Netflix Analysis
Historical Financial Analysis
Time Series Analysis (Detailed in Exhibits 9-11)
Overall, the historical financial statements of Netflix are characteristic of a company entering its growth stage. Revenues have grown at a rapid pace over the past five years, increasing from $996 million in FY 2006 to $1.6 billion in FY 2009. Assets have increased slightly over the same time period, to $663 million. Netflix is currently growing at a more rapid pace than it has in the company’s history, which dates back to 1997. Netflix appears like a company that has figured out its business model and is looking to build upon that model.
When analyzing Netflix’s income statement, the most obvious factor standing out is that the company’s earnings have increased rapidly over the past five years, more than doubling from FY 2005 to FY 2009. Much of this growth can be attributed to increasing revenues. Earnings growth can also be attributed to improving margins as the additional revenues come without additions to its fixed assets. In FY 2009, its EBIT percentage was 11.89% and the net margin was 6.94%. Each of these margins has increased by a couple of percentage points in comparison with prior years. Important items to look at in the internet retailing industry are revenues, gross margin, and operating expenses. Material costs in Netflix’s business are its cost of goods sold, depreciation, and SG&A expenses. Cost of goods sold represents about half of the company’s total revenue. It is notable that this expense increased by 2 percentage points relative to Netflix’s revenues. This increase may be due to a shift in its business strategy to emphasize its digital streaming offerings to consumers. Depreciation represents about 15% of total revenues. There was a spike of a couple of percentage points in 2007 and 2008, but it has declined again in 2009. We will look into this trend further when we examine the cash flow statement. SG&A is the second largest expense
Time Series Analysis (Detailed in Exhibits 9-11)
Overall, the historical financial statements of Netflix are characteristic of a company entering its growth stage. Revenues have grown at a rapid pace over the past five years, increasing from $996 million in FY 2006 to $1.6 billion in FY 2009. Assets have increased slightly over the same time period, to $663 million. Netflix is currently growing at a more rapid pace than it has in the company’s history, which dates back to 1997. Netflix appears like a company that has figured out its business model and is looking to build upon that model.
When analyzing Netflix’s income statement, the most obvious factor standing out is that the company’s earnings have increased rapidly over the past five years, more than doubling from FY 2005 to FY 2009. Much of this growth can be attributed to increasing revenues. Earnings growth can also be attributed to improving margins as the additional revenues come without additions to its fixed assets. In FY 2009, its EBIT percentage was 11.89% and the net margin was 6.94%. Each of these margins has increased by a couple of percentage points in comparison with prior years. Important items to look at in the internet retailing industry are revenues, gross margin, and operating expenses. Material costs in Netflix’s business are its cost of goods sold, depreciation, and SG&A expenses. Cost of goods sold represents about half of the company’s total revenue. It is notable that this expense increased by 2 percentage points relative to Netflix’s revenues. This increase may be due to a shift in its business strategy to emphasize its digital streaming offerings to consumers. Depreciation represents about 15% of total revenues. There was a spike of a couple of percentage points in 2007 and 2008, but it has declined again in 2009. We will look into this trend further when we examine the cash flow statement. SG&A is the second largest expense