Netflix Analysis

Executive Summary

An analysis of Netflix (NFLX) was selected due to recent high profile announcements made by the company attempting to significantly change their business model. The team wanted to determine NFLX's financial statements provided insight into why the company wanted to make such changes. It was decided to Incorporate both Annual and Quarterly reports in order to review and determine the long term and immediate impact of their changes in business strategy.

The recent decision to change its business model caused us to strongly examine the effects on NFLX over the last quarter while reviewing its eight 10Qs to try and determine the financial reasoning behind the decisions.

We determined NFLX was able to maintain operating costs, while showing significant growth in revenues. However, increased competition and the launching of its international market forced a change in subscriber pricing, and a re-focusing of delivery model.

While the immediate effect of price increase looks to be neutral, it has slowed NFLX subscription rates and additional subscribers may also cancel.

An aggressive content acquisition to thwart competition lead to increases in accounts payable (AP) that may cause cash flow issues that will require it to take on more debt. For a stock predicated on growth and not dividends, the taking on debt could cause stock pull back. In an attempt to combat this, NFLX increased their pricing structure by more than 60 percent. When this resulted in the first drop in subscriber growth in eight quarters, the effects was a massive devaluation of the stock.

The long-term question for NFLX is the increasing cost of its content libraries. These

Increases in assets and liabilities both on and off the balance sheet are significant expenses that the company will have to pay.

From the income statement NFLX still looks healthy, but the balance sheet shows a different story. AP is now over double cash and short term investments

To remain sustainable NFLX has three options: purchase more debt, look for new revenue streams, or be acquired.

Business Description

NFLX, Inc. provides subscription based Internet services for TV shows and movies in the United States and internationally. The company allows its subscribers to watch unlimited TV shows and movies streamed over the Internet to their televisions, computers, and mobile devices. As well as providing direct mail DVD content.

Sector: Consumer Discretionary

Industry: Internet and Catalog Retail

Corporate Overview

NFLX was