Intrinsic value of Netflix - NFLX

Previous Close

$337.49

  Intrinsic Value

$206.73

stock screener

  Rating & Target

sell

-39%

Previous close

$337.49

 
Intrinsic value

$206.73

 
Up/down potential

-39%

 
Rating

sell

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 2017), $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 145.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  32.40
  29.66
  27.19
  24.97
  22.98
  21.18
  19.56
  18.11
  16.79
  15.62
  14.55
  13.60
  12.74
  11.96
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
Revenue, $m
  15,482
  20,073
  25,532
  31,909
  39,240
  47,551
  56,853
  67,146
  78,423
  90,670
  103,865
  117,989
  133,020
  148,935
  165,717
  183,352
  201,829
  221,143
  241,295
  262,291
  284,143
  306,869
  330,492
  355,043
  380,555
  407,068
  434,628
  463,284
  493,092
  524,110
Variable operating expenses, $m
  12,529
  15,809
  19,709
  24,265
  29,503
  35,441
  42,086
  49,440
  57,497
  66,246
  74,205
  84,296
  95,034
  106,405
  118,395
  130,994
  144,194
  157,993
  172,390
  187,390
  203,002
  219,239
  236,116
  253,656
  271,883
  290,825
  310,515
  330,988
  352,283
  374,444
Fixed operating expenses, $m
  1,082
  1,106
  1,130
  1,155
  1,181
  1,207
  1,233
  1,260
  1,288
  1,316
  1,345
  1,375
  1,405
  1,436
  1,468
  1,500
  1,533
  1,567
  1,601
  1,636
  1,672
  1,709
  1,747
  1,785
  1,825
  1,865
  1,906
  1,948
  1,991
  2,034
Total operating expenses, $m
  13,611
  16,915
  20,839
  25,420
  30,684
  36,648
  43,319
  50,700
  58,785
  67,562
  75,550
  85,671
  96,439
  107,841
  119,863
  132,494
  145,727
  159,560
  173,991
  189,026
  204,674
  220,948
  237,863
  255,441
  273,708
  292,690
  312,421
  332,936
  354,274
  376,478
Operating income, $m
  1,870
  3,158
  4,692
  6,488
  8,557
  10,904
  13,534
  16,446
  19,638
  23,107
  28,315
  32,318
  36,580
  41,094
  45,855
  50,858
  56,102
  61,583
  67,303
  73,264
  79,468
  85,921
  92,629
  99,601
  106,847
  114,379
  122,208
  130,349
  138,818
  147,632
EBITDA, $m
  5,077
  6,880
  9,028
  11,540
  14,432
  17,712
  21,386
  25,455
  29,914
  34,758
  39,979
  45,569
  51,518
  57,819
  64,465
  71,449
  78,767
  86,418
  94,401
  102,719
  111,377
  120,382
  129,744
  139,473
  149,584
  160,092
  171,016
  182,376
  194,192
  206,489
Interest expense (income), $m
  139
  351
  622
  949
  1,338
  1,793
  2,315
  2,908
  3,571
  4,305
  5,109
  5,982
  6,923
  7,930
  9,002
  10,136
  11,333
  12,590
  13,908
  15,285
  16,721
  18,218
  19,776
  21,397
  23,081
  24,831
  26,650
  28,541
  30,506
  32,549
  34,674
Earnings before tax, $m
  1,519
  2,536
  3,743
  5,150
  6,764
  8,588
  10,626
  12,875
  15,333
  17,998
  22,332
  25,395
  28,650
  32,092
  35,718
  39,525
  43,511
  47,676
  52,019
  56,542
  61,250
  66,144
  71,233
  76,520
  82,016
  87,728
  93,667
  99,843
  106,269
  112,958
Tax expense, $m
  410
  685
  1,011
  1,391
  1,826
  2,319
  2,869
  3,476
  4,140
  4,859
  6,030
  6,857
  7,736
  8,665
  9,644
  10,672
  11,748
  12,872
  14,045
  15,266
  16,537
  17,859
  19,233
  20,661
  22,144
  23,687
  25,290
  26,958
  28,693
  30,499
Net income, $m
  1,109
  1,852
  2,733
  3,760
  4,938
  6,270
  7,757
  9,399
  11,193
  13,139
  16,303
  18,539
  20,915
  23,427
  26,074
  28,854
  31,763
  34,803
  37,974
  41,276
  44,712
  48,285
  52,000
  55,860
  59,872
  64,042
  68,377
  72,886
  77,576
  82,459

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  25,173
  32,640
  41,516
  51,884
  63,805
  77,319
  92,444
  109,181
  127,518
  147,430
  168,887
  191,853
  216,292
  242,171
  269,459
  298,133
  328,177
  359,582
  392,349
  426,489
  462,021
  498,973
  537,386
  577,305
  618,788
  661,899
  706,712
  753,308
  801,775
  852,212
Adjusted assets (=assets-cash), $m
  25,173
  32,640
  41,516
  51,884
  63,805
  77,319
  92,444
  109,181
  127,518
  147,430
  168,887
  191,853
  216,292
  242,171
  269,459
  298,133
  328,177
  359,582
  392,349
  426,489
  462,021
  498,973
  537,386
  577,305
  618,788
  661,899
  706,712
  753,308
  801,775
  852,212
Revenue / Adjusted assets
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
Average production assets, $m
  17,386
  22,542
  28,673
  35,833
  44,067
  53,400
  63,846
  75,405
  88,070
  101,822
  116,641
  132,502
  149,381
  167,254
  186,101
  205,904
  226,654
  248,344
  270,974
  294,553
  319,092
  344,614
  371,143
  398,713
  427,363
  457,137
  488,087
  520,268
  553,742
  588,576
Working capital, $m
  -6,007
  -7,788
  -9,906
  -12,381
  -15,225
  -18,450
  -22,059
  -26,053
  -30,428
  -35,180
  -40,300
  -45,780
  -51,612
  -57,787
  -64,298
  -71,141
  -78,310
  -85,803
  -93,622
  -101,769
  -110,247
  -119,065
  -128,231
  -137,757
  -147,655
  -157,942
  -168,636
  -179,754
  -191,320
  -203,355
Total debt, $m
  11,509
  17,572
  24,779
  33,198
  42,879
  53,852
  66,133
  79,724
  94,613
  110,782
  128,205
  146,853
  166,698
  187,711
  209,869
  233,153
  257,548
  283,049
  309,656
  337,378
  366,229
  396,235
  427,426
  459,841
  493,525
  528,531
  564,919
  602,755
  642,110
  683,065
Total liabilities, $m
  20,441
  26,503
  33,711
  42,130
  51,810
  62,783
  75,064
  88,655
  103,544
  119,713
  137,136
  155,784
  175,629
  196,643
  218,801
  242,084
  266,480
  291,981
  318,588
  346,309
  375,161
  405,166
  436,357
  468,772
  502,456
  537,462
  573,850
  611,686
  651,042
  691,996
Total equity, $m
  4,733
  6,136
  7,805
  9,754
  11,995
  14,536
  17,379
  20,526
  23,973
  27,717
  31,751
  36,068
  40,663
  45,528
  50,658
  56,049
  61,697
  67,601
  73,762
  80,180
  86,860
  93,807
  101,029
  108,533
  116,332
  124,437
  132,862
  141,622
  150,734
  160,216
Total liabilities and equity, $m
  25,174
  32,639
  41,516
  51,884
  63,805
  77,319
  92,443
  109,181
  127,517
  147,430
  168,887
  191,852
  216,292
  242,171
  269,459
  298,133
  328,177
  359,582
  392,350
  426,489
  462,021
  498,973
  537,386
  577,305
  618,788
  661,899
  706,712
  753,308
  801,776
  852,212
Debt-to-equity ratio
  2.430
  2.860
  3.170
  3.400
  3.570
  3.700
  3.810
  3.880
  3.950
  4.000
  4.040
  4.070
  4.100
  4.120
  4.140
  4.160
  4.170
  4.190
  4.200
  4.210
  4.220
  4.220
  4.230
  4.240
  4.240
  4.250
  4.250
  4.260
  4.260
  4.260
Adjusted equity ratio
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188
  0.188

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,109
  1,852
  2,733
  3,760
  4,938
  6,270
  7,757
  9,399
  11,193
  13,139
  16,303
  18,539
  20,915
  23,427
  26,074
  28,854
  31,763
  34,803
  37,974
  41,276
  44,712
  48,285
  52,000
  55,860
  59,872
  64,042
  68,377
  72,886
  77,576
  82,459
Depreciation, amort., depletion, $m
  3,207
  3,722
  4,335
  5,052
  5,875
  6,808
  7,853
  9,009
  10,275
  11,650
  11,664
  13,250
  14,938
  16,725
  18,610
  20,590
  22,665
  24,834
  27,097
  29,455
  31,909
  34,461
  37,114
  39,871
  42,736
  45,714
  48,809
  52,027
  55,374
  58,858
Funds from operations, $m
  4,316
  5,574
  7,068
  8,811
  10,813
  13,078
  15,609
  18,407
  21,469
  24,789
  27,967
  31,789
  35,853
  40,153
  44,685
  49,444
  54,429
  59,638
  65,071
  70,731
  76,621
  82,747
  89,114
  95,731
  102,608
  109,755
  117,186
  124,912
  132,951
  141,317
Change in working capital, $m
  -1,470
  -1,782
  -2,118
  -2,474
  -2,845
  -3,225
  -3,609
  -3,994
  -4,376
  -4,751
  -5,120
  -5,480
  -5,832
  -6,175
  -6,512
  -6,842
  -7,169
  -7,494
  -7,819
  -8,146
  -8,479
  -8,818
  -9,166
  -9,526
  -9,899
  -10,287
  -10,693
  -11,119
  -11,565
  -12,035
Cash from operations, $m
  5,786
  7,356
  9,186
  11,285
  13,657
  16,302
  19,219
  22,401
  25,844
  29,540
  33,087
  37,269
  41,684
  46,328
  51,196
  56,286
  61,598
  67,131
  72,890
  78,878
  85,100
  91,564
  98,280
  105,257
  112,507
  120,043
  127,879
  136,031
  144,516
  153,352
Maintenance CAPEX, $m
  -1,313
  -1,739
  -2,254
  -2,867
  -3,583
  -4,407
  -5,340
  -6,385
  -7,541
  -8,807
  -10,182
  -11,664
  -13,250
  -14,938
  -16,725
  -18,610
  -20,590
  -22,665
  -24,834
  -27,097
  -29,455
  -31,909
  -34,461
  -37,114
  -39,871
  -42,736
  -45,714
  -48,809
  -52,027
  -55,374
New CAPEX, $m
  -4,259
  -5,157
  -6,130
  -7,161
  -8,233
  -9,333
  -10,446
  -11,560
  -12,664
  -13,752
  -14,819
  -15,861
  -16,879
  -17,873
  -18,847
  -19,804
  -20,750
  -21,690
  -22,631
  -23,578
  -24,540
  -25,521
  -26,529
  -27,570
  -28,650
  -29,775
  -30,950
  -32,181
  -33,474
  -34,834
Cash from investing activities, $m
  -5,572
  -6,896
  -8,384
  -10,028
  -11,816
  -13,740
  -15,786
  -17,945
  -20,205
  -22,559
  -25,001
  -27,525
  -30,129
  -32,811
  -35,572
  -38,414
  -41,340
  -44,355
  -47,465
  -50,675
  -53,995
  -57,430
  -60,990
  -64,684
  -68,521
  -72,511
  -76,664
  -80,990
  -85,501
  -90,208
Free cash flow, $m
  214
  460
  802
  1,257
  1,840
  2,563
  3,433
  4,457
  5,639
  6,981
  8,086
  9,743
  11,555
  13,517
  15,624
  17,872
  20,258
  22,776
  25,425
  28,202
  31,105
  34,134
  37,289
  40,572
  43,985
  47,532
  51,215
  55,041
  59,015
  63,144
Issuance/(repayment) of debt, $m
  5,010
  6,063
  7,207
  8,419
  9,680
  10,973
  12,281
  13,591
  14,889
  16,169
  17,423
  18,648
  19,845
  21,014
  22,158
  23,284
  24,395
  25,501
  26,607
  27,721
  28,852
  30,006
  31,191
  32,415
  33,684
  35,006
  36,388
  37,836
  39,356
  40,954
Issuance/(repurchase) of shares, $m
  41
  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  
  5,051
  6,063
  7,207
  8,419
  9,680
  10,973
  12,281
  13,591
  14,889
  16,169
  17,423
  18,648
  19,845
  21,014
  22,158
  23,284
  24,395
  25,501
  26,607
  27,721
  28,852
  30,006
  31,191
  32,415
  33,684
  35,006
  36,388
  37,836
  39,356
  40,954
Total cash flow (excl. dividends), $m
  5,265
  6,523
  8,009
  9,676
  11,521
  13,536
  15,714
  18,048
  20,529
  23,150
  25,508
  28,392
  31,400
  34,530
  37,782
  41,156
  44,653
  48,277
  52,032
  55,923
  59,957
  64,140
  68,480
  72,987
  77,670
  82,538
  87,603
  92,877
  98,371
  104,098
Retained Cash Flow (-), $m
  -1,151
  -1,404
  -1,669
  -1,949
  -2,241
  -2,541
  -2,843
  -3,147
  -3,447
  -3,744
  -4,034
  -4,318
  -4,595
  -4,865
  -5,130
  -5,391
  -5,648
  -5,904
  -6,160
  -6,418
  -6,680
  -6,947
  -7,222
  -7,505
  -7,799
  -8,105
  -8,425
  -8,760
  -9,112
  -9,482
Prev. year cash balance distribution, $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 flow adjustment, $m
  187
  248
  321
  409
  511
  628
  761
  910
  1,074
  1,255
  1,451
  1,662
  1,888
  2,128
  2,383
  2,651
  2,934
  3,229
  3,538
  3,861
  4,197
  4,546
  4,910
  5,288
  5,681
  6,089
  6,513
  6,954
  7,413
  7,889
Cash available for distribution, $m
  4,115
  5,119
  6,340
  7,727
  9,279
  10,995
  12,871
  14,901
  17,081
  19,406
  21,475
  24,074
  26,805
  29,665
  32,652
  35,765
  39,005
  42,373
  45,872
  49,505
  53,277
  57,193
  61,259
  65,482
  69,871
  74,433
  79,179
  84,117
  89,259
  94,616
Discount rate, %
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
  3,803
  4,340
  4,891
  5,376
  5,770
  6,051
  6,204
  6,221
  6,103
  5,860
  5,407
  4,984
  4,494
  3,964
  3,418
  2,882
  2,374
  1,909
  1,498
  1,145
  853
  619
  436
  298
  198
  127
  79
  48
  28
  15
Current shareholders' claim on cash, %
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9

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 776.1
Price to Sales 16.4
Price to Book 54.2
Price to Tangible Book
Price to Cash Flow -98.5
Price to Free Cash Flow -87.5
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 $11693 million for the last fiscal year's total revenue generated by Netflix. The default revenue input number comes from 2017 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 32.4% 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 8.2%, 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 84%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1059 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 5.4% 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 1.6%.

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 112.3%.

Life of production assets of 10 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 -38.8%. 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 - $3582 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 432 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 $145.8 billion.

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