Producers: Brian Schacht; Joel Stretch; Kurt Defenbaugh; Silvio Teixeira; Zach Wasser

NETFLIX Case Study

• Business Overview• Strategy, Strengths and Weaknesses• Financial Analysis• Projections• Recommendations• Summary

Strategy, Strengths and Weaknesses

Strategy, Strengths and Weaknesses

Strategy, Strengths and Weaknesses

“When you look at studios like Pixar, that combine great story telling and the great technological aspects,

that’s where we want to be.”

Reed Hastings, NETFLIX Founder

Business Overview

• Pioneer in the Internet delivery of TV shows and movies• Launched streaming service in 2007 • Developed an ecosystem for Internet-connected screens and have

licensed and acquired increasing amounts of content • Enable consumers to enjoy TV shows and movies directly on their TVs,

computers and mobile devices • Experienced growing consumer acceptance of, and interest in, the

delivery of TV shows and movies directly over the Internet

Financial Analysis

Key Financials¹

For the Fiscal Period Ending 12 monthsDec-31-2011A

12 monthsDec-31-2012A

12 monthsDec-31-2013A

12 monthsDec-31-2014A

LTM²12 months

Jun-30-2015A12 months†

Dec-31-2015E12 months

Dec-31-2016E12 months

Dec-31-2017EFor the Fiscal Period Ending

USD USD USD USD USD USD USD USD

Total Revenue 3,204.6 3,609.3 4,374.6 5,504.7 6,112.0 6,812.86 8,633.86 10,618.26 Growth Over Prior Year 48.2% 12.6% 21.2% 25.8% 24.9% 23.77% 26.73% 22.98%

Gross Profit 1,164.7 957.2 1,257.4 1,751.9 1,975.1 - - - Margin % 36.3% 26.5% 28.7% 31.8% 32.3% 32.13% 31.13% 32.94%

EBITDA 428.8 95.5 276.7 456.7 407.2 516.71 600.79 1,227.58 Margin % 13.4% 2.6% 6.3% 8.3% 6.7% 7.58% 6.96% 11.56%

Net Income 226.1 17.2 112.4 266.8 192.7 101.71 110.51 486.97 Margin % 7.1% 0.5% 2.6% 4.8% 3.2% 1.49% 1.28% 4.59%

Diluted EPS Excl. Extra Items³ 0.59 0.04 0.26 0.62 0.45 0.22 0.28 1.11 Growth Over Prior Year 40.5% (92.9%) 528.5% 133.4% (6.6%) (57.46%) 24.13% 298.85%

Valuation

• WACC…………………………………………………………3.44%• NPV……………………………………………………………$5,738,953,559 • Number of Shares………………………………………426,000,000• Price per Share…………………………………………..$13.47• Closing price 08/05…………………………………….$123.71

FCF 2015 2016 2017 2018 2019 2020 2021EBIT 495,257 732,980 1,004,596 1,299,491 1,603,735 1,976,973 2,301,6621 - TX -168,387 -249,213 -341,563 -441,827 -545,270 -672,171 -782,565Depreciation 41,225 47,409 54,520 62,698 68,968 75,865 83,451CAPEX -49,968 -57,463 -66,083 -75,995 -83,595 -91,954 -101,149Change in WC 2,848,339 4,780,698 7,157,499 10,080,965 13,676,829 18,099,741 23,539,922FCF 3,166,465 5,254,410 7,808,970 10,925,333 14,720,667 19,388,453 25,041,320

Projections

• Cumulative growth rate 23% (domestically – flat)• Domestic DVD subscriber market beginning to slow (Aaraj)• Streaming subscribers still growing domestically• Next frontier is international market• Growth potential 20% domestically for another 2-3 years• International growth rate of 40% (dependent on geo circumstances)

• International market will be a continued growth area over the next 5-10 years

Recommendations

• Analysts carefully watching debt levels—Could be a concern• Consider strategy to attract long term share holders—Recent split• Spend additional resources on content to ensure they have a well

rounded portfolio of content• Focus on bottom line profitability, currently the value driver

Summary

• Netflix spent the first 5 years building a business that could sustain itself.• The next 5 years were about fighting their biggest

competitor, Blockbuster and other competitors.• The streaming service was established in 2007

domestically and 2010 internationally.• The next milestone for the company will be a dominant

international presence and forward looking original content.