Intrinsic value of Netflix - NFLX

Previous Close

$187.35

  Intrinsic Value

$119.02

stock screener

  Rating & Target

sell

-36%

  Value-price divergence*

-26%

Previous close

$187.35

 
Intrinsic value

$119.02

 
Up/down potential

-36%

 
Rating

sell

 
Value-price divergence*

-26%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NFLX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 79.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  30.25
  32.30
  29.57
  27.11
  24.90
  22.91
  21.12
  19.51
  18.06
  16.75
  15.58
  14.52
  13.57
  12.71
  11.94
  11.25
  10.62
  10.06
  9.55
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
Revenue, $m
  8,831
  11,683
  15,138
  19,243
  24,034
  29,541
  35,780
  42,760
  50,482
  58,938
  68,119
  78,009
  88,592
  99,853
  111,775
  124,344
  137,550
  151,386
  165,848
  180,936
  196,656
  213,015
  230,029
  247,715
  266,094
  285,194
  305,043
  325,675
  347,129
  369,445
  392,668
Variable operating expenses, $m
 
  11,158
  14,457
  18,377
  22,953
  28,212
  34,170
  40,836
  48,210
  56,286
  65,054
  74,499
  84,606
  95,360
  106,745
  118,749
  131,361
  144,574
  158,385
  172,794
  187,806
  203,430
  219,678
  236,568
  254,120
  272,360
  291,316
  311,020
  331,508
  352,820
  374,998
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  8,451
  11,158
  14,457
  18,377
  22,953
  28,212
  34,170
  40,836
  48,210
  56,286
  65,054
  74,499
  84,606
  95,360
  106,745
  118,749
  131,361
  144,574
  158,385
  172,794
  187,806
  203,430
  219,678
  236,568
  254,120
  272,360
  291,316
  311,020
  331,508
  352,820
  374,998
Operating income, $m
  380
  526
  681
  866
  1,082
  1,329
  1,610
  1,924
  2,272
  2,652
  3,065
  3,510
  3,987
  4,493
  5,030
  5,595
  6,190
  6,812
  7,463
  8,142
  8,850
  9,586
  10,351
  11,147
  11,974
  12,834
  13,727
  14,655
  15,621
  16,625
  17,670
EBITDA, $m
  5,305
  2,115
  2,740
  3,483
  4,350
  5,347
  6,476
  7,740
  9,137
  10,668
  12,330
  14,120
  16,035
  18,073
  20,231
  22,506
  24,897
  27,401
  30,018
  32,749
  35,595
  38,556
  41,635
  44,836
  48,163
  51,620
  55,213
  58,947
  62,830
  66,870
  71,073
Interest expense (income), $m
  139
  163
  317
  517
  755
  1,033
  1,352
  1,714
  2,119
  2,567
  3,057
  3,589
  4,163
  4,777
  5,430
  6,121
  6,850
  7,615
  8,418
  9,256
  10,131
  11,043
  11,991
  12,978
  14,004
  15,069
  16,177
  17,328
  18,524
  19,768
  21,062
Earnings before tax, $m
  261
  363
  364
  349
  326
  296
  258
  210
  153
  86
  8
  -79
  -176
  -283
  -400
  -525
  -660
  -803
  -955
  -1,114
  -1,282
  -1,457
  -1,640
  -1,831
  -2,029
  -2,236
  -2,450
  -2,672
  -2,903
  -3,143
  -3,392
Tax expense, $m
  74
  98
  98
  94
  88
  80
  70
  57
  41
  23
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  187
  265
  266
  255
  238
  216
  188
  153
  112
  62
  6
  -79
  -176
  -283
  -400
  -525
  -660
  -803
  -955
  -1,114
  -1,282
  -1,457
  -1,640
  -1,831
  -2,029
  -2,236
  -2,450
  -2,672
  -2,903
  -3,143
  -3,392

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,734
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  13,587
  15,682
  20,320
  25,829
  32,261
  39,652
  48,027
  57,396
  67,761
  79,112
  91,435
  104,710
  118,916
  134,031
  150,033
  166,905
  184,631
  203,203
  222,615
  242,867
  263,967
  285,927
  308,764
  332,503
  357,174
  382,810
  409,453
  437,148
  465,945
  495,900
  527,071
Adjusted assets (=assets-cash), $m
  11,853
  15,682
  20,320
  25,829
  32,261
  39,652
  48,027
  57,396
  67,761
  79,112
  91,435
  104,710
  118,916
  134,031
  150,033
  166,905
  184,631
  203,203
  222,615
  242,867
  263,967
  285,927
  308,764
  332,503
  357,174
  382,810
  409,453
  437,148
  465,945
  495,900
  527,071
Revenue / Adjusted assets
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
Average production assets, $m
  6,007
  7,945
  10,294
  13,085
  16,343
  20,088
  24,331
  29,077
  34,328
  40,078
  46,321
  53,046
  60,243
  67,900
  76,007
  84,554
  93,534
  102,943
  112,777
  123,037
  133,726
  144,851
  156,420
  168,446
  180,944
  193,932
  207,429
  221,459
  236,048
  251,223
  267,014
Working capital, $m
  1,133
  -794
  -1,029
  -1,308
  -1,634
  -2,009
  -2,433
  -2,908
  -3,433
  -4,008
  -4,632
  -5,305
  -6,024
  -6,790
  -7,601
  -8,455
  -9,353
  -10,294
  -11,278
  -12,304
  -13,373
  -14,485
  -15,642
  -16,845
  -18,094
  -19,393
  -20,743
  -22,146
  -23,605
  -25,122
  -26,701
Total debt, $m
  3,394
  6,601
  10,775
  15,733
  21,522
  28,174
  35,711
  44,144
  53,472
  63,688
  74,778
  86,726
  99,511
  113,115
  127,517
  142,701
  158,655
  175,370
  192,840
  211,068
  230,058
  249,821
  270,375
  291,740
  313,943
  337,016
  360,995
  385,920
  411,838
  438,797
  466,851
Total liabilities, $m
  10,907
  14,114
  18,288
  23,246
  29,035
  35,687
  43,224
  51,657
  60,985
  71,201
  82,291
  94,239
  107,024
  120,628
  135,030
  150,214
  166,168
  182,883
  200,353
  218,581
  237,571
  257,334
  277,888
  299,253
  321,456
  344,529
  368,508
  393,433
  419,351
  446,310
  474,364
Total equity, $m
  2,680
  1,568
  2,032
  2,583
  3,226
  3,965
  4,803
  5,740
  6,776
  7,911
  9,143
  10,471
  11,892
  13,403
  15,003
  16,690
  18,463
  20,320
  22,261
  24,287
  26,397
  28,593
  30,876
  33,250
  35,717
  38,281
  40,945
  43,715
  46,595
  49,590
  52,707
Total liabilities and equity, $m
  13,587
  15,682
  20,320
  25,829
  32,261
  39,652
  48,027
  57,397
  67,761
  79,112
  91,434
  104,710
  118,916
  134,031
  150,033
  166,904
  184,631
  203,203
  222,614
  242,868
  263,968
  285,927
  308,764
  332,503
  357,173
  382,810
  409,453
  437,148
  465,946
  495,900
  527,071
Debt-to-equity ratio
  1.266
  4.210
  5.300
  6.090
  6.670
  7.110
  7.440
  7.690
  7.890
  8.050
  8.180
  8.280
  8.370
  8.440
  8.500
  8.550
  8.590
  8.630
  8.660
  8.690
  8.720
  8.740
  8.760
  8.770
  8.790
  8.800
  8.820
  8.830
  8.840
  8.850
  8.860
Adjusted equity ratio
  0.080
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  187
  265
  266
  255
  238
  216
  188
  153
  112
  62
  6
  -79
  -176
  -283
  -400
  -525
  -660
  -803
  -955
  -1,114
  -1,282
  -1,457
  -1,640
  -1,831
  -2,029
  -2,236
  -2,450
  -2,672
  -2,903
  -3,143
  -3,392
Depreciation, amort., depletion, $m
  4,925
  1,589
  2,059
  2,617
  3,269
  4,018
  4,866
  5,815
  6,866
  8,016
  9,264
  10,609
  12,049
  13,580
  15,201
  16,911
  18,707
  20,589
  22,555
  24,607
  26,745
  28,970
  31,284
  33,689
  36,189
  38,786
  41,486
  44,292
  47,210
  50,245
  53,403
Funds from operations, $m
  -8,162
  1,854
  2,325
  2,872
  3,507
  4,234
  5,054
  5,969
  6,977
  8,078
  9,270
  10,530
  11,872
  13,297
  14,802
  16,385
  18,047
  19,785
  21,601
  23,493
  25,463
  27,513
  29,644
  31,858
  34,160
  36,551
  39,036
  41,619
  44,306
  47,101
  50,011
Change in working capital, $m
  -6,688
  -194
  -235
  -279
  -326
  -374
  -424
  -475
  -525
  -575
  -624
  -673
  -720
  -766
  -811
  -855
  -898
  -941
  -983
  -1,026
  -1,069
  -1,112
  -1,157
  -1,203
  -1,250
  -1,299
  -1,350
  -1,403
  -1,459
  -1,517
  -1,579
Cash from operations, $m
  -1,474
  2,048
  2,560
  3,151
  3,833
  4,608
  5,479
  6,443
  7,502
  8,653
  9,895
  11,203
  12,592
  14,063
  15,612
  17,240
  18,945
  20,726
  22,584
  24,519
  26,532
  28,626
  30,801
  33,061
  35,409
  37,850
  40,386
  43,023
  45,765
  48,619
  51,590
Maintenance CAPEX, $m
  0
  -1,201
  -1,589
  -2,059
  -2,617
  -3,269
  -4,018
  -4,866
  -5,815
  -6,866
  -8,016
  -9,264
  -10,609
  -12,049
  -13,580
  -15,201
  -16,911
  -18,707
  -20,589
  -22,555
  -24,607
  -26,745
  -28,970
  -31,284
  -33,689
  -36,189
  -38,786
  -41,486
  -44,292
  -47,210
  -50,245
New CAPEX, $m
  -185
  -1,938
  -2,349
  -2,791
  -3,258
  -3,745
  -4,243
  -4,746
  -5,251
  -5,750
  -6,243
  -6,725
  -7,197
  -7,657
  -8,107
  -8,547
  -8,980
  -9,408
  -9,834
  -10,260
  -10,689
  -11,125
  -11,569
  -12,026
  -12,498
  -12,987
  -13,497
  -14,030
  -14,589
  -15,175
  -15,792
Cash from investing activities, $m
  50
  -3,139
  -3,938
  -4,850
  -5,875
  -7,014
  -8,261
  -9,612
  -11,066
  -12,616
  -14,259
  -15,989
  -17,806
  -19,706
  -21,687
  -23,748
  -25,891
  -28,115
  -30,423
  -32,815
  -35,296
  -37,870
  -40,539
  -43,310
  -46,187
  -49,176
  -52,283
  -55,516
  -58,881
  -62,385
  -66,037
Free cash flow, $m
  -1,424
  -1,092
  -1,378
  -1,699
  -2,043
  -2,405
  -2,782
  -3,169
  -3,564
  -3,963
  -4,364
  -4,787
  -5,214
  -5,643
  -6,074
  -6,508
  -6,946
  -7,389
  -7,838
  -8,296
  -8,764
  -9,244
  -9,739
  -10,249
  -10,778
  -11,327
  -11,898
  -12,494
  -13,115
  -13,766
  -14,446
Issuance/(repayment) of debt, $m
  1,000
  3,207
  4,174
  4,958
  5,789
  6,652
  7,537
  8,432
  9,328
  10,216
  11,091
  11,948
  12,785
  13,603
  14,402
  15,185
  15,954
  16,714
  17,471
  18,227
  18,990
  19,764
  20,554
  21,365
  22,203
  23,073
  23,979
  24,925
  25,917
  26,959
  28,054
Issuance/(repurchase) of shares, $m
  37
  357
  198
  296
  405
  523
  649
  784
  925
  1,073
  1,226
  1,406
  1,597
  1,795
  2,000
  2,212
  2,433
  2,660
  2,896
  3,139
  3,392
  3,653
  3,924
  4,205
  4,496
  4,799
  5,114
  5,442
  5,783
  6,139
  6,509
Cash from financing (excl. dividends), $m  
  1,092
  3,564
  4,372
  5,254
  6,194
  7,175
  8,186
  9,216
  10,253
  11,289
  12,317
  13,354
  14,382
  15,398
  16,402
  17,397
  18,387
  19,374
  20,367
  21,366
  22,382
  23,417
  24,478
  25,570
  26,699
  27,872
  29,093
  30,367
  31,700
  33,098
  34,563
Total cash flow (excl. dividends), $m
  -342
  2,473
  2,993
  3,556
  4,151
  4,770
  5,405
  6,047
  6,689
  7,326
  7,953
  8,568
  9,168
  9,755
  10,328
  10,889
  11,440
  11,986
  12,528
  13,071
  13,617
  14,172
  14,739
  15,321
  15,922
  16,545
  17,195
  17,874
  18,585
  19,332
  20,118
Retained Cash Flow (-), $m
  -457
  -622
  -464
  -551
  -643
  -739
  -837
  -937
  -1,036
  -1,135
  -1,232
  -1,406
  -1,597
  -1,795
  -2,000
  -2,212
  -2,433
  -2,660
  -2,896
  -3,139
  -3,392
  -3,653
  -3,924
  -4,205
  -4,496
  -4,799
  -5,114
  -5,442
  -5,783
  -6,139
  -6,509
Prev. year cash balance distribution, $m
 
  1,734
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  3,585
  2,529
  3,005
  3,508
  4,031
  4,567
  5,110
  5,653
  6,191
  6,721
  7,161
  7,572
  7,960
  8,328
  8,676
  9,008
  9,326
  9,632
  9,931
  10,226
  10,519
  10,815
  11,116
  11,425
  11,746
  12,081
  12,432
  12,802
  13,193
  13,608
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  3,437
  2,315
  2,615
  2,888
  3,125
  3,315
  3,452
  3,533
  3,556
  3,523
  3,401
  3,231
  3,027
  2,796
  2,547
  2,289
  2,029
  1,774
  1,529
  1,299
  1,088
  897
  729
  582
  457
  352
  267
  198
  144
  102
Current shareholders' claim on cash, %
  100
  96.4
  95.2
  93.8
  92.3
  90.9
  89.4
  88.0
  86.6
  85.2
  83.9
  82.7
  81.4
  80.2
  79.0
  77.9
  76.8
  75.7
  74.6
  73.6
  72.6
  71.6
  70.6
  69.6
  68.7
  67.8
  66.9
  66.0
  65.2
  64.3
  63.5

Netflix, Inc. is a provider an Internet television network. The Company operates through three segments: Domestic streaming, International streaming and Domestic DVD. The Domestic streaming segment includes services that streams content to its members in the United States. The International streaming segment includes services that streams content to its members outside the United States. The Domestic DVD segment includes services, such as digital optical disc (DVD)-by-mail. The Company's members can watch original series, documentaries, feature films, as well as television shows and movies directly on their Internet-connected screen, televisions, computers and mobile devices. It offers its streaming services both domestically and internationally. In the United States, its members can receive DVDs delivered to their homes. The Company had members streaming in over 190 countries, as of December 31, 2016.

FINANCIAL RATIOS  of  Netflix (NFLX)

Valuation Ratios
P/E Ratio 430.9
Price to Sales 9.1
Price to Book 30.1
Price to Tangible Book
Price to Cash Flow -54.7
Price to Free Cash Flow -48.6
Growth Rates
Sales Growth Rate 30.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.5%
Cap. Spend. - 3 Yr. Gr. Rate 9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.9
LT Debt to Equity 126.6%
Total Debt to Equity 126.6%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.4%
Ret/ On Assets - 3 Yr. Avg. 3.3%
Return On Total Capital 3.5%
Ret/ On T. Cap. - 3 Yr. Avg. 6.1%
Return On Equity 7.6%
Return On Equity - 3 Yr. Avg. 10.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 31.7%
Gross Margin - 3 Yr. Avg. 31.9%
EBITDA Margin 60.3%
EBITDA Margin - 3 Yr. Avg. 58%
Operating Margin 4.3%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin 3%
Pre-Tax Margin - 3 Yr. Avg. 3.8%
Net Profit Margin 2.1%
Net Profit Margin - 3 Yr. Avg. 2.9%
Effective Tax Rate 28.4%
Eff/ Tax Rate - 3 Yr. Avg. 21.7%
Payout Ratio 0%

NFLX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NFLX stock intrinsic value calculation we used $8831 million for the last fiscal year's total revenue generated by Netflix. The default revenue input number comes from 2016 income statement of Netflix. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NFLX stock valuation model: a) initial revenue growth rate of 32.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for NFLX is calculated based on our internal credit rating of Netflix, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Netflix.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NFLX stock the variable cost ratio is equal to 95.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NFLX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.8% for Netflix.

Corporate tax rate of 27% is the nominal tax rate for Netflix. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NFLX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NFLX are equal to 68%.

Life of production assets of 1.2 years is the average useful life of capital assets used in Netflix operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NFLX is equal to -6.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2680 million for Netflix - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 426.152 million for Netflix is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Netflix at the current share price and the inputted number of shares is $79.8 billion.

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COMPANY NEWS

▶ 3 Stocks That Could Soar More Than Netflix   [Sep-22-17 08:23PM  Motley Fool]
▶ Why Julian Robertson Loves Netflix   [05:37PM  Market Realist]
▶ Netflix, Inc. Just Got Stronger   [02:54PM  InvestorPlace]
▶ Buckingham: Netflix's rally isn't over   [12:21PM  CNBC Videos]
▶ Better Buy: Netflix, Inc. vs. Amazon   [Sep-20-17 09:02PM  Motley Fool]
▶ Why Amazon Trades at Such Lofty Valuations   [04:37PM  Market Realist]
▶ Investors Await Fed Move; Amazon To Link Alexa, Smart Glasses   [09:39AM  Investor's Business Daily]
▶ Space Mergers and Streaming Stars   [Sep-19-17 06:30PM  Motley Fool]
▶ Disney: Like, So Misunderstood   [02:13PM  Barrons.com]
▶ Calculating Netflixs Cost of Hiring Rhimes   [10:38AM  Market Realist]
▶ Roku is hiring audio researchers to help people talk to their TVs   [10:28AM  American City Business Journals]
▶ Where to Watch 4K Content With HDR   [06:00AM  Consumer Reports]
▶ Composite Rating For Lions Gate Entertainment Rises To 96   [03:00AM  Investor's Business Daily]
▶ Hulu Beats Netflix, Amazon To Milestone In Emmy Award Victory   [04:23PM  Investor's Business Daily]
▶ Hulu beats Netflix to biggest prize on Emmy night   [02:40PM  American City Business Journals]
▶ Roku IPO: 14 Things to Know   [11:58AM  InvestorPlace]
▶ Hulu will spend $2.5 billion on content this year   [10:55AM  American City Business Journals]
▶ [$$] 'Handmaid's Tale' Delivers for Hulu at the Emmys   [10:00AM  The Wall Street Journal]
▶ [$$] Handmaids Tale Delivers for Hulu at the Emmys   [12:45AM  The Wall Street Journal]
▶ Q3 Earnings Preview: Stocks Expecting 50%-Plus Growth   [Sep-16-17 01:00PM  Investor's Business Daily]
▶ Is This Netflix Move in India Enough?   [06:34AM  Motley Fool]
▶ Hulu to spend $2.5 billion on content in 2017   [06:22PM  American City Business Journals]
Financial statements of NFLX
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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