Company vs. Industry

Debt Ratio: Company Debt Ratio: Industry

Comments and Remarks: Ancillary and aligned with previous stated concerns, liquidity ratios

indicated above is strongly suggest that proposal recommendation is viable and on target.

Comments and Remarks: The company’s 160% spread demonstrates management’s

efficient utility and performance of current assets and cost-effectiveness.

1.65

1.08

0.77

1.13

1.1

1.1

1.1

1.4

Netflix, Inc.

Comcast Corp

Redbox Automated Retail, LLC (Wholly-ownedsubsidiary of Coinstar, Inc.)

Blockbuster, Inc.

2010 Financial Ratio Comparison: Company vs. Industry

Current Ratio: Industry Current Ratio: Company

2.6

0.33

1.15

2.21

1

0.3

1

2.1

Netflix, Inc. Comcast Corp Redbox AutomatedRetail, LLC (Wholly-owned subsidiary of

Coinstar, Inc.)

Blockbuster, Inc.

2010 Financial Ratio Comparison: Company vs. Industry

Total Asset Turnover: Company Total Asset Turnover: Industry

Comments and Remarks: Re-investitures of company earnings in product and services

expansion exclusively and entirely have exponentially raised share value for investors.

VI. Financial Performance Ratios and Comparative Analysis Charts and Graphs

Quick and Current Ratio Performance Comparative Analysis: Netflix vs. Comcast (2006-2010)

Comments and Remarks: Five-year deal reached with Paramount, Liongates, and MGM

worth nearly $1 billion to stream movies during 2010 has marginally contributed to a slight

increase in liabilities, thus reducing both liquidity ratios, indicated above. As a result of the

65.75

8.35

11.92

0

14.06

7.2

11.4

26.9

Netflix, Inc.

Comcast Corp

Redbox Automated Retail, LLC (Wholly-ownedsubsidiary of Coinstar, Inc.)

Blockbuster, Inc.

2010 Financial Ratio Comparison: Company vs. Industry

Return on Equity: Industry Return on Equity: Company

Netflix-2010

Comcast-2010

Netflix-2009

Comcast-2009

Netflix-2008

Comcast-2008

Netflix-2007

Comcast-2007

Netflix-2006

Comcast-2006

Quick Ratio 0.88 0.96 1.38 0.34 1.34 0.32 1.78 0.34 1.99 0.59

Current Ratio 1.65 1.08 1.82 0.44 1.67 0.42 1.96 0.46 2.21 0.7

0

0.5

1

1.5

2

2.5

0

0.5

1

1.5

2

2.5

Netflix versus Comcast Liquidity Performance Comparison Chart (2006-2010)

deal, annual expenses related to new deal expected to increase to $200 million from $117

million a year earlier. Acid Test Ratio slid ▼36.2% in 2010 from a year ago, because of the

addition to current liabilities

NOWC Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010)

Comments and Remarks: Rapid growth of E-Commerce compared to traditional brick-and-

mortar facilities has impacted companies like Redbox, Inc. because of product design and

limited distribution channel.

TOC Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010)

-500,000 0 500,000 1,000,000 1,500,000 2,000,000

Netflix, Inc.

Comcast Corp

Redbox Automated Retail, LLC (Wholly-owned…

Blockbuster, Inc.

Thousands

NOWC (Net Operating Working Capital)

NOWC (Net Operating Working Capital)

244,762

25,395,000

319,226 448,200

Netflix, Inc. Comcast Corp Redbox Automated Retail,LLC (Wholly-owned

subsidiary of Coinstar, Inc.)

Blockbuster, Inc.

TOC (Total Net Operating Capital)

TOC (Total Net Operating Capital)

Comments and Remarks: Blockbuster offers “Total Access” which enables customers to rent

movies online, reducing accrual cost liabilities associated with enhanced inventory control and

decreased wages

NOPAT Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010)

Comments and Remarks: Netflix reported positive net operating profit after taxes and free

cash flow for 2010. Although business status is active, Blockbuster incurred negative output

for both NOPAT and FCF (see following chart), as a direct result of preliminary stage of

Chapter 11.

170,185

4,788,000

85,924

-213,120 -1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Netflix, Inc. Comcast Corp RedboxAutomatedRetail, LLC

(Wholly-ownedsubsidiary of

Coinstar, Inc.)

Blockbuster, Inc.

Tho

usa

nd

s

NOPAT (Net Operating Profit After Tax)

NOPAT (NetOperating ProfitAfter Tax)

FCF Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010)

Comments and Remarks: Conversely, Comcast saw a significant negative total in FCF;

nearly half was attributed to an aggregate of new acquisitions during 2010.

ROIC Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010)

Comments and Remarks: In reiteration, the chart above indicates Netflix’ strongest and decisive capital structure position compared to both competitor (s) and acquisition targets.

-500,000,000

-400,000,000

-300,000,000

-200,000,000

-100,000,000

0

100,000,000

200,000,000

Netflix, Inc.Comcast Corp

RedboxAutomatedRetail, LLC

(Wholly-ownedsubsidiary of

Coinstar, Inc.)

Blockbuster,Inc.

103,767,000

-463,000,000

92,174,200

-115,820,000

FCF (Free Cash Flow)

70%

19% 26.92%

-48%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Netflix, Inc. Comcast Corp RedboxAutomatedRetail, LLC

(Wholly-ownedsubsidiary of

Coinstar, Inc.)

Blockbuster,Inc.

ROIC (Return on Investment Capital)

ROIC (Return on Investment Capital)

M/B Ratio Performance Comparative Analysis: Netflix, Comcast, Redbox, and Blockbuster (2006-2010)

Comments and Remarks: The pro-growth capital infrastructure has created very favorable

returns for the organization’s investors, which is indicated by a 5 to 1 ratio from its closest

competitor. This advantageous capital position will help the firm seize future financing

opportunities, when needed, and also leverage marketing efforts for future M & A activity.

VII. Consultant’s Closing Comments and Final Recommendation

Opinions:

Liquidity and profitability positions are moderately conservative to proactive aggressive and

comfortably aligned with corporate business model.

Current integration measures for existing by-mail subscription services to VOD long-run is

plausible and should be accelerated.

Because online subscription service over the Internet is experiencing steady yet substantial

growth well above industry average, existing short- and long-range migration strategic planning

should maintain current course directive for global expansion.

50.20

1.15

9.54

-2.70

Netflix, Inc. Comcast Corp Redbox Automated Retail,LLC (Wholly-owned

subsidiary of Coinstar, Inc.)

Blockbuster, Inc.

Market/Book (M/B) Ratio

Market/Book (M/B) Ratio

Recommendations:

The company’s new migration directive to boost its online presence, in conjunction with a

waning DVD rental market, is not conducive to the functionality of a brick-and-mortar business

model. Therefore, we recommend that management should not move forward with its

acquisition plan of Redbox Automated Retail, LLC.

Because substantial increases in online product and marketability leverage is projected long-

run, we highly suggest that all current considerations and long-range plans to acquire

Blockbuster, Inc., upon a successful emergence from Chapter 11, should move beyond the

exploratory phase to tactical, to specifically capitalize on Blockbuster’s elaborate and

expansive distribution network

VIII. Client’s Q & A Session

Source Citations, Appendages, and Miscellany

Literary Sources:

Strategy + Business Magazine (Spring 2011, Issue 62- ). The Coming Wave of Social Apponomics.

New York: Booz & Company

Troy, L. Ph.D. (2010 Edition). Almanac of Business and Industry Financial Ratios. Chicago: CCH

Group

Web Sources:

Charlie Rose.com (N/A). Guest Interviews: Reed Hastings, CEO of Netflix. Retrieved June 06, 2011,

from http://www.charlierose.com

Businessweek.com (N/A). Investing. Retrieved June 06, 2011, from http://investing.businessweek.com

Sagepub.com (N/A). Sage Online Search. Retrieved June 06, 2011, from http://0-

online.sagepub.com.library.ggu.edu

ReferenceUSA.com (N/A). Reference USA Search. Retrieved June 06, 2011, from http://0-

www.referenceusa.com.library.ggu.edu