The Evolution of the Netflix Empire
Netflix has quickly become a household name by saturating the market with a new age way to rent movies. Established in 1998, Netflix geared its business to provide consumers with quick and easy access to their favorite movies without the need to leave their homes. As the business developed and other popular sites, such as YouTube, began to gain popularity Netflix entered the market of streaming online content. During the infancy of their instant service Netflix still relied heavily on mailing DVDs to offer their customers a wider range of movies and TV shows. However, as their steaming library grew the mindset of the company began to shift. As they transitioned away from their mailing movies, key business decisions were made that caused many to question the future of the company. The adaptation of Netflix into the era of instant movie viewing can best be described by analyzing the time period from 2010-2012.
The “Video Store” Era
From early 2010 to the close of the year, Netflix saw growth across many aspects of the company, including stock price, profit, and subscribers. As shown in the stock price graph below, Netflix’s per share value increased from approximately $53 to $175, an increase of more than 200%. This can be attributed to a growth in popularity as the company attracted nearly 8 million new subscribers, which led to $2.1 billion in total revenue as seen on the income statement. Continuing with the same report, accounting for the cost of goods sold, Netflix had a gross profit of $805 million, leading to a net income of roughly $160 million. Looking at the statement of cash flows for the year, there are a few major components that stand out. Over the course of the year, they bought back about $90 million dollars worth of their own stock. This makes sense due to the large increase in price. It would have been a safe move to invest in themselves and keep their cash internal. This pairs with the investments section of roughly 30 million, substantially different have the coming years. These compared with the net income mentioned above led to a change in cash flow of $60 million, again less significant than in the coming years. From the balance sheet, total liabilities were $692 million. The largest portion of this was Current Content Liabilities ($169 million), or the money that they had to pay to copyright holders to have access to their products and long term debt ($200 million). Total shareholder equity was $290 million. Publicized changes that Netflix made during the year helped forecast the growth of the steaming content portion of the business. They began to move to a wider variety of media by offering their service through popular gaming consoles, like the Wii and PlayStation Network, and tablets, most notably the iPad. Also by expanding their territory to Canada, Netflix began to become a global company. In 2010 Netflix was able to ride the wave of your popular DVD rental business, which allowed them the opportunity to look at expanding and preparing their streaming content. Being the number one, and practically only key company in this market helped them become a thriving business. As other rental companies, such as Blockbuster, failed to adapt, they were forced to close stores leading to a higher demand for an easy way to rent movies. These numbers and the trend of the company would set the stage for a booming first half of 2011.
Riding the Wave of Streaming Content
Following the promising year Netflix had in 2010, the company was well situated to become a force to be reckoned with in the coming year. They did anything but disappoint, at least in the first two quarters that is. Netflix opened the first half of the 2011 with a strong presence. In the first quarter alone, Netflix added roughly 45.5% to the number of subscribers they had gained in the entire year of 2010. This increased customer base could be attributed to the large investment the company...
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