Netflix Analyst Report

Netflix Analyst Report
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3 December 2011
Netflix Analyst Report
Netflix has witnessed crises in almost every aspect of its business now. First it lost its market share due to fierce competition which translated into lesser subscriptions and now the overall value of the shares of the company is also tumbling. The following report would consider the latest financial information released by the company along with the transcript of the earnings call conference. In accordance with the analysis of the present financial information, estimates regarding next financial period would also be made.
The financial information in each investor letter released by the company presents the actual figures for the current period and the estimated figures for the next period. The year end of the company is 31st December therefore the latest financial information available is that of the 3rd quarter of the company which ended on 30th September 2011. There are a number of figures that are estimated for the next quarter in the report including the number of subscriptions, total revenue from domestic activities, operating income of the company, total revenue from international activities and the operating income of the company from international activities.
Equity Research
Following is the analysis of the financial information from the 3rd quarter of the year ending 31st December 2011 along with the estimates regarding the year ending 31st December 2011.
Number of Subscribers
The total number of subscribers from the U.S. in the third quarter was 23.79 million which is significantly less than the number of subscribers that were anticipated by the company. The latest reports by the analysts suggest that the number is set for another steep drop in the 4th quarter and the trend is likely to continue in the next financial period of the company which would end on 31st December 2012. The main reason behind this steep drop in the number of domestic subscribers is said to be the rise in prices over the summer. Along with the rise in prices, a number of users cancelled their subscriptions.
Sector: Services
Earnings Reported

 

 

 

 




 

 

Dec 10

Mar 11

June 11

Sep 11

EPS Est

0.71

1.08

1.11

0.94

EPS Act

0.87

1.11

1.26

1.16

Source: Yahoo Finance
EPS Trends: Current Estimates
Current Qtr.Next Qtr 2011 2012
0.87 1.11 2.964.08
Source: Yahoo Finance
Ticker NFLX
Price (05/12/2011)$67.53
52-Week Range 62.37-304.79
Market Cap3.55B
Book Value per Share7.39
ROE 82.02%
Source: Yahoo Finance
Revenue
The total revenue for the third of the company is $799 million. The revenue remained steady due to the increase in prices by the company. The figure for the revenue should have been higher considering the steep rise in prices but the lack of subscriptions kept the barrier over the revenue. For the year 2012, it can be inferred that the trend of revenue would remain the same. According to analysts, the overall scenario of Netflix does not seem so good for the year 2012. The company has officially announced that it anticipates loss in the first quarter of the year 2012 and according to analysts the losses are bound to grow bigger due to the continuous loss of subscribers of the company. The company also announced that it has lost ‘significant` number of customers who did not agree with the company`s decision to raise prices. Due to the speculations regarding the probable losses in the next financial period, the shares of the company are continuously losing their value. According to recent reports, the value of the shares dropped as low as $66.07 (Ray, 2011). Following was the statement released by the company:
"If we do not reverse the negative consumer sentiment toward our brand, and if we continue to experience significant customer cancellations and a decline in subscriber additions, our results of operations including our cash flow will be adversely impacted" (Yahoo Finance).
The company intends to divert more resources towards marketing in order to bring the goodwill of the brand back. The company plans to bring back its subscribers because the decline in the number of subscribers is the main reason behind the declining cash flow of the company and the losses.
Operating Income
The operating income of the company from domestic users was $120 million. The operating income is not good in accordance with the revenue. This is because of the increasing costs of the company. From international activities, the number of subscribers was 1,480k.
NFLX Income Statement
Period Ending

 

31-Dec-10

31-Dec-09

31-Dec-08

 




 

Total Revenue


2,162,625  

1,670,269  

1,364,661  

 




 

Cost of Revenue


1,357,355  

1,079,271  

910,234  

 




 

Gross Profit


805,270  

590,998  

454,427  

 




 

 

Operating Expenses



 

 

Research Development

163,329  

114,542  

89,873  

 

Selling General and Administrative

364,394  

289,077  

249,375  

 

Non Recurring

-  

-  

-6,327

 

Others

-  

-  

-  

 




 

 

Total Operating Expenses

-  

-  

-  

 




 

 




 

Operating Income or Loss


283,641  

191,939  

121,506  

 




 

 

Income from Continuing Operations



 

 




 

 

Total Other Income/Expenses Net

9,778  

11,288  

12,452  

 

Earnings Before Interest And Taxes

287,325  

198,667  

133,958  

 

Interest Expense

19,629  

6,475  

2,458  

 

Income Before Tax

267,696  

192,192  

131,500  

 

Income Tax Expense

106,843  

76,332  

48,474  

 

Minority Interest

-  

-  

-  

 




 

 

Net Income From Continuing Ops

160,853  

115,860  

83,026  

 




 

 

Non-recurring Events



 

 

Discontinued Operations

-  

-  

-  

 

Extraordinary Items

-  

-  

-  

 

Effect Of Accounting Changes

-  

-  

-  

 

Other Items

-  

-  

-  

 




 

 




 

Net Income


160,853  

115,860  

83,026  

Preferred Stock And Other Adjustments


-  

-  

-  

 




 

Net Income Applicable To Common Shares

 

160,853  

115,860  

83,026  

Source: Yahoo Finance
NFLX Balance Sheet
Period Ending

31-Dec-10

31-Dec-09

31-Dec-08

 

Assets

Current Assets

 

Cash And Cash Equivalents

194,499  

134,224  

139,881  

 

Short Term Investments

155,888  

186,...