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Financial Analysis of Netflix - Essay Example

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Financial Analysis of Netflix

In 1999, monthly subscriptions model was introduced and the reputation of the firm grew as a flat- fee rental with no due dates and late fee. Netflix has to its credit the personalized movie recommendation system which suggests choices to users based on their previous purchases. Also mentionable is the fact that Netflix user base has increased every year from the date its conception by over 50% from past years till 2005. After 2005, the number of subscribers continued to increase but at lower rates. (Netflix, 2012) Netflix also partnered with certain electronics companies to make streaming possible on the PS3, TVs with internet connections, Xbox 360, Apple iPhones, iPads, iPods and other internet connected devices. (Netflix, 2012) Researches showed that in 2011, 61% of the digital video market clintele belongs to Netflix. (Stambar, 2011) in 2011, Netflix is the highest revenue earner in the United States. (Frankel, 2012) This data clearly shows that as of right now, Netflix is a market leader. INCOME STATEMENT (Business Week, 2012)   31-Dec-08 31-Dec-09 31-Dec-10 31-Dec-11 Revenues 1,364.70 1,670.30 2,162.60 3,204.60 TOTAL REVENUES 1,364.70 1,670.30 2,162.60 3,204.60 Cost of Goods Sold 910.2 1,079.30 1,357.40 2,039.90 GROSS PROFIT 454.4 591 805.3 1,164.70 Selling General & Admin Expenses 249.4 286.6 358.3 520.6 R&D Expenses 89.9 114.5 163.3 259 Other Operating Expenses -6.3 -- -- -- OTHER OPERATING EXPENSES 332.9 401.2 521.6 779.6 OPERATING INCOME 121.5 189.8 283.6 385.1 Interest Expense -2.5 -6.5 -19.6 -20 Interest and Investment Income 9.2 4.8 2.7 2.8 NET INTEREST EXPENSE 6.7 -1.6 -16.9 -17.2 Other Non-Operating Income 0.1 -- -- -- EBT, EXCLUDING UNUSUAL ITEMS 128.4 188.2 266.7 367.8 Gain (Loss) on Sale of Investments 3.1 1.9 1 0.7 Other Unusual Items, Total -- 2.1 -- -9 Legal Settlements -- 2.1 -- -9 EBT, INCLUDING UNUSUAL ITEMS 131.5 192.2 267.7 359.5 Income Tax Expense 48.5 76.3 106.8 133.4 Earnings from Continuing Operations 83 115.9 160.9 226.1 NET INCOME 83 115.9 160.9 226.1 Talking about the income statement of Netflix, the trend of revenues has certainly taken a great boost since 2006 from 1365 million dollars to 3205 million dollars in 2011. Growth in revenue certainly is a positive sign for any company. Netflix has achieved huge numbers during the four years. The cost of sales has also risen but looking at the overall gross profit margin, we see a rising trend. Expanses look pretty much under control and would not had been a point of concern for Netflix. The change in the income statement which was very obvious was the interest charges which rose by big number from (1.6) in the year 2008 to (16.9) in 2010 and (20) in 2011. This means that Netflix has taken huge amount of loans in 2010 and have retained them in 2011 as well. In the income statement, we can also see that the investment’s income earned has also decreased since 2006. This means that Netflix have taken out all the investments it had made outside its company. Net income also shows a positive growing trend. From the income statement, we can say that Netflix is growing and has profitable numbers. BALANCE SHEET (Business Week, 2012)   31-Dec 31-Dec 31-Dec 31-Dec Currency in Millions of US$ 2008 2009 2010 2011 Assets         Cash and Equivalents 139.9 134.2 194.5 508.1 Short-Term Investments 157.4 186 155.9 289.8 TOTAL CASH AND SHORT TERM INVESTMENTS 297.3 320.2 350.4 797.8 Prepaid Expenses 26.5 26.7 62.2 56 Deferred Tax Assets, Current -- -- 2.2 10 Restricted ...Show more


Netflix Headquartered in California, Netflix is currently the world’s leading provider of movies and television on the internet. Founded in 1997, Netflix today has over 30 million subscribers in over 10 countries (Netflix, 2012)…
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