Intrinsic value of Netflix - NFLX

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$142.87

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$142.87

 
Intrinsic value

$89.87

 
Up/down potential

-37%

 
Rating

sell

 
Value-price divergence* premium content

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*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 61.4

 

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
  35.90
  32.81
  30.03
  27.53
  25.27
  23.25
  21.42
  19.78
  18.30
  16.97
  15.77
  14.70
  13.73
  12.85
  12.07
  11.36
  10.73
  10.15
  9.64
  9.17
  8.76
  8.38
  8.04
  7.74
  7.46
  7.22
  7.00
  6.80
  6.62
  6.46
Revenue, $m
  8,831
  12,001
  15,939
  20,725
  26,430
  33,110
  40,807
  49,548
  59,348
  70,210
  82,126
  95,080
  109,054
  124,024
  139,966
  156,859
  174,681
  193,417
  213,055
  233,590
  255,019
  277,351
  300,596
  324,772
  349,905
  376,025
  403,168
  431,375
  460,695
  491,180
  522,888
Variable operating expenses, $m
 
  11,461
  15,222
  19,793
  25,241
  31,620
  38,970
  47,319
  56,678
  67,051
  78,430
  90,802
  104,147
  118,443
  133,668
  149,800
  166,821
  184,714
  203,468
  223,078
  243,543
  264,870
  287,069
  310,158
  334,160
  359,104
  385,025
  411,963
  439,964
  469,077
  499,358
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
  11,461
  15,222
  19,793
  25,241
  31,620
  38,970
  47,319
  56,678
  67,051
  78,430
  90,802
  104,147
  118,443
  133,668
  149,800
  166,821
  184,714
  203,468
  223,078
  243,543
  264,870
  287,069
  310,158
  334,160
  359,104
  385,025
  411,963
  439,964
  469,077
  499,358
Operating income, $m
  380
  540
  717
  933
  1,189
  1,490
  1,836
  2,230
  2,671
  3,159
  3,696
  4,279
  4,907
  5,581
  6,298
  7,059
  7,861
  8,704
  9,587
  10,512
  11,476
  12,481
  13,527
  14,615
  15,746
  16,921
  18,143
  19,412
  20,731
  22,103
  23,530
EBITDA, $m
  5,305
  2,172
  2,885
  3,751
  4,784
  5,993
  7,386
  8,968
  10,742
  12,708
  14,865
  17,210
  19,739
  22,448
  25,334
  28,391
  31,617
  35,009
  38,563
  42,280
  46,159
  50,200
  54,408
  58,784
  63,333
  68,061
  72,973
  78,079
  83,386
  88,904
  94,643
Interest expense (income), $m
  139
  163
  335
  564
  841
  1,172
  1,559
  2,006
  2,513
  3,081
  3,711
  4,402
  5,153
  5,963
  6,831
  7,756
  8,735
  9,769
  10,855
  11,994
  13,184
  14,427
  15,722
  17,070
  18,472
  19,929
  21,444
  23,018
  24,653
  26,353
  28,121
Earnings before tax, $m
  261
  377
  382
  369
  348
  318
  277
  224
  158
  79
  -15
  -123
  -245
  -382
  -533
  -697
  -874
  -1,065
  -1,267
  -1,482
  -1,709
  -1,946
  -2,195
  -2,455
  -2,726
  -3,008
  -3,301
  -3,606
  -3,922
  -4,250
  -4,591
Tax expense, $m
  74
  102
  103
  100
  94
  86
  75
  60
  43
  21
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  187
  275
  279
  269
  254
  232
  202
  164
  115
  57
  -15
  -123
  -245
  -382
  -533
  -697
  -874
  -1,065
  -1,267
  -1,482
  -1,709
  -1,946
  -2,195
  -2,455
  -2,726
  -3,008
  -3,301
  -3,606
  -3,922
  -4,250
  -4,591

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
  16,109
  21,395
  27,819
  35,477
  44,443
  54,774
  66,508
  79,662
  94,242
  110,236
  127,625
  146,381
  166,475
  187,874
  210,549
  234,471
  259,621
  285,980
  313,543
  342,308
  372,283
  403,484
  435,936
  469,672
  504,731
  541,165
  579,027
  618,382
  659,302
  701,862
Adjusted assets (=assets-cash), $m
  11,853
  16,109
  21,395
  27,819
  35,477
  44,443
  54,774
  66,508
  79,662
  94,242
  110,236
  127,625
  146,381
  166,475
  187,874
  210,549
  234,471
  259,621
  285,980
  313,543
  342,308
  372,283
  403,484
  435,936
  469,672
  504,731
  541,165
  579,027
  618,382
  659,302
  701,862
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
  8,161
  10,838
  14,093
  17,972
  22,515
  27,749
  33,693
  40,357
  47,743
  55,845
  64,655
  74,157
  84,336
  95,177
  106,664
  118,783
  131,524
  144,878
  158,841
  173,413
  188,598
  204,405
  220,845
  237,936
  255,697
  274,154
  293,335
  313,273
  334,002
  355,564
Working capital, $m
  1,133
  -816
  -1,084
  -1,409
  -1,797
  -2,251
  -2,775
  -3,369
  -4,036
  -4,774
  -5,585
  -6,465
  -7,416
  -8,434
  -9,518
  -10,666
  -11,878
  -13,152
  -14,488
  -15,884
  -17,341
  -18,860
  -20,440
  -22,085
  -23,794
  -25,570
  -27,415
  -29,334
  -31,327
  -33,400
  -35,556
Total debt, $m
  3,394
  6,985
  11,742
  17,524
  24,416
  32,486
  41,784
  52,344
  64,183
  77,305
  91,699
  107,349
  124,230
  142,315
  161,574
  181,981
  203,511
  226,145
  249,869
  274,676
  300,564
  327,542
  355,623
  384,829
  415,191
  446,745
  479,535
  513,611
  549,031
  585,859
  624,163
Total liabilities, $m
  10,907
  14,498
  19,255
  25,037
  31,929
  39,999
  49,297
  59,857
  71,696
  84,818
  99,212
  114,862
  131,743
  149,828
  169,087
  189,494
  211,024
  233,658
  257,382
  282,189
  308,077
  335,055
  363,136
  392,342
  422,704
  454,258
  487,048
  521,124
  556,544
  593,372
  631,676
Total equity, $m
  2,680
  1,611
  2,139
  2,782
  3,548
  4,444
  5,477
  6,651
  7,966
  9,424
  11,024
  12,762
  14,638
  16,648
  18,787
  21,055
  23,447
  25,962
  28,598
  31,354
  34,231
  37,228
  40,348
  43,594
  46,967
  50,473
  54,116
  57,903
  61,838
  65,930
  70,186
Total liabilities and equity, $m
  13,587
  16,109
  21,394
  27,819
  35,477
  44,443
  54,774
  66,508
  79,662
  94,242
  110,236
  127,624
  146,381
  166,476
  187,874
  210,549
  234,471
  259,620
  285,980
  313,543
  342,308
  372,283
  403,484
  435,936
  469,671
  504,731
  541,164
  579,027
  618,382
  659,302
  701,862
Debt-to-equity ratio
  1.266
  4.340
  5.490
  6.300
  6.880
  7.310
  7.630
  7.870
  8.060
  8.200
  8.320
  8.410
  8.490
  8.550
  8.600
  8.640
  8.680
  8.710
  8.740
  8.760
  8.780
  8.800
  8.810
  8.830
  8.840
  8.850
  8.860
  8.870
  8.880
  8.890
  8.890
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
  275
  279
  269
  254
  232
  202
  164
  115
  57
  -15
  -123
  -245
  -382
  -533
  -697
  -874
  -1,065
  -1,267
  -1,482
  -1,709
  -1,946
  -2,195
  -2,455
  -2,726
  -3,008
  -3,301
  -3,606
  -3,922
  -4,250
  -4,591
Depreciation, amort., depletion, $m
  4,925
  1,632
  2,168
  2,819
  3,594
  4,503
  5,550
  6,739
  8,071
  9,549
  11,169
  12,931
  14,831
  16,867
  19,035
  21,333
  23,757
  26,305
  28,976
  31,768
  34,683
  37,720
  40,881
  44,169
  47,587
  51,139
  54,831
  58,667
  62,655
  66,800
  71,113
Funds from operations, $m
  -1,282
  1,907
  2,447
  3,088
  3,849
  4,735
  5,752
  6,902
  8,187
  9,606
  11,154
  12,808
  14,586
  16,485
  18,503
  20,636
  22,882
  25,240
  27,708
  30,286
  32,974
  35,773
  38,686
  41,714
  44,861
  48,131
  51,530
  55,061
  58,732
  62,550
  66,521
Change in working capital, $m
  192
  -216
  -268
  -325
  -388
  -454
  -523
  -594
  -666
  -739
  -810
  -881
  -950
  -1,018
  -1,084
  -1,149
  -1,212
  -1,274
  -1,335
  -1,396
  -1,457
  -1,519
  -1,581
  -1,644
  -1,709
  -1,776
  -1,846
  -1,918
  -1,994
  -2,073
  -2,156
Cash from operations, $m
  -1,474
  3,643
  2,714
  3,413
  4,237
  5,189
  6,275
  7,497
  8,853
  10,345
  11,964
  13,689
  15,536
  17,503
  19,587
  21,785
  24,094
  26,514
  29,043
  31,682
  34,431
  37,292
  40,266
  43,358
  46,570
  49,907
  53,375
  56,979
  60,726
  64,623
  68,678
Maintenance CAPEX, $m
  0
  -1,201
  -1,632
  -2,168
  -2,819
  -3,594
  -4,503
  -5,550
  -6,739
  -8,071
  -9,549
  -11,169
  -12,931
  -14,831
  -16,867
  -19,035
  -21,333
  -23,757
  -26,305
  -28,976
  -31,768
  -34,683
  -37,720
  -40,881
  -44,169
  -47,587
  -51,139
  -54,831
  -58,667
  -62,655
  -66,800
New CAPEX, $m
  -185
  -2,154
  -2,678
  -3,255
  -3,879
  -4,542
  -5,234
  -5,944
  -6,664
  -7,386
  -8,103
  -8,809
  -9,502
  -10,180
  -10,841
  -11,487
  -12,119
  -12,740
  -13,354
  -13,963
  -14,572
  -15,185
  -15,807
  -16,440
  -17,090
  -17,761
  -18,457
  -19,181
  -19,937
  -20,730
  -21,561
Cash from investing activities, $m
  50
  -3,355
  -4,310
  -5,423
  -6,698
  -8,136
  -9,737
  -11,494
  -13,403
  -15,457
  -17,652
  -19,978
  -22,433
  -25,011
  -27,708
  -30,522
  -33,452
  -36,497
  -39,659
  -42,939
  -46,340
  -49,868
  -53,527
  -57,321
  -61,259
  -65,348
  -69,596
  -74,012
  -78,604
  -83,385
  -88,361
Free cash flow, $m
  -1,424
  287
  -1,595
  -2,009
  -2,461
  -2,947
  -3,461
  -3,997
  -4,549
  -5,113
  -5,687
  -6,289
  -6,897
  -7,508
  -8,121
  -8,738
  -9,358
  -9,983
  -10,615
  -11,256
  -11,909
  -12,576
  -13,260
  -13,963
  -14,689
  -15,441
  -16,221
  -17,033
  -17,878
  -18,761
  -19,684
Issuance/(repayment) of debt, $m
  1,000
  3,591
  4,757
  5,782
  6,892
  8,070
  9,298
  10,560
  11,839
  13,121
  14,395
  15,650
  16,881
  18,084
  19,259
  20,407
  21,530
  22,634
  23,724
  24,806
  25,888
  26,977
  28,081
  29,207
  30,362
  31,554
  32,790
  34,076
  35,420
  36,827
  38,305
Issuance/(repurchase) of shares, $m
  37
  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 from financing (excl. dividends), $m  
  1,092
  3,591
  4,757
  5,782
  6,892
  8,070
  9,298
  10,560
  11,839
  13,121
  14,395
  15,650
  16,881
  18,084
  19,259
  20,407
  21,530
  22,634
  23,724
  24,806
  25,888
  26,977
  28,081
  29,207
  30,362
  31,554
  32,790
  34,076
  35,420
  36,827
  38,305
Total cash flow (excl. dividends), $m
  -342
  3,878
  3,161
  3,773
  4,430
  5,122
  5,837
  6,563
  7,290
  8,009
  8,708
  9,361
  9,984
  10,577
  11,138
  11,669
  12,172
  12,651
  13,109
  13,550
  13,979
  14,401
  14,821
  15,244
  15,673
  16,113
  16,569
  17,044
  17,542
  18,066
  18,621
Retained Cash Flow (-), $m
  -457
  -665
  -529
  -642
  -766
  -897
  -1,033
  -1,173
  -1,315
  -1,458
  -1,599
  -1,739
  -1,876
  -2,009
  -2,140
  -2,267
  -2,392
  -2,515
  -2,636
  -2,756
  -2,876
  -2,997
  -3,120
  -3,245
  -3,374
  -3,506
  -3,643
  -3,786
  -3,936
  -4,092
  -4,256
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
 
  4,947
  2,633
  3,131
  3,665
  4,225
  4,804
  5,389
  5,974
  6,551
  7,108
  7,622
  8,109
  8,567
  8,998
  9,402
  9,780
  10,136
  10,473
  10,794
  11,103
  11,404
  11,701
  11,998
  12,299
  12,607
  12,925
  13,257
  13,606
  13,974
  14,364
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  4,589
  2,249
  2,444
  2,593
  2,686
  2,718
  2,687
  2,597
  2,455
  2,268
  2,045
  1,804
  1,559
  1,318
  1,091
  883
  700
  542
  411
  304
  220
  155
  106
  71
  46
  29
  18
  11
  6
  3
Current shareholders' claim on cash, %
  100
  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
  100.0

Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. It serves approximately 93 million streaming members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California.

FINANCIAL RATIOS  of  Netflix (NFLX)

Valuation Ratios
P/E Ratio 328.6
Price to Sales 7
Price to Book 22.9
Price to Tangible Book
Price to Cash Flow -41.7
Price to Free Cash Flow -37
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 35.9% 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 7.8%, 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 429.673 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 $61.4 billion.


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Stock chart of NFLX 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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