Intrinsic value of Netflix - NFLX

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$162.43

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$162.43

 
Intrinsic value

$83.84

 
Up/down potential

-48%

 
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 69.9

 

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
  34.70
  31.73
  29.06
  26.65
  24.49
  22.54
  20.78
  19.21
  17.78
  16.51
  15.36
  14.32
  13.39
  12.55
  11.79
  11.11
  10.50
  9.95
  9.46
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
Revenue, $m
  8,831
  11,895
  15,670
  20,223
  25,613
  31,884
  39,070
  47,190
  56,253
  66,258
  77,195
  89,049
  101,800
  115,430
  129,915
  145,238
  161,381
  178,332
  196,081
  214,626
  233,969
  254,115
  275,079
  296,879
  319,537
  343,084
  367,553
  392,984
  419,420
  446,911
  475,508
Variable operating expenses, $m
 
  11,360
  14,965
  19,313
  24,460
  30,449
  37,312
  45,067
  53,722
  63,276
  73,721
  85,041
  97,219
  110,235
  124,069
  138,702
  154,119
  170,307
  187,258
  204,968
  223,440
  242,680
  262,701
  283,519
  305,158
  327,645
  351,014
  375,300
  400,547
  426,800
  454,110
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
  11,360
  14,965
  19,313
  24,460
  30,449
  37,312
  45,067
  53,722
  63,276
  73,721
  85,041
  97,219
  110,235
  124,069
  138,702
  154,119
  170,307
  187,258
  204,968
  223,440
  242,680
  262,701
  283,519
  305,158
  327,645
  351,014
  375,300
  400,547
  426,800
  454,110
Operating income, $m
  380
  535
  705
  910
  1,153
  1,435
  1,758
  2,124
  2,531
  2,982
  3,474
  4,007
  4,581
  5,194
  5,846
  6,536
  7,262
  8,025
  8,824
  9,658
  10,529
  11,435
  12,379
  13,360
  14,379
  15,439
  16,540
  17,684
  18,874
  20,111
  21,398
EBITDA, $m
  5,305
  2,153
  2,836
  3,660
  4,636
  5,771
  7,072
  8,541
  10,182
  11,993
  13,972
  16,118
  18,426
  20,893
  23,515
  26,288
  29,210
  32,278
  35,491
  38,847
  42,348
  45,995
  49,789
  53,735
  57,836
  62,098
  66,527
  71,130
  75,915
  80,891
  86,067
Interest expense (income), $m
  139
  163
  329
  548
  812
  1,125
  1,488
  1,905
  2,376
  2,901
  3,481
  4,116
  4,803
  5,542
  6,333
  7,173
  8,061
  8,997
  9,980
  11,009
  12,085
  13,206
  14,375
  15,590
  16,854
  18,168
  19,534
  20,953
  22,427
  23,960
  25,554
Earnings before tax, $m
  261
  372
  376
  362
  341
  310
  270
  219
  156
  80
  -8
  -108
  -222
  -348
  -487
  -637
  -799
  -972
  -1,157
  -1,351
  -1,556
  -1,771
  -1,996
  -2,231
  -2,475
  -2,729
  -2,994
  -3,268
  -3,553
  -3,849
  -4,156
Tax expense, $m
  74
  101
  102
  98
  92
  84
  73
  59
  42
  22
  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
  272
  274
  264
  249
  226
  197
  160
  114
  59
  -8
  -108
  -222
  -348
  -487
  -637
  -799
  -972
  -1,157
  -1,351
  -1,556
  -1,771
  -1,996
  -2,231
  -2,475
  -2,729
  -2,994
  -3,268
  -3,553
  -3,849
  -4,156

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
  15,967
  21,033
  27,145
  34,379
  42,797
  52,443
  63,343
  75,508
  88,937
  103,617
  119,528
  136,645
  154,939
  174,383
  194,950
  216,619
  239,372
  263,197
  288,089
  314,052
  341,094
  369,234
  398,495
  428,909
  460,516
  493,360
  527,496
  562,980
  599,880
  638,266
Adjusted assets (=assets-cash), $m
  11,853
  15,967
  21,033
  27,145
  34,379
  42,797
  52,443
  63,343
  75,508
  88,937
  103,617
  119,528
  136,645
  154,939
  174,383
  194,950
  216,619
  239,372
  263,197
  288,089
  314,052
  341,094
  369,234
  398,495
  428,909
  460,516
  493,360
  527,496
  562,980
  599,880
  638,266
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
  8,089
  10,655
  13,752
  17,417
  21,681
  26,568
  32,089
  38,252
  45,055
  52,492
  60,553
  69,224
  78,492
  88,342
  98,762
  109,739
  121,266
  133,335
  145,946
  159,099
  172,798
  187,054
  201,877
  217,285
  233,297
  249,936
  267,229
  285,206
  303,899
  323,346
Working capital, $m
  1,133
  -809
  -1,066
  -1,375
  -1,742
  -2,168
  -2,657
  -3,209
  -3,825
  -4,506
  -5,249
  -6,055
  -6,922
  -7,849
  -8,834
  -9,876
  -10,974
  -12,127
  -13,334
  -14,595
  -15,910
  -17,280
  -18,705
  -20,188
  -21,729
  -23,330
  -24,994
  -26,723
  -28,521
  -30,390
  -32,335
Total debt, $m
  3,394
  6,857
  11,417
  16,917
  23,428
  31,005
  39,686
  49,495
  60,444
  72,530
  85,742
  100,062
  115,467
  131,932
  149,432
  167,942
  187,444
  207,921
  229,364
  251,767
  275,134
  299,472
  324,797
  351,132
  378,505
  406,951
  436,511
  467,233
  499,169
  532,379
  566,926
Total liabilities, $m
  10,907
  14,370
  18,930
  24,430
  30,941
  38,518
  47,199
  57,008
  67,957
  80,043
  93,255
  107,575
  122,980
  139,445
  156,945
  175,455
  194,957
  215,434
  236,877
  259,280
  282,647
  306,985
  332,310
  358,645
  386,018
  414,464
  444,024
  474,746
  506,682
  539,892
  574,439
Total equity, $m
  2,680
  1,597
  2,103
  2,714
  3,438
  4,280
  5,244
  6,334
  7,551
  8,894
  10,362
  11,953
  13,664
  15,494
  17,438
  19,495
  21,662
  23,937
  26,320
  28,809
  31,405
  34,109
  36,923
  39,849
  42,891
  46,052
  49,336
  52,750
  56,298
  59,988
  63,827
Total liabilities and equity, $m
  13,587
  15,967
  21,033
  27,144
  34,379
  42,798
  52,443
  63,342
  75,508
  88,937
  103,617
  119,528
  136,644
  154,939
  174,383
  194,950
  216,619
  239,371
  263,197
  288,089
  314,052
  341,094
  369,233
  398,494
  428,909
  460,516
  493,360
  527,496
  562,980
  599,880
  638,266
Debt-to-equity ratio
  1.266
  4.290
  5.430
  6.230
  6.810
  7.240
  7.570
  7.810
  8.010
  8.160
  8.270
  8.370
  8.450
  8.520
  8.570
  8.610
  8.650
  8.690
  8.710
  8.740
  8.760
  8.780
  8.800
  8.810
  8.820
  8.840
  8.850
  8.860
  8.870
  8.870
  8.880
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
  272
  274
  264
  249
  226
  197
  160
  114
  59
  -8
  -108
  -222
  -348
  -487
  -637
  -799
  -972
  -1,157
  -1,351
  -1,556
  -1,771
  -1,996
  -2,231
  -2,475
  -2,729
  -2,994
  -3,268
  -3,553
  -3,849
  -4,156
Depreciation, amort., depletion, $m
  4,925
  1,618
  2,131
  2,750
  3,483
  4,336
  5,314
  6,418
  7,650
  9,011
  10,498
  12,111
  13,845
  15,698
  17,668
  19,752
  21,948
  24,253
  26,667
  29,189
  31,820
  34,560
  37,411
  40,375
  43,457
  46,659
  49,987
  53,446
  57,041
  60,780
  64,669
Funds from operations, $m
  -1,282
  1,890
  2,406
  3,015
  3,732
  4,563
  5,511
  6,577
  7,764
  9,070
  10,491
  12,002
  13,623
  15,350
  17,182
  19,115
  21,149
  23,281
  25,511
  27,838
  30,264
  32,788
  35,415
  38,145
  40,982
  43,930
  46,994
  50,178
  53,488
  56,931
  60,513
Change in working capital, $m
  192
  -208
  -257
  -310
  -366
  -426
  -489
  -552
  -616
  -680
  -744
  -806
  -867
  -927
  -985
  -1,042
  -1,098
  -1,153
  -1,207
  -1,261
  -1,315
  -1,370
  -1,426
  -1,482
  -1,541
  -1,601
  -1,664
  -1,729
  -1,798
  -1,869
  -1,945
Cash from operations, $m
  -1,474
  3,617
  2,662
  3,324
  4,098
  4,989
  5,999
  7,130
  8,380
  9,750
  11,235
  12,808
  14,490
  16,277
  18,167
  20,157
  22,247
  24,433
  26,717
  29,099
  31,579
  34,158
  36,840
  39,627
  42,523
  45,531
  48,657
  51,907
  55,286
  58,800
  62,457
Maintenance CAPEX, $m
  0
  -1,201
  -1,618
  -2,131
  -2,750
  -3,483
  -4,336
  -5,314
  -6,418
  -7,650
  -9,011
  -10,498
  -12,111
  -13,845
  -15,698
  -17,668
  -19,752
  -21,948
  -24,253
  -26,667
  -29,189
  -31,820
  -34,560
  -37,411
  -40,375
  -43,457
  -46,659
  -49,987
  -53,446
  -57,041
  -60,780
New CAPEX, $m
  -185
  -2,082
  -2,567
  -3,096
  -3,665
  -4,265
  -4,886
  -5,522
  -6,163
  -6,803
  -7,437
  -8,061
  -8,671
  -9,268
  -9,850
  -10,419
  -10,977
  -11,526
  -12,070
  -12,611
  -13,153
  -13,700
  -14,255
  -14,824
  -15,408
  -16,012
  -16,639
  -17,293
  -17,977
  -18,693
  -19,446
Cash from investing activities, $m
  50
  -3,283
  -4,185
  -5,227
  -6,415
  -7,748
  -9,222
  -10,836
  -12,581
  -14,453
  -16,448
  -18,559
  -20,782
  -23,113
  -25,548
  -28,087
  -30,729
  -33,474
  -36,323
  -39,278
  -42,342
  -45,520
  -48,815
  -52,235
  -55,783
  -59,469
  -63,298
  -67,280
  -71,423
  -75,734
  -80,226
Free cash flow, $m
  -1,424
  334
  -1,522
  -1,903
  -2,317
  -2,759
  -3,223
  -3,706
  -4,200
  -4,704
  -5,214
  -5,751
  -6,292
  -6,836
  -7,382
  -7,931
  -8,483
  -9,041
  -9,605
  -10,179
  -10,763
  -11,361
  -11,975
  -12,607
  -13,261
  -13,938
  -14,641
  -15,373
  -16,137
  -16,935
  -17,769
Issuance/(repayment) of debt, $m
  1,000
  3,463
  4,560
  5,500
  6,511
  7,576
  8,681
  9,810
  10,949
  12,086
  13,212
  14,320
  15,405
  16,465
  17,499
  18,511
  19,502
  20,477
  21,442
  22,403
  23,366
  24,338
  25,325
  26,335
  27,373
  28,446
  29,560
  30,722
  31,936
  33,210
  34,547
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
  3,463
  4,560
  5,500
  6,511
  7,576
  8,681
  9,810
  10,949
  12,086
  13,212
  14,320
  15,405
  16,465
  17,499
  18,511
  19,502
  20,477
  21,442
  22,403
  23,366
  24,338
  25,325
  26,335
  27,373
  28,446
  29,560
  30,722
  31,936
  33,210
  34,547
Total cash flow (excl. dividends), $m
  -342
  3,797
  3,038
  3,597
  4,194
  4,818
  5,458
  6,104
  6,748
  7,383
  7,999
  8,569
  9,113
  9,629
  10,118
  10,580
  11,019
  11,436
  11,837
  12,225
  12,603
  12,977
  13,351
  13,728
  14,112
  14,508
  14,919
  15,348
  15,799
  16,275
  16,779
Retained Cash Flow (-), $m
  -457
  -651
  -507
  -611
  -723
  -842
  -965
  -1,090
  -1,217
  -1,343
  -1,468
  -1,591
  -1,712
  -1,829
  -1,944
  -2,057
  -2,167
  -2,275
  -2,382
  -2,489
  -2,596
  -2,704
  -2,814
  -2,926
  -3,041
  -3,161
  -3,284
  -3,414
  -3,548
  -3,690
  -3,839
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
 
  4,880
  2,531
  2,986
  3,471
  3,976
  4,493
  5,014
  5,532
  6,040
  6,531
  6,978
  7,401
  7,800
  8,173
  8,523
  8,852
  9,161
  9,455
  9,735
  10,007
  10,273
  10,537
  10,801
  11,071
  11,347
  11,635
  11,935
  12,251
  12,585
  12,940
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
 
  4,527
  2,162
  2,332
  2,456
  2,528
  2,542
  2,500
  2,405
  2,263
  2,084
  1,872
  1,647
  1,419
  1,197
  989
  799
  633
  490
  371
  274
  198
  139
  96
  64
  42
  26
  16
  10
  5
  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 373.5
Price to Sales 7.9
Price to Book 26.1
Price to Tangible Book
Price to Cash Flow -47.4
Price to Free Cash Flow -42.1
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 34.7% 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 430.481 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 $69.9 billion.


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COMPANY NEWS

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▶ Netflix Courts Controversy at Cannes   [11:43AM  Investopedia]
▶ Netflix Is Building an Army in Europe   [11:18AM  Motley Fool]
▶ Market Steady With Fed Minutes Ahead: FANG Stocks Rally   [10:21AM  Investor's Business Daily]
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▶ Netflix Is No 'House of Cards'; Feast On Wingstop: Analysts   [04:19PM  Investor's Business Daily]
▶ Kyle Chandler Has Earned His Feel-Good Moment   [12:47PM  The Wall Street Journal]
▶ Netflix: 7 Secrets You Didn't Know (NFLX)   [09:17AM  Investopedia]
Stock chart of NFLX Financial statements of NFLX Annual reports 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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