Netflix Inc (NASDAQ:NFLX) Earnings Model
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Last Updated: August 11, 2017
View on Netflix: Sell
Price Target: $142
Model Up Votes-to-Total Votes: 97%
Summary: Netflix (NASDAQ:NFLX) reported Q2 2017 results that beat management guidance and analyst estimates on subscriber growth, with revenue and earnings broadly in line with consensus estimates. Following the announcement, I remain optimistic on the company’s prospects, but maintain the view that the company’s stock appears overvalued. Q2 results were well-received by the market and the company’s stock rose to $183 in post-market trading. Given its elevated valuation, $171.40 at the time of writing, I am downgrading the stock to a SELL with a target price of $142 based on a DCF valuation and a multiple of 20X 2021 EPS... click to continue reading.
Last Updated: May 26, 2017
View on Netflix: Bullish
Price Target: $170
Model Up Votes-to-Total Votes: 90%
Summary of Model Assumptions: In my Netflix DCF model I have foretasted strong revenue growth averaging 3% over the next five years as the company continues to ramp its European presence, original content offerings in the U.S, and increased per user revenue. I am modeling an improvement in profitability with a gross profit of 31.14% by 2021. My DCF valuation of $170 per share is based on a terminal growth rate of 3% and a WACC of 11.0% which incorporates a required return on equity of 11.5% based on an ERP estimate of 6% in Beta of 1.53, and risk-free rate of 2.25%.
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Last Updated: January 7, 2017
View on Netflix: Bullish
Price Target: $127
Model Up Votes-to-Total Votes: 89%
Summary of Model Assumptions: Netflix (NASDAQ: NFLX), has been surging for the last five quarters with no sights of that stopping in the near future. Last quarter, Netflix added 3.57 million new subscribers, blowing away its forecast of 2.3 million new subscribers. Netflix has really taken off internationally, where nearly 3.2 million subscribers of the 3.57 million were new international members. In the quarters to come, I believe that Netflix is going to continue to expand their international presence, which will hopefully lead to better profit margins down the line. I took a bullish approach for their international market, and raised the International Paid Member Growth to 13% in 2016 and decreasing by 0.5% each quarter for three quarters, where it will eventually level off at 11.5%. In my opinion, the Domestic DVD segment of Netflix is going to continue to plummet as the use of DVD’s continues to decrease from quarter to quarter. For this, I am going to assume a 4.5% decrease in total paid members for two quarters with an eventual decrease to 4% in the two quarters following. Lastly, with the continuation of additional content being added to Netflix, I predicted that the Domestic Member Growth will increase by 5% in March 2017, and continue to grow at a rate of 3% for the following three quarters.
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Last Updated: November 24, 2016
View on Netflix: Neutral
Price Target: $117
Model Up Votes-to-Total Votes: 87%
Summary of Model Assumptions: I estimate member growth for the fourth quarter will be in-line with management's guidance. For 2017, I estimate revenue will grow nearly 29% year-over-year as growth in the International Streaming Segment accelerates. My model assumes the company’s operating margin will increase to approximately 8% in 2017 from 6% in 2016 as marketing costs are spread across a higher revenue base. The resulting GAAP EPS for 2017 is $0.96 assuming a stable increase in shares outstanding.
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Tier 1 Netflix Model
Revenue Modeling Approach: This model breaks-down Netflix’ earnings into three segments: Domestic Streaming, International Streaming, and DVD. For each segment we estimate the growth in users and revenue per user, and multiply these two metrics to arrive at total Revenue.
Expense Modeling Approach: We use estimates of Marketing Costs and contribution margin by segment, and use these estimates to back into the operating expense items. We use historic averages to estimate Interest & Other Income, and apply an effective tax rate to the future projected income to forecast the Provision for Income Tax.
Non-GAAP Adjustments: We include Non-GAAP adjustments for Stock-Based Comp (SBC), and project future SBC based on the ratio of SBC-to-Revenue. We also include estimates for Non-GAAP Adjusted EBITDA.
Share Count Forecast: To forecast the future share count we calculate the historic change in share count, and apply similar changes in future periods.
Balance Sheet & Cash Flow Modeling Approach: We use operating ratios to project the primary accounts on the Balance Sheet, and Balance Sheet changes and earnings estimates to forecast the Cash Flow Statement.
Valuation Approach: We utilize two valuation methods: A Market Multiple-based approach, and a Discounted Cash Flow (DCF) valuation. We apply a Price-Earnings Multiple to the Next Twelve Month consensus EPS estimate, on an exCash basis. Our DCF is based on a two-stage approach which discounts the company’s expected cash flows using our estimate of the Weighted Average Cost of Capital.
Tier 2 Netflix Model
The Tier 2 version of our Netflix model is the same as our Tier 1 version except it does not forecast the Balance Sheet or Cash Flow Statement and uses only a market multiple valuation.
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