Investment Analysis Paper
Running head: INVESTMENT ANALYSIS
Investment Analysis Paper on Netflix, Inc. (NFLX)
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INVESTMENT ANALYSIS
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Investment Analysis Paper on Netflix, Inc. (NFLX)
Netflix, Inc. (NFLX) is a publicly-traded, retail entertainment company that offers television programs and movies to customers via direct-to-door delivery through its DVD service with over 100,000 titles, and through its Web-based streaming service. The company’s forwardlooking strategy includes efforts to increase access to its streaming service domestically and internationally, and to expand its content offerings through a mix of original program development and title acquisition (Netflix, 2014). The company operates three divisions: domestic streaming, international …show more content…
does not pay out dividends, and all earnings are reinvested back into the firm. This means there is always capital on hand for project investment as long as NFLX posts earnings. Equity is available in the firm for it to take on any real option it may choose, and its three divisions are all capable of creating a new project that would affect the other lines of the business, as well as the particular division itself. The company is also adept at issuing debt by way of notes to increase capital and cash flow. However, Netflix, Inc. should be careful about maintaining an optimal debt/equity mix. The company’s past and current capital investment projects have been successful at generating sizable returns. NFLX has a 10-year average of
19.61% return on invested capital (Morningstar, 2014).
Beta
As noted by Ross, Westerfield, and Jaffe (2013), beta is a metric that “measures the responsiveness of a security to movements in the market portfolio” (p. 362). It is of critical importance to investors because it is a “measure of the systemic risk of the stock” (Patton &
INVESTMENT ANALYSIS
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Verardo, 2012, p. 2789). Beta serves as an indicator of how a stock will perform in a volatile …show more content…
However, the annual report of Netflix provides a detailed look into capital structure, including both debt and equity, and the ratios necessary to calculate WACC.
Competitive Review of Debt and Equity Mix
As both Netflix, Inc. and Dish Network Corporation are firms with leverage, in the form of debt sold in notes, an interested investor should expect returns greater than the market average due to the risk associated with levered equity (Ross, Westerfield, & Jaffe, 2013).
Dish Network Corporation (DISH) is a direct-broadcast satellite television provider located and operating in the United States, and a major Netflix, Inc. competitor.
Competitive Review
Dish Network Corporation maintains a market value of debt equaling $12,596,793,000 and a market value of equity of $23,555,730,000 (Dish Network Corporation, 2014). The firm’s shares currently sell for $58.53 with 460,600,000 shares outstanding. DISH’s corporate tax rate of 30.51% is 7.52 percentage points lower than NFLX’s. While enjoying a lower tax rate than
NFLX, DISH also owns a variety of auxiliary brands such as Blockbuster Video, which is currently languishing and the firm plans to close 300 stores across the country,
Investment Analysis Paper on Netflix, Inc. (NFLX)
1
INVESTMENT ANALYSIS
!2
Investment Analysis Paper on Netflix, Inc. (NFLX)
Netflix, Inc. (NFLX) is a publicly-traded, retail entertainment company that offers television programs and movies to customers via direct-to-door delivery through its DVD service with over 100,000 titles, and through its Web-based streaming service. The company’s forwardlooking strategy includes efforts to increase access to its streaming service domestically and internationally, and to expand its content offerings through a mix of original program development and title acquisition (Netflix, 2014). The company operates three divisions: domestic streaming, international …show more content…
does not pay out dividends, and all earnings are reinvested back into the firm. This means there is always capital on hand for project investment as long as NFLX posts earnings. Equity is available in the firm for it to take on any real option it may choose, and its three divisions are all capable of creating a new project that would affect the other lines of the business, as well as the particular division itself. The company is also adept at issuing debt by way of notes to increase capital and cash flow. However, Netflix, Inc. should be careful about maintaining an optimal debt/equity mix. The company’s past and current capital investment projects have been successful at generating sizable returns. NFLX has a 10-year average of
19.61% return on invested capital (Morningstar, 2014).
Beta
As noted by Ross, Westerfield, and Jaffe (2013), beta is a metric that “measures the responsiveness of a security to movements in the market portfolio” (p. 362). It is of critical importance to investors because it is a “measure of the systemic risk of the stock” (Patton &
INVESTMENT ANALYSIS
!12
Verardo, 2012, p. 2789). Beta serves as an indicator of how a stock will perform in a volatile …show more content…
However, the annual report of Netflix provides a detailed look into capital structure, including both debt and equity, and the ratios necessary to calculate WACC.
Competitive Review of Debt and Equity Mix
As both Netflix, Inc. and Dish Network Corporation are firms with leverage, in the form of debt sold in notes, an interested investor should expect returns greater than the market average due to the risk associated with levered equity (Ross, Westerfield, & Jaffe, 2013).
Dish Network Corporation (DISH) is a direct-broadcast satellite television provider located and operating in the United States, and a major Netflix, Inc. competitor.
Competitive Review
Dish Network Corporation maintains a market value of debt equaling $12,596,793,000 and a market value of equity of $23,555,730,000 (Dish Network Corporation, 2014). The firm’s shares currently sell for $58.53 with 460,600,000 shares outstanding. DISH’s corporate tax rate of 30.51% is 7.52 percentage points lower than NFLX’s. While enjoying a lower tax rate than
NFLX, DISH also owns a variety of auxiliary brands such as Blockbuster Video, which is currently languishing and the firm plans to close 300 stores across the country,