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Netflix Company Report

(NFLX) 10/25/2017

Market: US Price as of 5/9/2017: $194.00


GICS Sector: Consumer Discretionary Portfolio weight: 5 (%)
GICS Industry: Internet and Catalog Portfolio Manager: Richard Daly
Retail/Digital Marketing Retail Contact Information: rldaly@scu.edu
Stock Rating: OW

I. Company Description:
Netflix is an American, Internet television network with customers streaming TV shows, movies,
documentaries and original series in over 190 countries around the world. For $7.99 a month, customers
receive unlimited access to Netflixs streaming capabilities. Netflix has three segments: domestic
streaming, which streams content to the U.S. member; international streaming, which streams content
outside the U.S.; and domestic DVD, which provides U.S. members with a DVD by mail service. Netflix is a
media streaming powerhouse with own production company, distribution system and over 98 million
worldwide subscribers.

II. Industry Analysis:


Internet and Catalog Retail with regards to Netflix

Strengths: Room for innovation


Growing international markets
Low Fixed Costs
Increasing demand and supply for streaming services
Internet becoming more ingrained/easily accessible
Stable U.S. Markets
Increasing supply of content, including original content

Weaknesses:
Decreasing demand of DVD rentals
Vulnerable to recession and economic downturn
Cant control shipping costs
Market Sensitive

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Opportunities:
Various types of rentals and streaming opportunities (video games, educational, institutional)
Original film and TV productions have large growth opportunities
New international market penetration as TV streaming continues to become the norm

Threats:
DVD rental outdated
Large cable companies are planning on entering market (Time Warner, AT&T)
Strong Competitors (Amazon, HBOGO, Hulu)
Relies on discretionary/disposable income volatile to overall health of economy

Price History stock symbol (start month end month, yy) Fundamental Information

52-Week Price Range: 110.68


-204.38
5-yr Annual Return: 86.93 (%)
5-yr Annual Volatility: 27.7 (%)
Beta: 1.4
EPS 2016: .43
EPS 2017, Q3/Q4 : .29, .42(est.)
EPS 5-yr. Growth Rate: N/A
Dividend Yield: None (%)
P/E (TTM): 152.78
P/Book (MRQ): 25.21x
P/Sales (TTM): 7.918x
MRQ: Most recent quarter;
TTM: Trailing 12 months

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III. Reasons for the stock rating: Overweight
A. Return Factors:

Overall quite efficient in comparison with peers on its Return on Equity (15.03%), Return on Assets
(3%) and Highest Revenues per Employees (5.3 Million).
Most highly leveraged companies in the industry. Has Debt to Total Capital ratio of 53.09%.
Return on equity is at 15.03% (TTM) and Return on Invested Capital is at 11.02%
Earnings growth year over year forecasted to be 195% while next years is expected to be 77%
During bull market, returns are expected to be smaller than markets (30 day horizon)

B. Risk Factors:

Earnings growth outpaced revenue growth (TTM).


o Unsustainable if profits continue to grow at the rate they are
Still better than average for industry
Gross margin 33.8% (TTM) is below the industries median
o Perhaps NFLX pays less in interest and taxes
During bear market, loss on Netflix is estimated to be smaller than market (30 day horizon)

C. (Optional) Other consideration:

Overall recommendation of various analysts is to Buy.

Stock price against peers: Black NFLX. Purple GAIA. Blue AMZN
o Dominating performance in past 6 months

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Netflix has an overwhelmingly largest loyal consumer base.
Internet TV is the future. Netflix has huge long-term growth potential. I recommend buying this
stock.
IV. References:
https://finance.yahoo.com/quote/NFLX/
https://research.tdameritrade.com/grid/public/research/stocks/industryposition?symbol=NFLX
http://performance.morningstar.com/stock/performance-return.action?
t=nflx&region=USA&culture=en_US
http://www.businessinsider.com/netflix-crushes-rivals-when-it-comes-to-subscriber-
exclusivity-charts-2017-10
https://ycharts.com/companies/NFLX/price_to_book_value
http://www.nasdaq.com/symbol/nflx/eps-forecast
https://csimarket.com/stocks/singleY_growth_rates.php?code=NFLX&rev