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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).


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


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


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,


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. 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


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


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).


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


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


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,


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.


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.


“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.



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


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)


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)


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)


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


References

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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

Edgar Online. (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 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

Edwards, C. (2014, January 23). Netflix Soars on Possible Pricing Changes, Forecast.

Bloomberg. Retrieved from http://www.bloomberg.com/news/2014-01-22/netflix-profit-

soars-on-subscriber-growth-stock-gains.html

Gurujx. (2014, February 17). Weekly 52-Week Highs Highlight: PCLN, NFLX, CERN, HPQ.

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