Investment Analysis of Netflix, Inc.

Topics: Investment, Capital asset pricing model, Net present value Pages: 24 (4990 words) Published: October 26, 2014

Investment Analysis Paper on Netflix, Inc. (NFLX)




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 streaming, and domestic DVD-by-mail. NFLX releases financial information to investors and stakeholders through its investor resource website, as well as through SEC filings, webcasts, press releases phone call recordings, and a variety of other sources. Information is released to the public via the company’s social media channels. Board of Directors

The proxy statement of Netflix, Inc. contains detailed biographies of prospective and current board members. These one-paragraph biographies outline the educational and professional qualification of each board member, and the relevance of their experience to the current operating model of NFLX (Netflix, 2014).

The proxy statement begins with an explanation of its many corporate governance processes, as well as the rules by which shareholders must abide (Netflix, 2014). The firm’s committees and their leaders/members are outlined in the proxy statement, and all efforts to avoid conflict of interest are detailed. Shareholder proposals are separated and detailed individually, and include information regarding the particular board members involved and



influenced by the decisions proposed. There is space allowed at the end of each proposal for a Netflix Opposing Statement that offers the opportunity for the company’s executive management to directly state any rebuttals to the board of directors’ proposals. The Compensation Discussion and Analysis section of the proxy statement spells out the company’s compensation policy and extensively discloses the compensation amounts of its officers. Monitoring Potential of the Firm's Board of Directors

The board of directors at Netflix, Inc. has an advanced monitoring capacity as the company is fairly transparent. In its Annual Statement, Netflix, Inc. discusses the many challenges that the business faced over the past year and the company’s responses to these challenges. The Risk Factors section of the report outlines the various risks the company faces and the potential effects of a faulty response to these risks to the overall business in great detail. The Annual Report also includes financial explanations of the operational decisions made by company management and the rationale behind each major decision. Strengths and Weaknesses of Board Structure

The NFLX board of directors is comprised of members with tenured and successful careers in both entertainment and technology, a clear strength of the board structure. There are seven members on the NFLX board of directors, and only two of them are women. The board composition shows a clear lack of diversity which is only compounded by the fact that there are zero minority board members, presenting a considerable weakness of the board structure. Diversity in board composition provides key perspectives often missing from a homogenous board of white men, and can also be inspirational to the company’s diverse workforce (Carter,



Simkins, & Simpson, 2003).
Ethical Concerns
Many board members serve simultaneously on boards of other companies, though not of direct competitors to Netflix, Inc. However, one can assume that there are potential opportunities for conflict to arise between the...

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