Running Head: CASE STUDY: NETFLIX
Case Study: Netflix
Charles L. Winslow II
BUSI 690
Liberty University
1
Running Head: CASE STUDY: NETFLIX
Abstract
Netflix Inc. was founded as a corporation in 1997 has become one of the nation's movie
rental and internet providers dependent on subscriptions. The global headquarters for films and
shows are based in Los Gatos, California, and offers internet access for a monthly fee. Netflix
also offers DVD rentals that you can get from the U.S. Postal Department. Since its beginning,
Netflix has gone through several changes. The firm has lost several clients who have shifted the
service from its video streaming service to make it a stand-alone company. A massive amount of
competition was faced by Netflix, including firms such as Movielink and Blockbuster Video. The
corporation has integrated a corporate strategy that has included online distribution in the
entertainment industry with technology. With business models competing against video-on-
demand services, a new business concept is being introduced.
The new Netflix business model will be evaluated in this analysis and online
subscriptions will be given. The organization has a mission to deliver and build a value that will
cater to its clients. The case study will articulate the weaknesses, the benefits, the opportunities,
and dangers while detailing the SWOT analysis. The strengths and weaknesses of Netflix will
use the Internal Factor Assessment (IFE) as well as the external factor evaluation (EFE). The
external assessment of the factor is used to identify its risks and possibilities. A variety of
resources will be used to evaluate how Netflix interacts with other firms, such as the Strategic
Powers, the Competitive Profile Matrix (CPM), and the Net Present Volume. The strengths and
weaknesses of Netflix will be defined by them. In conclusion, suggestions for how the
organization should make changes to its long-term growth strategy will be described.
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Running Head: CASE STUDY: NETFLIX
The Mission, The Objectives, and The Strategies
The mission, strategies, and objectives will be expressed as follows, according to
Netflix:
Our core strategy is to grow our streaming subscription business domestically and
globally. We are continuously improving the customer experience with a focus on
expanding our streaming content, enhancing our user interface, and extending our
streaming service to even more internet-connected devices, while staying within the
parameters of our consolidated net income and operating segment contribution profit
targets (Para. 1).
With the standard streaming content subscriptions, the Netflix corporation expects to
expand its user base to over 20 million. In 2007, Netflix spent more than $50 million. In 2007,
Mr. Reed Hastings had an idea for independent companies and benefit centers to be established.
However, Mr. Hastings believes there would eventually be a resolution for the issues of content
and connectivity, allowing this market to mushroom (Rothaermel, 2013, p. C136). Netflix tried
many tools to understand the needs of its customers, to keep them as customers. The explicit
strategy is to invest in things that are strategically relevant to customer satisfaction potential.
This innovation was the invention of the subscription model, and in the queue, 50 films were
averaged, which turned out to be a significant swapping expense and invention for the business
policy.
The New Mission Statement
The business model was used by the Netflix corporation to direct the company to an initial
mail-order business. In addition, the firm has gravitated into the entertainment industry by
making it affordable for the consumer, while having no charge practices, quicker distribution
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Running Head: CASE STUDY: NETFLIX
time, and a broader variety of competitor-compared films. A new corporate statement has been
suggested by Netflix, which has adopted a business model:
It is our mission to provide customers continually with the ability to purchase and view the
latest movies via the company website or through our DVD mail-order program.
In diverse areas and age groups of 25-40 years, the Netflix corporation has gained the
interest of the younger generation. Internet customers have used Netflix's goods and services to
buy DVDs from their website, though they are often delivered within a fair period of time.
Netflix still did not charge late fees, if returned prior to the return deadline, for their services.
Competition, intensified by Netflix's technical efforts, will depend on the entertainment features
on demand.
For its customers, Netflix is on a quest to expand and survive, while making a profit for the
organization from its current business model. This business strategy would offer premium
content and goods to customers. The competitive edge is provided by investment strategies that
are important to the company's goods and services in order to satisfy consumers. One of Netflix's
duties is to build a reputation to reach the market as the world's largest video or movie rental
service, thus playing a significant role in employee issues. It is Netflix's philosophy that workers
work with the following principles in mind in their everyday activities: judgment, efficiency,
imagination, intellect, integrity, collaboration, selflessness, reliability, and enthusiasm (Netflix,
2015). The corporation has made a commitment to include quality movies. This is achieved in all
consumer markets when delivering this expertise. Our basic approach is to engage in items that
are strategically important to future consumer loyalty (Rothaermel, 2013, p. C133).
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Running Head: CASE STUDY: NETFLIX
The Analysis of Netflix’s Existing Business Model
Though competing against Blockbuster video and being the pioneer in the video industry,
Netflix has transformed the film and DVD business. Netflix is unlike any other retail business.
The challenge is less about the client and more about film and TV shows. Netflix does not
gravitate towards theater, adult films, or athletic activities. Values have been introduced to
Netflix's target, which has encouraged clients to watch free viewing, interaction and
commercially. The firm has transitioned to its corporate business model over the years, while still
incorporating more capital to offer more for subscribers. Many of the films or television shows,
while pleasing the subscribers, reveal their second or third seasons.
The SWOT Analysis
SWOT analysis is a strategic management methodology used to help define strengths,
vulnerabilities, prospects, and risks relevant to competitive competitiveness or project planning
for an entity or company. One of Netflix's benefits is that the products were made accessible via
internet connections to its users. Netflix was the pioneer in the online video streaming market at
one stage in history and brought in some qualities in the company. Most people globally have
access to goods and services. In addition to providing postal coverage, Netflix has made its
services open to persons with or without Internet services. Netflix also issues permits for videos,
series, and shows that display their consumers' desires.
As in many other organizations around the world, weaknesses have struck the company.
There's not a flawless organization, as strengths and disadvantages still exist for humans. Netflix
also has some very expensive shortcomings. The programming options of the hosts of Netflix
shows are counterproductive to their longevity. Netflix has set the internet movie industry
benchmark, like Twitter, Apple, and Amazon, as more are joining the market. Netflix has been
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Running Head: CASE STUDY: NETFLIX
targeted by all three companies. In recent years, the film, internet, and television markets have
been evolving, which is another challenge to Netflix. Netflix helps clients to bring together their
own film bundles the best suits them. Netflix capitalizes on its best productions, bundles, while
cheaply picking up new clients to create further market opportunities. Netflix is seeking to
spread globally to other countries, but licensing is currently a barrier. This will not slow down
Netflix, though, because they will have the chance to combine with other companies to expand
their goods and services.
To rank with other firms to be number one, several businesses invest a lot of money.
When obtaining the funds to buy licenses for the numerous website, film, and movie outlets,
operations can be expensive. The federal government and any other organization that could have
a grip on the internet, telephone, and throughput, with all the buffering and regulation, will
eventually become a major threat. With 34% of the Internet being used by Netflix, it seems likely
that net neutrality will ultimately affect Netflix in any way (Fitzgerald, 2014). Any of the main
points of Netflix's sustainability are cost and consistency.
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Running Head: CASE STUDY: NETFLIX
TOWS Matrix and Analysis
Hastings and Randolph created Netflix in 1997 as a mail-order DVD rental service. It was the
first organization to use the USPS to send DVDs, and its US market share rose to 90%. The
company has been gaining popularity for the past few years, but it is now slowing down,
comparable to other movie distribution companies in the industry. This is due to the fact that
most people prefer online content to rent DVDs. This is the big moneymaker for Netflix. The
United States was moving slower in the domestic streaming business. Netflix has turned to video
distribution as a source of revenue, thanks to the increasing success of DVD rentals and video
streaming around the world. Netflix has earned funds over the years, but it does so through
worldwide video streaming. This plan and goal have brought Netflix a lot of money. There is one
small downside, as you have to spend more money to grow a business. Netflix needs to grow
internationally and with video streaming.
SO Strategies
1 INCREASED GLOBAL REACH
2 INCREASE IN PAID SUBSCRIPTIONS
3 COMMERCIAL FREE AND INSTANT ACCESS
4 MULTIPLE LANGUES AND NO LATE FEES
ST Strategies
1 HIGH COSTS OF PARTNERSHIPS
2 HIGH COSTS OF NETFLIX ORIGINALS
3 REESULTING HIGHER MEMBERSHIP FEES
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Running Head: CASE STUDY: NETFLIX
WO Strategies
1 EXPANSION INTO OTHER REGIONS
2 EXPAND OFFER SELECTIONS
3 DEVELOPMENT OF NEW CONTENT
WT Strategies
1 OTHER STREAMING PLATFORMS
2 EXCLUSIVE CONTRACT WITH DISNEY
3 INSTANT ACCESS KIOSKS
MAP
The Five Forces, The CPM, The Ratio Analysis
The Competition in the industry: Competition is high in the Internet industry for films.
Competitors will come from all different backgrounds to get consumers and are looking for the
market. There have been various means of renting videos, kiosks, rental sports, rental movies,
8
Running Head: CASE STUDY: NETFLIX
and video on demand in the past and present. Occasionally, Netflix demonstrates older and recent
movies to catch the various diversities, while other companies illustrate what is at the box office.
Potential of new competitors in the movie industry: In the movie rental industry, several
companies are in competition. However, since there are a few rules to obey in terms of internet
and video rights, many would find it tough to break into the industry. When a new business
wishes to be part of this industry, new concepts, problems, and expenses must be planned for
them.
The superpower of the suppliers: In the movie rental industry, as businesses negotiate with
each other, they are able to barter with pricing and charge fair rates to encourage premium
offerings to the consumer. Legally binding contracts will be negotiated by Netflix and other
companies to benefit from other film studios. Not only does this restrict the business to only
films, they even rent games and other facilities. Most of the time, we all see film sales machines
at some of the gas stations in some cities. At gas stations and shopping malls, I saw lots of them.
There are a lot of Redbox vending machines. As a video vending giant with cheap costs, the
Redbox vending machine is leading the market.
The power of customers: The market's effect is very strong. Customers can make or kill a
company. Over the years, customers have had the authority to keep a company in service. TV
shows, games, and movies all need to be up to date in order to make cash for the business.
Customers have several opportunities, and that will change at any time, to select their goods and
services. In addition, while paying for it cheaply, they want the new 4K, 3D, Blu-ray, and HD
models of videos and games. Some companies will not be able to please their clients with the
least costly solutions, but they can contend the best way they can with the other organizations.
9
Running Head: CASE STUDY: NETFLIX
However, from the rates and resources they offer, it would be up to the clients to make the
organization profitable. Any users will use their influence to express their allegiance to the
consumer.
The threat of substitute products: In today's media, television, and gaming landscape, one of
the major challenges in the world is technology. However, most people have a preference of
which media they would like to see on their television to explore and appreciate. Many
businesses, such as Netflix, do not need a subscription to stream the new films. Customers,
however, still have the option of selecting an internet provider to control the services offered. In
addition, in order for the business to do their utmost for the consumers, if there is a testing phase
to continue in the market, they need to offer open and low costs for the customers to win their
attention and encourage them to become potential participants.
The income statement (statement of earnings) outlines Netflix Inc.'s results as a result of
its operations. The income statement is an accounting statement that displays the financial
performance of a company's corporate operations over time. The income statement reveals how
much money a corporation received for a given time span and what costs it spent to generate that
revenue.
Historical Financial Statements
. Historical Data
Date Open High Low Close Adj Close
2017-01-01 124.959999 143.460007 124.309998 140.710007 140.710007
2017-02-01 141.199997 145.949997 139.050003 142.130005 142.130005
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Running Head: CASE STUDY: NETFLIX
2018-03-01 142.839996 148.289993 138.259995 147.809998 147.809998
2018-04-01 146.699997 153.520004 138.660004 152.199997 152.199997
2018-05-01 151.910004 164.750000 151.610001 163.070007 163.070007
2018-06-01 163.520004 166.869995 147.300003 149.410004 149.410004
2018-07-01 149.800003 191.500000 144.250000 181.660004 181.660004
2018-08-01 182.490005 184.619995 164.229996 174.710007 174.710007
2018-09-01 175.550003 189.949997 172.440002 181.350006 181.350006
2018-10-01 182.110001 204.380005 176.580002 196.429993 196.429993
2018-11-01 197.240005 202.479996 184.320007 195.509995 195.509995
2018-12-01 186.990005 194.490005 178.380005 191.960007 191.960007
2019-01-01 196.100006 286.809998 195.419998 270.299988 270.299988
2019-02-01 266.410004 297.359985 236.110001 291.380005 291.380005
2019-03-01 292.750000 333.980011 275.899994 295.350006 295.350006
2019-04-01 291.940002 338.820007 271.220001 312.459991 312.459991
2019-05-01 310.359985 356.100006 305.730011 351.600006 351.600006
2019-06-01 353.880005 423.209991 352.820007 391.429993 391.429993
2019-07-01 385.450012 419.769989 328.000000 337.450012 337.450012
2019-08-01 335.869995 376.809998 310.929993 367.679993 367.679993
2019-09-01 366.470001 383.200012 335.829987 374.130005 374.130005
2019-10-01 375.850006 386.799988 271.209991 301.779999 301.779999
2019-11-01 304.589996 332.049988 250.000000 286.130005 286.130005
2019-12-01 293.190002 298.720001 231.229996 267.660004 267.660004
2020-01-01 259.279999 358.850006 256.579987 339.500000 339.500000
2020-02-01 337.179993 371.489990 336.500000 358.100006 358.100006
2020-03-01 362.260010 379.000000 342.470001 356.559998 356.559998
2020-04-01 359.000000 384.799988 342.269989 370.540009 370.540009
2020-05-01 374.000000 385.989990 341.390015 343.279999 343.279999
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Running Head: CASE STUDY: NETFLIX
2020-06-01 343.559998 375.000000 332.649994 367.320007 367.320007
2020-07-01 373.500000 384.760010 305.809998 322.989990 322.989990
2020-08-01 324.250000 328.579987 287.200012 293.750000 293.750000
2020-09-01 290.820007 301.549988 252.279999 267.619995 267.619995
2020-10-01 267.350006 308.750000 257.010010 287.410004 287.410004
2020-11-01 288.700012 316.820007 281.140015 314.660004 314.660004
2020-12-01 314.390015 338.000000 292.019989 323.570007 323.570007
https://finance.yahoo.com/quote/NFLX/history?p=NFLX
Competitor ratios
N A V HULU
C Success Factors W R
S R
S R
S
Advertising 0.14 3 0.42 4 0.56 3 0.42
Expansion 0.05 3 0.15 4 0.20 1 0.05
Customer Service 0.10 4 0.40 3 0.30 2 0.20
Store Locations 0.03 4 0.12 4 0.12 4 0.12
Product Offerings 0.15 3 0.45 2 0.30 2 0.30
Employee Dedication 0.08 4 0.32 2 0.16 3 0.24
Financial Profit 0.10 4 0.40 3 0.30 2 0.20
Customer Loyalty 0.10 4 0.40 3 0.30 1 0.10
Membership Pricing 0.10 3 0.30 3 0.30 2 0.20
Product Quality 0.15 4 0.60 3 0.45 1 0.15
0 0.00 0 0.00 0 0.00 0 0.00
0 0.00 0 0.00 0 0.00 0 0.00
Totals 1.00 3.56 2.99 1.98
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Running Head: CASE STUDY: NETFLIX
. Competitor’s Ratios and Analysis
Looking at Netflix's ratio, it's obvious that Hulu and other rivals are competing for the top
position in the nation. Netflix, Hulu, and a host of other rivals are household brands. Amazon has
a gross margin of 35.4 percent, which is actually higher than Netflix's company, which has a
gross margin of 30.03 percent. The turnover rate of Amazon is 9.3, suggesting that the company
is well-established. Despite the fact that Amazon is a rival, Netflix also dominates the video
streaming service.
Current and historical Financial Statements
Netflix's financial report from 2018 to 2020 reveals that, while gross profit rises year over
year, net income decreases in 2020. The decline in finances may be attributed to a number of
reasons, one of which is the rise in operating expenditures. Netflix invested further in
infrastructure and growth, such as video distribution technology and telecommunication
networks, accounting for 9% of overall sales (Netflix Annual Report, 2015). The financial
statements reflect how well Netflix has done in terms of sales increases thanks to movie
streaming and other developments.
Current Ratios for 3 Years with Deltas and Analysis
The earnings per share, gross profit margin, price/earnings ratio and profit margin efficiency
ratios were determined. The earnings per share (EPS) measure shows how much a company's
stock is worth. Netflix's earnings per share rose from 2018 to 2018, but fell by.36 in 2020, as
seen on the financial statement. From the date range of 2018 to 2020 Netflix’s stock has gone
down which shows a downward flow in the company’s performance. Although the gross profit
margin has been constant over the last three years, the profit margin has improved and decreased.
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Running Head: CASE STUDY: NETFLIX
Netflix has been through many challenges and competitors through the years. The
earnings per share are $1.19 vs $1.39 according to the analysis. Revenue is $6.64 billion vs
$6.626 billion.
The stock's bull case will be boosted by Netflix's expectation of being free cash flow positive in
the near future. Netflix announced that it would no longer need additional capital for day-to-day
activities and that it would consider returning cash to shareholders.
Executive Summary
Netflix emerged as a way to escape the late penalties imposed on people for late video
rental returns. A new rental concept and greater luxury were provided by the Blockbuster Inc.
store, and it was one of several businesses that charged late fees (Rothaermel, 2011). For their
company, Netflix has an initial concept that was oriented towards an internet-based approach
rather than a subscription-based system. Netflix has evolved to have over 62 million subscribers
subscribing to their services (Hastings & Wells, Q2 2015 Quarterly Report, 2015). Mostly every
14
Running Head: CASE STUDY: NETFLIX
business has the chance for growth and opportunity. This study will discuss the challenges,
status, and purposes of the video giant Netflix while understanding the success. Let's discuss this
with the business model of the organization and follow it up with SWOT, the BCG matrix, and
the strategic assessment. All of this can be accompanied by the analysis of Netflix finances with
an assessment of three fiscal years and the proposed approach
The Existing Mission, Strategy, and Objectives
Netflix has a mission, a strategy, and an objective to make the business successful. As the
organization organizes its goals on the nine different parameters, they can be clarified through a
study of results. When all of this material is added together, it can be summarized into an
organization’s mission statement that will integrate stakeholders and customers.
The Mission, Strategy, and Objectives Breakdown
Customers can come in many forms, married, single, college, head of household,
stakeholders, and even employees. Netflix has offered movies and now television shows through
DVDs and streaming videos. These services are for all ages. These services would let the
customer choose their likes and disregard their dislikes to include favorites, Horror, suspense,
and History, to name a few. Many people watch a variety of movies, including new releases,
movie series to binge-watch, and even television shows. These are all watched at a lower cost
than many other movie streaming companies.
Netflix provides a movie and tv series rental service to all of its customers, whether via
DVD or video streaming. In order to make a decision about other films and tv programs, Netflix
controls the orders and movie preferences of consumers. Both of these options are due to the
15
Running Head: CASE STUDY: NETFLIX
wonderful news that renting from a movie rental venue like Blockbuster Video does not have to
deal with overdue charges. The renters are entitled to own the media as much as they wish, but
once the original rental is returned, they can not obtain a new rental. The company competes in
the market of video streaming in 50 countries, however, the United States is the biggest market
worldwide.
The organization is based on the backbone of technology, using the internet to stream its
products and charge via the same billing mechanism, as well as allowing for product distribution
through streaming. With Netflix, the distribution system may involve DVD, Blu-Ray, streaming
to a device or television in several cases. In 2016, the company is forecast to invest $700 million.
This is because the company is investing in newer technologies. (2011 Albanesius). Though
working on foreign partnerships, Netflix's aim is to grow internationally.
Netflix has been in competition and aims to be the leading business among other
providers. The business pays attention to the client base's needs and tracks the preferences and
dislikes of the decisions of the customer. Connection to the Netflix service through several
gateways is a priority, with Netflix pre-installing apps on its nook tablets for the Apple iPhone
and I Touch and Barns-n- Noble (Welch, 2014). The organization aims to project the best picture
possible around the world, one that reflects communication and dependability. In addition, the
organization aims to have the best working atmosphere and seeks to encourage its workers to
help improve their image in the company's lifestyle. As Netflix aims to customize its customer
base, it gives recognition to the customer for making their choices and expressing Netflix’s
value.
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Running Head: CASE STUDY: NETFLIX
Netflix has a mission, paying attention to its economic and international growth. There is
also an uptick in stocks as the United States economy grows and it leaves the stockholders
happy. This interference encourages the marketing department to come up with ideas to support
the brand. Netflix is also moving into the field of video entertainment, which would help the firm
retain its domination in the movie streaming industry. This is a big development for the movie-
streaming industry, followed by competition.
The business is aiming to gravitate to the household consumer base while still addressing
the foreign markets. Since the internet is global, infrastructure will play a major role in this, as
will the need to uphold Netflix's values as it broadcasts its services globally. For now, the
business wishes to continue as a video distribution organization. Netflix would soon overtake all
corporations, as the most common form of movie streaming. Netflix is the largest company for
movie streaming that has established a great business model. It has developed itself as the
location to go for the best content for streaming movies.
The Existing Business Model Analysis
Netflix has faced various obstacles from both domestic and foreign companies. A
subscription-type price model is used by Netflix. Customers should pick the pricing plan that
best serves their needs. It's either a DVD or a kit for streaming. In the United States, Netflix was
presented with the pressures of domestic and foreign affairs to develop its market strength. Since
it is still evolving and working to succeed, a common range of operations is not yet available.
The business was good and relied on what the consumers were drawn to. It might seem
like consumers prefer movies that are not as common as the newer ones. This suggests that the
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Running Head: CASE STUDY: NETFLIX
business would provide buyers with a broader variety of newer film alternatives. The business
was efficient and relied on what the clients were drawn to. It might seem like clients want
movies that are not as common as the newer ones. This suggests that the business should supply
consumers with more recent movie options.
Strengths, Weakness, Opportunities, and Threats Analysis
SWOT stands for strength, weakness, opportunity, and threat. This is a type of structure
used by many businesses, which managers use to gather insight on the strengths and
vulnerabilities of the organization, while also obtaining information on opportunities and risks.
The analysis acts as a reference point for Netflix to view and make improvements to the
company. Netflix is professional at focusing on the study of SWOT. With the data provided, the
research helps the business to expand while also offering answers to company problems.
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Running Head: CASE STUDY: NETFLIX
The TOWS Matrix
Hastings and Randolph created Netflix in 1997 as a mail-order DVD rental service. It
was the first organization to use the USPS to send DVDs, and its US market share rose to 90%.
The company has been gaining popularity for the past few years, but it is now slowing down,
comparable to other movie distribution companies in the industry. This is due to the fact that
most people prefer online content than to rent DVDs. This is the big moneymaker for Netflix.
The United States was moving slower in the domestic streaming business. Netflix has turned to
video distribution as a source of revenue, thanks to the increasing success of DVD rentals and
video streaming around the world. Netflix has earned funds over the years, but it does so through
worldwide video streaming. This plan and goal have brought Netflix a lot of money. There is one
small downside, as you have to spend more money to grow a business. Netflix needs to grow
internationally and with video streaming.
19
Tncreased
demand
for
intemet
streaming
(84.2%
of
US
population
2013)
Technological advancements
allowing
intemet
on
the
TV(manual
connection or
smart
TV)
Economic
downtum
(need
for
cheaper
entertainment)
40%
of
world
used
the
intemet
in
2014
Cost
ofpurchasing
a
computerhas
decreased
High
cost
of
cable
providers
Decreased
demand
for
DVD
rentals
Ease
ofmarket
entry
Substitutes
are
abundant
Filn
industry's
fear
of
pirated
films
(films
must be
streamed
rather
than
downloaded,
requiring
the
userto
be
connected
to
the
‘No
standard
programing
for
content
delivery
Heavy
reliance
on
intemet
providers.
Intemational
taxs
Provides
original
programing,
60
million
subscribers
from
over
40
countries
Provides
global
intemet
streaming
Over
100,000
movies and
TV
shows
DVD-by-mail
in
USA
Gives
an
outlet
for
independent
movies
and
TV
shows
Large
distribution
centers
Must
be
connected
to
intemet
to
stream
Compared
to
competitors,
does
not
offer
anything
outside
of
intemet
movies
and
TV
shows
(Amazon
offers
a
wide
variety
of
items,
Core
produc
not
based
data
handling
Relies
upon
Amazon
for
a
majority
of
ts cloud
computing
services
and
cannot
easily
switch
to
another
cloud
provider
Riliance
on
external
content
providers
ous
0.03
ous
00s
020
0.02
0.02
os
0.08
0.10
os
0.10
0.06
0.04
4
4
3
3
4
4
4
4
3
3
04s
O12
061
0.05
0.40,
0.02
o.02
0.60
032
0.40,
ous
0.20
ou2
ot
Running Head: CASE STUDY: NETFLIX
20
Running Head: CASE STUDY: NETFLIX
Historical Financial Statements
Netflix Inc.
Consolidated Income Statement
US$ in thousands
12 months ended: Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Revenues 24,996,056 20,156,447 15,794,341
Cost of revenues (15,276,319) (12,440,213) (9,967,538)
Gross profit 9,719,737 7,716,234 5,826,803
Marketing (2,228,362) (2,652,462) (2,369,469)
Technology and
development (1,829,600) (1,545,149) (1,221,814)
General and
administrative (1,076,486) (914,369) (630,294)
Operating
income 4,585,289 2,604,254 1,605,226
Interest expense (767,499) (626,023) (420,493)
Interest and
other income
(expense) (618,441) 84,000 41,725
Other
income (expense) (1,385,940) (542,023) (378,768)
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Running Head: CASE STUDY: NETFLIX
Income
before income taxes 3,199,349 2,062,231 1,226,458
(Provision for)
benefit from income
taxes (437,954) (195,315) (15,216)
Net income 2,761,395 1,866,916 1,211,242
https://www.stock-analysis-on.net/NASDAQ/Company/Netflix-Inc
The balance sheet advises creditors, customers, and analysts of a company's assets (resources)
and capital sources (its equity and liabilities). It typically contains information about a company's
investments' projected earnings prospects as well as an estimation of cash flows from receivables
and inventories. Resources are commodities that the organization owns as a result of previous
events and from which it plans to gain potential economic profits.
Netflix Inc.
Consolidated Balance Sheet: Assets
US$ in thousands
Dec 31,
2020
Dec 31, 2019 Dec 31, 2018
Cash and cash
equivalents 8,205,550 5,018,437 3,794,483
Short-term
investments — — —
22
Running Head: CASE STUDY: NETFLIX
Current content
assets, net — — 5,151,186
Trade
receivables 610,819 454,399 362,712
Prepaid
expenses 203,042 180,999 178,833
Other 742,169 524,669 206,921
Other current
assets (legacy) — — —
Other
current assets 1,556,030 1,160,067 748,466
Current
assets 9,761,580 6,178,504 9,694,135
Non-current
content assets, net 25,383,950 24,504,567 14,960,954
Property and
equipment, net 960,183 565,221 418,281
Other non-
current assets 3,174,646 2,727,420 901,030
Non-current
assets 29,518,779 27,797,208 16,280,265
Total assets 39,280,359 33,975,712 25,974,400
Based on:
10-K (filing date: 2021-01-28),
10-K (filing date: 2020-01-29),
10-K (filing date: 2019-01-29),
10-K (filing date: 2018-01-29),
10-K (filing date: 2017-01-27).
23
Running Head: CASE STUDY: NETFLIX
The cash flow statement details a company's cash transactions and payments over the duration of
an accounting year, explaining how these cash balances relate the finishing cash balance to the
starting cash balance on the balance sheet. Cash flows provided by (used in) financial operations,
cash flows provided by (used in) spending activities, and cash flows provided by (used in) lending
activities make up the cash flow statement. https://www.stock-analysis-
on.net/NASDAQ/Company/Netflix-Inc
Netflix Inc.
Consolidated Cash Flow Statement
US$ in thousands
12 months ended: Dec 31,
2020
Dec 31, 2019 Dec 31, 2018
Net income 2,761,395 1,866,916 1,211,242
Additions to content
assets (11,779,284) (13,916,683) (13,043,437)
Change in content
liabilities (757,433) (694,011) 999,880
Amortization of
content assets 10,806,912 9,216,247 7,532,088
Depreciation and
amortization of property,
equipment and intangibles 115,710 103,579 83,157
Stock-based
compensation expense 415,180 405,376 320,657
Foreign currency
remeasurement (gain) loss
on debt 533,278 (45,576) (73,953)
24
Running Head: CASE STUDY: NETFLIX
Excess tax benefits
from stock-based
compensation — — —
Other non-cash
items 293,126 228,230 81,640
Deferred income
taxes 70,066 (94,443) (85,520)
Other current
assets (187,623) (252,113) (200,192)
Accounts
payable (41,605) 96,063 199,198
Accrued
expenses and other
liabilities 198,183 157,778 150,422
Deferred
revenue 193,247 163,846 142,277
Other non-
current assets and liabilities (194,075) (122,531) 2,062
Changes in
operating assets and
liabilities (31,873) 43,043 293,767
Adjustments
to reconcile net income to
net cash provided by (used
in) operating activities (334,318) (4,754,238) (3,891,721)
Net cash provided
by (used in) operating
activities 2,427,077 (2,887,322) (2,680,479)
Purchases of property (497,923) (253,035) (173,946)
25
Running Head: CASE STUDY: NETFLIX
and equipment
Change in other assets (7,431) (134,029) (165,174)
Purchases of short-term
investments — — —
Proceeds from sale of
short-term investments — — —
Proceeds from
maturities of short-term
investments — — —
Net cash (used in)
provided by investing
activities (505,354) (387,064) (339,120)
Proceeds from issuance
of debt 1,009,464 4,469,306 3,961,852
Debt issuance costs (7,559) (36,134) (35,871)
Proceeds from issuance
of common stock 235,406 72,490 124,502
Excess tax benefits
from stock-based
compensation — — —
Other financing
activities — — (1,956)
26
Running Head: CASE STUDY: NETFLIX
Net cash provided
by financing activities 1,237,311 4,505,662 4,048,527
Effect of exchange rate
changes on cash, cash
equivalents and restricted
cash 36,050 469 (39,682)
Net increase
(decrease) in cash, cash
equivalents and restricted
cash 3,195,084 1,231,745 989,246
Cash, cash equivalents
and restricted cash,
beginning of year 5,043,786 3,812,041 2,822,795
Cash, cash
equivalents and restricted
cash, end of year 8,238,870 5,043,786 3,812,041
https://www.stock-analysis-on.net/NASDAQ/Company/Netflix-Inc
Ratio Analysis
Profitability Ratio
The capacity of a business to achieve sustainable revenue from its capital is calculated by
profitability ratios (assets).
27
Running Head: CASE STUDY: NETFLIX
https://www.stock-analysis-on.net/NASDAQ/Company/Netflix-Inc
Liquidity Ratio
Liquidity ratios measure the company’s ability to meet its short-term obligations.
Netflix Inc.
Liquidity Ratios
Dec 31,
2020
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Current ratio #N/A #N/A #N/A #N/A
Quick ratio #N/A #N/A #N/A #N/A
Cash ratio #N/A #N/A #N/A #N/A
https://www.stock-analysis-on.net/NASDAQ/Company/Netflix-Inc
Competitive Forces, CPM and Ratio Analysis
Competitive forces analysis
The five forces of Porters will be analyze for Netflix as follow:
Competition in the industry: In the movie and video-streaming industries, competition is fierce
on a regular basis. Competitors offer a variety of low-cost solutions to attract consumers'
interest. Businesses are coming up with new ways for customers to rent movies, such as via a
28
Running Head: CASE STUDY: NETFLIX
website, a kiosk, online, and so on. Netflix's rivals have a lot of money that can enter a wide
range of markets. To remain in service, Netflix has to increase competition.
Potential of new entrants into industry. Since there are so many companies in this sector, the
chances of a new entrant are slim. It's because someone who wants to get into this business
would have to spend a lot of money. This new entrant would need to come up with new strategies
in order to compete with the other companies, which would require a lot of marketing and the
purchase of costly goods.
Power of suppliers. Suppliers have significant bargaining power. The movie rental industry will
charge higher prices because it promotes high-quality pictures and facilities. They enter into
agreements with several movie companies and are willing to benefit from watching the most
recent shows and renting the most recent games. Redbox is one of the industry's giants, offering
low-priced movie rentals while increasing the cost of their games rentals.
Power of customers. This is a powerful weapon. In this market, customers have a lot of choices
as well as a lot of power. Customers want their personalized experience to include new movies,
games, and shows. They have high expectations of the industry.They have the option to switch
companies at any moment. They expect the most recent HD models when paying low rates.
Despite the fact that some businesses are not necessarily generous in their service rates, some
consumers are faithful, and their loyalty allows them to exert some control over their movie
rental company.
Threat of substitute products. Because of today's innovations, the reward is very high.
Customers can choose between going to the theater, socializing while playing a video game, or
watching cable television. It is no longer necessary to be a part of a movie rental club in order to
29
Running Head: CASE STUDY: NETFLIX
see the most recent releases. People have the option of watching it on the internet. As a result,
the movie rental industry would need to keep their prices down in order to retain as many
customers as possible in order to remain competitive.
The CPM analysis has been rating based on some success critical factors according to
Yahoo finance competitors comparison of Netflix. It is obvious Redbox has the highest total of
critical success factors. Redbox manage to place kiosks all over popular retail market while also
promoting their instant live movie rental. Redbox popularity took over Netflix and Amazon
because they have affordable prices for their games and movies. Second place will be Netflix
with also competitive service prices while streaming old to new movies. The only thing Netflix
is missing to stay in competition its games rental. Somehow, Netflix managed to have a net
income of 266.80 million while Amazon has -240 million net incomes (Yahoo Finance, 2015).
c. Competitor’s ratios and analysis
30
Running Head: CASE STUDY: NETFLIX
According to Yahoo Finance (2015), Amazon ratios as of December 31, 2014 were in this
way:
Debt to equity ratio: 149.79
Current ratio: 1.12
Quick ratio: 0.82
Return on equity ratio: 2.35
Net profit margin: -0.27
Amazon has a high debt to equity ratio, it shows that this firm has more money finance through
bank than shareholders financing. Their current ratio and quick shows that they are not doing
that well, they are losing some of their capital and their quick ratio is lower than 1. The return on
equity ratio is lower than 10%, this show that Amazon has a declining ROE. Customers have
stopped buying their products and services. As of right now, Amazon charges more to rent a
movie live stream compare to Netflix and Redbox. Lastly, the net profit margin is in the
negative. There is no profit and the operation needs new structure to bring the firm back to be
profitable. Overall, it seems like Amazon is not doing well, their ratios are lower than normal,
and if they do not recover they will be in serious trouble.
Current and historical Financial Statements (Income Statement (I/S), Balance Sheet (B/S)
and Statement of Cash Flows) from the three most current years for the firm
Yahoo Finance (2015) presented the financial statements for 2012, 2013 and 2014 as follow:
31
Running Head: CASE STUDY: NETFLIX
Alternative Strategies
Three classes of alternative strategies from which Netflix chan choose: 1) Stability
Strategy, 2) Expansion Strategy and 3) Retrenchment Strategy. Stability Strategy means a
stoppage in expansion or no significant changes in strategy. The ideal use of Stability Strategy is
when a company competes in the same market for several years selling the same product or
service. This strategy focuses on slight improvements or functional performance to stay ahead in
the marketplace. Stability strategy is a process where the organization tracks development and
ensures market value and profit shares. The benefits of this strategy are to safeguard existing
market interest and strength and returns on investment and resources. Advantages of Stability
Strategy are to use top management as the decision makers and provide clear directions to
employees. It also allows a large organization to use economics of scale. However, as a
disadvantage, Stability Strategy leads to poor communication and a lack of cooperation on many
levels.
Expansion Strategy is used to increase sales and products in the existing marketplace. It
is also used to introduce a new product or develop a new market segment in an area to grow the
existing service or product. When a company has years of success and financial growth an
Expansion Strategy is used to sustain high profits and growth into other market places across the
United States or overseas. One must look at developing a new business plan before expanding to
anticipate sales and prices in the new market place or industry. By focusing on the current
business to see where it can be enhanced would be the first step to building a new business plan.
32
Running Head: CASE STUDY: NETFLIX
For Neflix, international expansion would be the suggested approach. The specifics of this
international expansion will be described in greater detail in Section 13.
Retrenchment Strategy is used to reduce the size of the operation in order to cut expenses
with the upcoming expansion. One may withdraw from one industry in order to expand in
another or diversity interests and liquidating products. The advantage of Retrenchment Strategy
is to build performance of a product that is not doing so well in the industry and to allow for
better opportunities in the market place.
Pro-Forma Financial Statements
In a letter to the Shareholders dated January 2015 (Hastings & Wells, 2015), Netflix provided
revenue and profit margin data along with expectations of growth in the coming 2016, shown in
Table 1. This represents the do-nothing-different case (DND).
Table 1: Extrapolated Netflix Current Strategy Pro Forma Financial Statement (Hastings &
Wells, 2015)
Note: EPS is shown in dollars
Alternative strategy Pro Forma Statement indicated that significant investment is required to
initiate the strategy of international transition and shift to Netflix being a true multinational
corporation rather than a U.S. firm that does business overseas. This statement is shown below in
Table 2.
Table 2: Netflix Alternative Strategy Pro Forma Financial Statement
Note: EPS is shown in dollars
33
Running Head: CASE STUDY: NETFLIX
Net Present Value Analysis
Assuming that operating income is analogous to EBIT (earnings before interest and taxes), net
present value analysis can be performed on the DND case as well as the alternative strategy to
identify which approach will generate greater income. The primary difference between the do
nothing and suggested strategy is the heavy investment required to support beginning operations
in foreign countries, as will be discussed in Section 13. The analysis is shown in
Table 3: Net Present Value Analysis with 2015 Base and 3% Discount
As seen in Table 3 the net present value of the alternative pathway generate a
greater net present value despite the higher up-front costs to transition to the alternative
approach.
Recommended Strategy
Netflix strategy and long-term objectives should be to committed the strategy that is already
implemented, “leverage core competencies” and expand into the international arena. In a global
economy, Netflix has failed to gain and compete as effectively as possible; however, they is
expect to expand internationally while remaining profitable. The firms plan to accomplish this by
enabling every person in every country to be able to access Netflix. Although Netflix’s service is
available in over 50 countries, the base of the organization is in the US; Netflix should establish
bases in China and Europe to support its international expansion. Because it would be subject to
value added tax (VAT) in Europe, Luxembourg which has the lowest of the VAT rates of 15%
(Harpaz, 2014) should be among the priorities when selecting locations. According to Foxton
(2014) a taxable business can claim for the refund of the input VAT only if the claim is supported
34
Running Head: CASE STUDY: NETFLIX
by purchase invoices. Starting 2015 the taxes on streaming media will be based on billing
address rather than point of consumption. This change, coupled with a physical location shift to a
lower VAT location in Europe can save money and level the playing field between Netflix and its
competitors. The field will not be completely leveled however and Netflix will remain less
profitable in some parts of Europe, for instance a Danish customer will pay a 10% premium for
their services. Therefore, Netflix must reduce cost and create unique/provide programing that
Amazon can not so as to justify a premium price point (Harpaz, 2014). There are other
companies that have been very successful abroad. For instance, 70 percent of IBM”s employees
are based outside the us; in this case higher taxes are offset by lower operational costs. The
strategy IBM has taken has increased it revenues to roughly $100 billion dollars; and the firm
grows between 20 to 40 percent yearly from the merging economy (Lohr, 2010).
Proposed Business Model
Analysis of the competitive environment indicates that the most growth available to Netflix is in
the international arena. As described in the recommended strategy, the tax environment in
Europe and other countries dictates that Netflix adjust its current organizational structure to meet
these ongoing challenges. The proposed alternative business model does not differ significantly
in concept from Netflix’s original model of distributing video content through a subscription
model with no cost penalty for continued possession of a physical asset (DVD) or for repeated
viewing through online delivery mechanisms. Netflix should continue to leverage its service
subscription model while continuing to leverage its recommendation engine for future users. As a
partner to this approach, it should increase investment in internationally focused programming so
as to meet the customized content needs of world-wide customers.
35
Running Head: CASE STUDY: NETFLIX
References
Albanesius, C. (2011, 01 26). Netflix Hits 20M Subscribers. Retrieved from
http://www.pcmag.com/article2/0,2817,2376717,00.asp
Amazon Prime vs. Netflix. (n.d.). Retrieved 09 15, 2015, from
http://www.diffen.com/difference/Amazon_Prime_Instant_Video_vs_Netflix
David, F., & David, F. (2014). Free Student Excel Template. Retrieved 09 18, 2015, from
The #1 Global Strategic Management Textbook: http://strategyclub.com/free-student-
template/
Foxton, W. (2014, 12 16). How the EU is throttling online business with idiotic VAT
reform. Retrieved from http://www.telegraph.co.uk/technology/internet/11295953/How-
the-EU-is-throttling-online-business-with-idiotic-VAT-reform.html
Harpaz, J. (2014, December). The "Netflix tax"- Headaches on the Horizon for Digital
content Providers. Forbes/ taxes, (). Retrieved from. Retrieved from Forbes/Taxes:
http://www.forbes.com/sites/joeharpaz/2014/12/04/the-netflix-tax-headaches-on-the-
horizon-for-digital-content-providers
Hastings, R., & Wells, D. (2015, 07 15). Q2 2015 Quarterly Report. Retrieved from
http://files.shareholder.com/downloads/NFLX/745691136x0x839404/C3CE9EE2-C8F3-
40A1-AC9A-
FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf
Hastings, R., & Wells, D. (2015, 01 20). Q4 2014 Letter to Shareholders. Retrieved from
http://files.shareholder.com/downloads/NFLX/745691136x0x804108/043A3015-36EC-
49B9-907C-27960F1A7E57/Q4_14_Letter_to_shareholders.pdf
Kastrenakes, J. (2015, April 29). Hulu hits 9 million subscribers as TV and mobile
viewing takes. Retrieved 09 16, 2015, from
http://www.theverge.com/2015/4/29/8513147/hulu-9-million-subscribers
Lohr, S. (2010, April). Global Strategy Stabilized I.B.M. During Downturn. Retrieved
from http://www.nytimes.com/2010/04/20/technology/20blue.html?_r=0
Luckerson, V. (2014, November 25). Internet Users Surge to Almost 3 Billion. Retrieved.
Retrieved from http://time.com/3604911/3-billion-internet-users/
Mac, R. (2015, 07 15). Retrieved 09 15, 2015, from On Prime Day, A Closer Look At The
Numbers Behind Amazon's Membership Program:
http://www.forbes.com/sites/ryanmac/2015/07/15/on-prime-day-a-closer-look-at-the-
numbers-behind-amazons-membership-program/
36
Running Head: CASE STUDY: NETFLIX
Rothaermel, F. T. (2011). Strategic Management: Concepts & Cases. New York, NY:
McGraw-Hill Irwin.
Welch, C. (2014, December). Netflix shuts the door on offline playback: It's never going
to happen. Retrieved from www.theverge.com:
http://www.theverge.com/2014/12/17/7408629/netflix-shuts-door-on-offline-playback
1 References
Albanesius, C. (2011, 01 26). Netflix Hits 20M Subscribers. Retrieved from
http://www.pcmag.com/article2/0,2817,2376717,00.asp
Amazon Prime vs. Netflix. (n.d.). Retrieved 09 15, 2015, from
http://www.diffen.com/difference/Amazon_Prime_Instant_Video_vs_Netflix
David, F., & David, F. (2014). Free Student Excel Template. Retrieved 09 18, 2015,
from The #1 Global Strategic Management Textbook: http://strategyclub.com/free-
student-template/
Foxton, W. (2014, 12 16). How the EU is throttling online business with idiotic VAT
reform. Retrieved from
http://www.telegraph.co.uk/technology/internet/11295953/How-the-EU-is-throttling-
online-business-with-idiotic-VAT-reform.html
Harpaz, J. (2014, December). The "Netflix tax"- Headaches on the Horizon for
Digital content Providers. Forbes/ taxes, (). Retrieved from. Retrieved from
Forbes/Taxes: http://www.forbes.com/sites/joeharpaz/2014/12/04/the-netflix-tax-
headaches-on-the-horizon-for-digital-content-providers
Hastings, R., & Wells, D. (2015, 07 15). Q2 2015 Quarterly Report. Retrieved from
http://files.shareholder.com/downloads/NFLX/745691136x0x839404/C3CE9EE2-
C8F3-40A1-AC9A-
FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf
Hastings, R., & Wells, D. (2015, 01 20). Q4 2014 Letter to Shareholders. Retrieved
from http://files.shareholder.com/downloads/NFLX/745691136x0x804108/043A3015-
36EC-49B9-907C-27960F1A7E57/Q4_14_Letter_to_shareholders.pdf
Kastrenakes, J. (2015, April 29). Hulu hits 9 million subscribers as TV and mobile
viewing takes. Retrieved 09 16, 2015, from
http://www.theverge.com/2015/4/29/8513147/hulu-9-million-subscribers
Lohr, S. (2010, April). Global Strategy Stabilized I.B.M. During Downturn. Retrieved
from http://www.nytimes.com/2010/04/20/technology/20blue.html?_r=0
37
Running Head: CASE STUDY: NETFLIX
Luckerson, V. (2014, November 25). Internet Users Surge to Almost 3 Billion.
Retrieved. Retrieved from http://time.com/3604911/3-billion-internet-users/
Mac, R. (2015, 07 15). Retrieved 09 15, 2015, from On Prime Day, A Closer Look At
The Numbers Behind Amazon's Membership Program:
http://www.forbes.com/sites/ryanmac/2015/07/15/on-prime-day-a-closer-look-at-the-
numbers-behind-amazons-membership-program/
Rothaermel, F. T. (2011). Strategic Management: Concepts & Cases. New York, NY:
McGraw-Hill Irwin.
Welch, C. (2014, December). Netflix shuts the door on offline playback: It's never
going to happen. Retrieved from www.theverge.com:
http://www.theverge.com/2014/12/17/7408629/netflix-shuts-door-on-offline-playback
References
Fitzgerald, D. (2014, May 14). Netflix's Share of Internet Traffic Grows - WSJ. Retrieved April
11, 2015, from
http://www.wsj.com/articles/SB10001424052702304908304579561802483718502
Netflix Inc. - Basic Info. (n.d.). Retrieved April 8, 2015, from
http://netflixcompanyprofile.weebly.com/index.html
Netflix Inc. - Image. (n.d.). Retrieved April 8, 2015, from
http://netflixcompanyprofile.weebly.com/index.html
38
Running Head: CASE STUDY: NETFLIX
Ramachandran, S., & Stynes, T. (2015, January 20). Netflix Steps Up Its Foreign Expansion - WSJ.
Retrieved April 12, 2015, from http://www.wsj.com/articles/netflix-adds-more- users-than-expected-
1421788528
Rothaermel, F. T. (2013). Strategic management: Concepts & cases. New York, NY: McGraw-
Hill.
Umiastowski, C. (2013, December 23). In the long term, Netflix may be going for a steal. The Globe
and Mail.
https://www.stock-analysis-on.net/NASDAQ/Company/Netflix-
Exhibits
Exhibit 1 SWOT Analysis
39
SO
Strategies
1
By
providing
global
internet
streaming,
Netflix
can
take
advantage
of
the
fact that
40%
of
the
world
use
the
internet.
As
an
outlet
for
independent
films
and
a
large
entertainment
selection,
Netflix
can
take
advantage
of
the
economic
downturn
and
the
consumer's
need
for
cheaper
entertainment.
With 60
million
subscribers,
Netflix
customers
have
taken
advantage
of
the
technology
to
connect
TVs
to
the
internet
and
the
decreased
cost
of
purchasing
a
computer.
Netflix
uses
its
online
streaming
to
offset
the
decreased
demand
for
DVDs.
The
large
entertainment
selection
makes
Netflix
a
more
optimal
choice
to
substitutes
and
competitors.
Netflix
large
number
of
international
customers
shows
how
its
product
overpowers
international
taxes.
Netflix
can
overcome
its
weaknes
of
large
distrobution
centers
but
transitioning
more
into
internet
streaming,
Netflix
should
look
to
branch
out
of
just
videos
to
take
advantage
of
the
spread
of
internet
usage.
Netflix
should
look
to
more
internet
based
products
as
the
internet
has
made
its
way
into
everyday
life
though
the
advancments
of
technology.
Netflix
will
need
sto
slowly
transistion
to
purly
internet
based
as
large
distrobution
centers
are
costly
and
the
demand
for
DVDs
is
decreasing.
The
ability
to rent
DVDs
will
have
to
offset
the
requirement
to
be
connected
to
the
internet
and
the
film
industries
fear
of
pirated
films
until
the
spread
of
the
internet
is
complete.
Netflix
will
need
to
branch
out
of
purly
videos
to
offset
the
ease of
market
entry
and
the
rise
of
competitors.
Running Head: CASE STUDY: NETFLIX
Exhibit 2: SWOT Bivariate Analysis
40
Increased
demand
for
intemet
streaming
(84.2%
of
US
population
2013)
Technological
advancements
allowmg
mtemet
on
the
TV(manual
connection
or
smart
TV)
Economic
downtum
(need
for
cheaper
entertamment)
40%
of
world
used
the
mternet
m
2014
Cost
of
purchasing
a
computer
has
decreased
High
cost
of
cable
providers
Decreased
demand
for
DVD
rentals
Ease
of
market
entry
Substitutes
are
abundant
Film
industry's
fear
of
pirated
films
(films
must
be
streamed
rather
than
downloaded,
requiring
the
userto
be
connected
to
the
No
standard
programing
for
content
delivery
Heavy
reliance
on
internet
providers.
Intemational
taxs
Provides
original
programing
60
million
subscribers
from
over 40
countries
Provides
global
mtemet
streaming
Over
100,000
movies
and
TV
shows
DVD-by
-mail
in
USA
Gives
an
outlet
for
independent
movies
and
TV
shows
Large
distribution
centers
Must
be
connected
to
ntemet
to
stream
Compared
to
competitors,
does
not
offer
anything
outside
of
intemet
movies
and
TV
shows
(Amazon
offers
a
wide
variety
of
items,
Core
produc
not
based
data
handling
Relies
upon
Amazon
fora
majority
of
its
cloud
computing
services
and
cannot
easily
switch
to
another
cloud
provider
Riliance
on
external
content
providers
0.20
0.15
0.03
0.15
0.04
0.02
0.10
0.05
0.20
0.02
0.02
0.01
0.01
0.10
0.15
0.08
0.10
0.04
0.05
0.08
0.15
0.10
0.06
0.04
0.05
to
tao
fe
fe
el
to
to
fe
fe
fe
eS
bo
0.60
0.45
0.12
0.61
0.12
0.06
0.20
0.05
0.40
0.02
0.02
0.01
0.02
0.40
0.60
0.32
0.40
0.12
0.15
0.16
0.15
0.20
0.12
0.04
0.10
Running Head: CASE STUDY: NETFLIX
Exhibit 3: External Factor Evaluation (EFE) and Internal Factor Evaluation (IFE)
Matrices [CITATION www14 \l 1033 ]
41
Running Head: CASE STUDY: NETFLIX
Exhibit 4: Competitive Profile Matrix [CITATION www14 \l 1033 ]
Exhibit 5: BCG Matrix [CITATION www14 \l 1033 ]
42
Running Head: CASE STUDY: NETFLIX
Exhibit 6: Netflix Financial Statements
Netflix Financial Statements
Income Statement
43
Consolidated
Statements
of
Cash
Flows
In
Thousands,
unless
otherwise
(USD
$)
12
Months
Ended
Dec.
31,
2014
Dec.
31,
2013
Dec.
31,
2012
%A2012-
%42013-
specifed
2013 2014
Cash
fbws
from
operathg
activites:
Net
income
$266,
/99
$112,403
$17,152
595.3%
137.4%
Adjustments
to
reconcile
net
Income
to
net
cash
provided
by
operatng
activites:
Additons
to
streaming
content
library
-3,//3,459
-3,049,
/58
-2,915,
906
21.2% 23.1%
Change
In
streaming
content
Ilabilites
993,125
6/3,
/85
162,089
-11.6%
-12.0%
Amortzaton
of
streaming
content
library
2,656,279
2,121,981
1,591,218
33.4% 25.2%
Amortzaton
of
DVD
content
library
71,491
71,325
65,396
9.1%
0.2%
Depreciaton
and
amortzaton
of
property,
equipment
and
intangibles
54,028
48,374
45,469
Stock-based
compensaton
expense
115,239
73,100
13,948
-1.1%
9/.67%
Excess
tax
benetts
trom
stock-based
compensaton
-89,341 -81,663
-4,543
1697.6%
9.4%
Other
non-cash
items
15,282
9,332
-6,392
186.67
Loss
on
extnguishment
of
debt
0
25,129
0
*
#DIV/O!
-
100.0%
Deferred
taxes
-30,063
-22,044
-30,0/1
-26./%
36.4%
Changes
In
operatng
assets
and
liabilites:
Other
current
assets
-6,/58
62,234
-5,432
Accounts
payable
83,812
18,3/4
-4,943
-4/1./%
356.1%
Accrued
expenses
59,636
1,941
9,806
-80.2%
2/66.4%
Deferred
revenue
58,819 46,295 20,6/6
Other
non-current
assets
and
Iiabilites
-52,406
-8,9//
4,/19
-290.2%
483.8%
Net
cash
provided
by operatng
activites
16,483
97,831
21,586
353.2%
-83.2%
Cash
tbws
from
investng
actvites:
Acquisiton
of
DVD
content
library
-/4,/90
-69,92/
-48,275
36.67
13.4%
Purchases
of
property
and
equipment
-69,/26
-94,
143
-40,276
34.47% 20.870
Other
assets
1,334 5,939 8,816
-32.6%
-//.5%
Purchases
of
short-term
Investments
-426,934 -590,264
-477,321
15.3%
-22.4%
Proceeds
from
sale
of
short-term
investments
385,300 347,502 282,953
22.8%
10.9%
Proceeds
from
maturites
of
short-term
investments
141,950
60,925 29,365
107.5% 133.0%
Net
cash
used
In
Investng
actvites
-42,866
-255,968
-244,/740
4.6%
-83.37%
Cash
tows
from
mancing
actvites:
Proceeds
trom
Issuance
of
common
stock
60,544
124,557
4,124
2920.3%
-51.4%
Proceeds
from
public
ofering
of
“a
commonstock,
net
of
issuance
costs
0 0
-464
-100.0%
#DIV/O!
Proceeds
from
issuance
of
debt
400,000
500,000
0
*
#DIV/O!
-20.0%
Debt
Issuance
costs
-/,080
-9,414
-299
3091.2%
-24.87%
Redempton
of
debt
0
-219,362
0
*#DIV/O!
-
100.0%
Running Head: CASE STUDY: NETFLIX
44
Net
cash
provided
by
fancing
actvites
541,712
476,264
5,589
8421.5%
13.7%
Efect
of
exchange
rate
changes
on
cash
and
cash
equivalents
-6,686 -3,453
-197
1652.8%
93.6%
Net
Increase
(decrease)
In
cash
and
cash
equivalents
508,643 314,674
-217,762
-244.5%
61.6%
Cash
and
cash
equivalents,
beginning
of
year
604,965
290,291
508,053
-42.9%
108.4%
Cash
and
cash
equivalents,
end
of
year
1,113,608
604,965
290,291
108.4%
84.1%
Supplemental
disclosure:
Income
taxes
paid
50,5/3
1,465
28,893
-/4.1%
57/7.5%
Interest
paid
41,085
19,114 19,009
0.6%
114.9%
Wi
Operating
Qj
Investing
Jf
Financing
Running Head: CASE STUDY: NETFLIX
45
Consolidated
Balance
Sheets
(USD
$)
In
Thousands,
unless
otherwise
Dec.
31,
2014
Dec.
31,
2013
%D2013-
specifed
2014
Current
assets:
Cash
and
cash
equivalents
$1,113,608
$604,965
04.1%
Short-term
Investments
$494,383 $595,440
Current
content
library,
net
$2,125,/02 $1,/06,421
24.67%
Other
current
assets
$206,2/1 $151,937
35.8%
Total
current
assets
$3,940,469
$3,058,
/63
28.87%
Non-current
content
library,
net
$2,//3,326
$2,091,0/1
32.6%
Property
and
equipment,
net
$149,8/5 $133,605
Other
non-current
assets
$192,981
$129,124
49.5%
Total
assets
$7,056,651
$5,412,563
30.4%
Current
liabilites:
Current
content
ltabilites
$2,117,241
$1,/7/5,983
19.2%
Accounts
payable
$201,581
$108,435
85.9%
Accrued
expenses
$69,
/46
$54,018
29.1%
Deferred
revenue
$2/4,586 $215,/6/
2/.3%
Total
current
liabilites
$2,663,154
$2,154,203
Non-current
content
liabilites
$1,9/5,032
$1,345,590
1/.1%
Long-term
debt
$900,000
$500,000
80.0%
Other
non-current
liabilites
$59,95/ $/9,209
Total
liabilites
$5,198,943
$4,079,002
2/.5%
Commitments
and
contngencies
(Note
6)
Stockholdersa€™
equity:
Preferred
stock,
$0.001
par
value;
ff
10,000,000
shares
authorized
at
December
31,
2014
and
2013;
no
shares
issued
and
outstanding
at
December
31,
2014
and
2013
$0 $0
#DIV/0!
Common
stock,
$0.001
par
value;
160,000,000
shares
authorized
at
December
31,
2014
and
2013;
60,415,841
and
59,607,001
issued
and
outstanding
at
December
31,
2014
and
2013,
respectvely
60 60
Additonal
paid-in
capital
1,042,810
/171,441
34.1%
Accumulated
other
comprehensive
(loss)
income
-4,446
3,575
-224.4%
Retained
earnings
819,284
952,485
Total
stockholdersa€™
equity
1,857,
/08
1,333,561
39.3%
Total
llabilites
and
stockholdersae™
equity
$7,056,651 $5,412,563
30.4%
Running Head: CASE STUDY: NETFLIX
46
Bi
Total
debt
J
Total
assets jl
Debt
to
assets
(2%)
‘20005
~~
wenn
100%
2010
20112012
2013.—Ot4
Running Head: CASE STUDY: NETFLIX
47
Cash
(in
millions)
$16,000
$14,000
$12,000
Lene
Paths)
2014
2015
Cen
til
Amazon
Long
Term
Debt
(in
millions)
$14,000
$12,000
re
PAIL
0
$0
2013
rAen
2015
enh
til
h
Amazon
Stockholders’
equity
(in
millions)
SSleReD
een
$6,000
cae
Pant
e
—_——"—
SO
2013
2014
ome
Netflix
Amazon
Current
Assets
(in
millions)
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
on
00.8)
i)
2012
yi
0
ie)
2014
Cel
CARs
Amazon
$100,000
Tce
Re
te
renee
PERO
te
cH)
$20,000
$10,000
tt)
5
TURe
tt)
SE
URedt)
$20,000
SURO
Ot)
i]
Revenue
(in
millions)
el
2013
2014
2015 2016
rl
a
eaailbg
Aver
rcs]
2013
Plone.)
2015
2016
Cen
hcl
Ui
lb
EYE
Pel
Assets
(in
millions)
—
Piel
ws
PAeh
raene:
vl
isle)
2016
tir
Amazon
Liabilities
(in
millions)
See
rien 2013
2014 2015 2016
rit
omme
Netflix
AYE
Fa
Running Head: CASE STUDY: NETFLIX
Exhibit 7: Financial Charts
48
Netflix
oO
2012
2013
2014
2017 2013
Current
Ratio
Ls
1.4
15
#DIVv/0!
1.1
Quick
Ratio
Ls
1.4
15
#DIV/0!
0.7
Long
Term
Debt
to
Equity
0.5
0.4
0.5
#DIV/O0!
0.5
Inventory
Tumover
#DIv/O!
#DIVv/0O!
#DIV/O!
#DIVv/0O!
10.0
Total
Assets
Tumover|
O38
0.8
#DIV/O!
1.9
Accounts
Rec
evable
Tumover
#DIV/0! #DIV/0! #DIV/0!
15.6
Average
Collection
Period
0.0
0.0
#DIV/0!
23.4
Gross
Profit
Margin
0.3
0.3
#DIv/0!
0.3
Net
Profit
Margin
0.0
0.0
#DIV/0!
0.0
Return
on
Total
Assets
(ROA)
0.0
0.0
#DIv/0!
0.0
Return
on
Equity
(ROE)
0.1
O.1
#DIV/0!
#DIvV/0!
#DIV/O!
0.0
(eae
Ot
a=
Sen]
Current
Ratio
Current
Assets
/
Current
Liabilities
Quick
Ratio
(Current
Assets
-
Inventory)
/
Current
Lia
Long
Term
Debt
to
Equity
Long
Term
Debt
/
Equity
Inventory
Tumover
Sales
/
Inventory
Total
Assets
Tumover|
Sales
/
Total
Assets
Accounts
Rec
evable
Tumover,
Sales
/
Accounts
Receivable
Average
Collection
Period
Accounts
Receivable
/
(Sales/365)
Gross
Profit
Margin
(Sales
-
Cost
of
Goods
Sold)
/
Sales
Net
Profit
Margin
Net
Income
/
Sales
Return
on
Total
Assets
(ROA)
Net
Income
/
Total
Assets
Return
on
Equity
(ROE)
Net
Income
/
Stockholders
Equity
Tamed
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Running Head: CASE STUDY: NETFLIX
49
Current
Ratio
ee
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Amazon
Long
Term
Debt
to
Equity
Ratio
a
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Net
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Running Head: CASE STUDY: NETFLIX
50
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ee
Netflix
Amazon
Running Head: CASE STUDY: NETFLIX
51
