Annual Dividend Rate
NA Annual Dividend YieldNA Beta1.78 Market Capitalization$39.3 Billion 52-Week Range$79.95-$133.27 Price as of 7/28/2016$91.65 Sector: Consumer Goods & Svcs Sub-Industry: Internet Retail Source: S&P
NFLX BUSINESS DESCRIPTION
Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The Company operates in three segments: Domestic streaming, International streaming and Domestic DVD.
STOCK PERFORMANCE (%)
3 Mo. 1 Yr. 3 Yr (Ann)
Price Change 1.51 -14.27 37.59
GROWTH (%)
Last Qtr 12 Mo. 3 Yr CAGR
Revenues 27.99 24.74 24.58
Net Income 54.75 -26.82 43.49
EPS 50.00 -27.98 40.94
RETURN ON EQUITY (%)
NFLX Ind Avg S&P 500
Q2 2016 5.83 15.60 11.83 Q2 2015 9.48 8.34 13.71 Q2 2014 12.69 12.17 14.43 P/E COMPARISON 286.41 NFLX 151.03 Ind Avg 25.11 S&P 500 EPS ANALYSIS¹ ($) 2016 Q 2 0. 09 Q 1 0. 06 2015 Q 4 0. 10 Q 3 0. 07 Q 2 0. 06 Q 1 0. 05 2014 Q 4 0. 19 Q 3 0. 14 Q 2 0. 16 Q 1 0. 12
NA = not available NM = not meaningful
1 Compustat fiscal year convention is used for all fundamental data items.
Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years
2014 2015 2016 40 50 60 70 80 90 100 110 120 130 140 Rating History BUY HOLD 0 100 200 Volume in Millions
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History RECOMMENDATION
We rate NETFLIX INC (NFLX) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and increase in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and weak operating cash flow. HIGHLIGHTS
NFLX's revenue growth trails the industry average of 46.7%. Since the same quarter one year prior, revenues rose by 28.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
The gross profit margin for NETFLIX INC is currently very high, coming in at 87.48%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.93% trails the industry average.
NFLX has underperformed the S&P 500 Index, declining 14.27% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
Net operating cash flow has decreased to -$226.29 million or 24.78% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
PEER GROUP ANALYSIS
REVENUE GROWTH AND EBITDA MARGIN*
EBITDA Margin (TTM) R ev en ue G ro w th (T TM ) -2 0% 12 0% 75% -100% FA VO RA BLE UN FA VO RA BLE TRIP TRIP TRIP TRIPTRIP PCLNPCLNPCLNPCLNPCLN LVNTA LVNTA LVNTA LVNTA LVNTA LVNTB LVNTBLVNTB LVNTB LVNTB QUNR QUNR QUNR QUNRQUNR AMZN AMZN AMZN AMZN AMZN JD JDJD JD JD EXPE EXPEEXPE EXPE EXPE NFLXNFLXNFLXNFLXNFLX
Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $4.2 Billion and $355.1 Billion. Companies with NA or NM values do not appear. *EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization.
REVENUE GROWTH AND EARNINGS YIELD
Earnings Yield (TTM) R ev en ue G ro w th (T TM ) -2 0% 12 0% 5% -30% FA VO RA BLE UN FA VO RA BLE TRIP TRIP TRIP TRIPTRIP VIPS VIPS VIPS VIPSVIPS PCLN PCLN PCLN PCLNPCLN LVNTA LVNTALVNTA LVNTA LVNTALVNTBLVNTBLVNTBLVNTBLVNTB QUNR QUNRQUNR QUNR QUNR AMZN AMZNAMZN AMZN AMZN JD JDJD JD JDCTRPCTRPCTRPCTRPCTRP EXPE EXPE EXPE EXPE EXPE NFLX NFLX NFLX NFLXNFLX
Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -8% and 104.4%. Companies with NA or NM values do not appear.
INDUSTRY ANALYSIS
The internet and catalog retailing industry includes 16,000 companies with combined annual revenue of over $160 billion. Major companies include Lands’ End, LL Bean, Amazon.com (AMZN), Overstock.com (OSTK) and Hanover Direct. The top 50 companies account for approximately 60% of total industry revenue. The catalog retail sector consists of mail order, television and catalog channels while internet retail includes all services through online channels. Demand is driven by consumer spending, which ties the profitability of companies to their active customer base.
Over the past five years, the industry pattern has shifted from catalog to internet sales. Internet sales have been the driver for overall health of the internet & catalog industry as internet use has increased to over 70% of US households. The evolution of secure user interfaces and the increased convenience of online shopping are expected to drive growth in the coming quarters. In order to increase online sales, companies offer reduced prices, free shipping and more variety. Although the broader retail industry is expected to remain sluggish during the recovery from the US economic slowdown, the internet will help drive sales. US online retail has evolved from a fledgling industry to a mature, mainstream, and integrated industry with multiple offline channels. However, the next phase of e-commerce growth will require retailers to innovate and invest in technologies that optimize the connection between online and offline elements. Failure to address risks associated with payment methods, credit card fraud and other consumer fraud could hamper sales growth.
Catalog retailing has witnessed a dynamic shift in its business model from call-centers to websites. Many catalog retailers have adapted their operations to the web as a result of a change in customer preferences. Companies such as L.L. Bean and Lands’ End have succeeded with this strategy while also maintaining their catalog operations. By doing so, they provide services to traditional catalog shoppers and enjoy a web operation that helps keep fixed-costs down while attracting new customers. Catalogs are currently driving more than half of internet sales.
The catalog industry shows a trend of sustained growth in multi-channel retailing. The two main channels, namely direct-to-consumer (DTC) and store, will emerge from the convergence of catalog and internet sales. The industry is expected to experience higher sales growth in the direct-to-consumer segment.
PEER GROUP: Internet & Catalog Retail
Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M)
NFLX NETFLIX INC 91.65 39,293 286.41 7,624.63 141.02
TRIP TRIPADVISOR INC 71.23 9,467 64.17 1,481.00 162.00
VIPS VIPSHOP HOLDINGS LTD -ADR 14.25 7,179 33.93 6,704.21 259.72
PCLN PRICELINE GROUP INC 1,326.10 65,826 26.09 9,531.41 2,592.46
LVNTA LIBERTY VENTURES 38.18 5,435 25.97 687.00 210.00
LVNTB LIBERTY VENTURES 38.27 5,435 26.03 687.00 210.00
QUNR QUNAR CAYMAN ISLANDS -ADR 29.79 4,240 NM 689.69 -1,187.34
AMZN AMAZON.COM INC 752.61 355,102 187.22 120,637.00 1,931.00
JD JD.COM INC -ADR 22.14 25,364 NM 30,445.14 -1,474.25
CTRP CTRIP.COM INTL LTD 43.79 20,238 74.85 1,956.84 162.61
EXPE EXPEDIA INC 119.27 16,257 78.47 7,736.15 193.74
COMPANY DESCRIPTION
Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The Company operates in three segments: Domestic streaming, International streaming and Domestic DVD. It offer members with the ability to receive TV shows and movies streaming content, including original series, documentaries, and feature films through a host of Internet-connected screens, such as TVs, digital video players, TV set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. It serves approximately 75 million members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California.
NETFLIX INC 100 Winchester Circle Los Gatos, CA 95032 USA Phone: 408-540-3700 http://www.netflix.com STOCK-AT-A-GLANCE
Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of NFLX shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock’s valuation. Please refer to our Valuation section on page 5 for further information.
FACTOR SCORE
Growth
3.0
out of 5 starsMeasures the growth of both the company's income statement and cash flow. On this factor, NFLX has a growth score better than 50% of the stocks we rate.
weak strong
Total Return
3.0
out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 50% of the companies we cover.weak strong
Efficiency
3.0
out of 5 starsMeasures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 50% of the companies we review.
weak strong
Price volatility
3.0
out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 50% of the stocks we monitor.weak strong
Solvency
5.0
out of 5 starsMeasures the solvency of the company based on several ratios. The company is more solvent than 90% of the companies we analyze.
weak strong
Income
0.5
out of 5 starsMeasures dividend yield and payouts to shareholders. This company pays no dividends.
weak strong
THESTREET RATINGS RESEARCH METHODOLOGY
TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks.
Consensus EPS Estimates² ($)
IBES consensus estimates are provided by Thomson Financial
0.05 Q3 FY16 0.28 E 2016(E) 0.85 E 2017(E) INCOME STATEMENT Q2 FY16 Q2 FY15
Net Sales ($mil) 2,105.20 1,644.69
EBITDA ($mil) 1,279.88 933.83
EBIT ($mil) 70.37 74.84
Net Income ($mil) 40.76 26.34
BALANCE SHEET
Q2 FY16 Q2 FY15
Cash & Equiv. ($mil) 1,834.23 2,796.76
Total Assets ($mil) 11,593.51 9,654.86
Total Debt ($mil) 2,373.09 2,400.00
Equity ($mil) 2,415.83 2,032.08
PROFITABILITY
Q2 FY16 Q2 FY15
Gross Profit Margin 87.48% 84.02%
EBITDA Margin 60.79% 56.77% Operating Margin 3.34% 4.55% Sales Turnover 0.66 0.63 Return on Assets 1.21% 1.99% Return on Equity 5.83% 9.48% DEBT Q2 FY16 Q2 FY15 Current Ratio 1.33 1.74 Debt/Capital 0.50 0.54 Interest Expense 35.46 35.22 Interest Coverage 1.98 2.13 SHARE DATA Q2 FY16 Q2 FY15
Shares outstanding (mil) 429 426
Div / share 0.00 0.00
EPS 0.09 0.06
Book value / share 5.63 4.77
Institutional Own % NA NA
Avg Daily Volume 12,812,718 16,454,498
2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates.
FINANCIAL ANALYSIS
NETFLIX INC's gross profit margin for the second quarter of its fiscal year 2016 is essentially unchanged when compared to the same period a year ago. Even though it increased sales and net income significantly, the company was unable to grow at a faster pace than its industry competitors. NETFLIX INC has very weak liquidity. Currently, the Quick Ratio is 0.45 which clearly shows a lack of ability to cover short-term cash needs. The liquidity decreased from the same period a year ago, despite already having weak liquidity to begin with. This would indicate deteriorating cash flow.
During the same period, stockholders' equity ("net worth") has increased by 18.88% from the same quarter last year. The key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the near future.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.TheStreetRatings.com.
RATINGS HISTORY
Our rating for NETFLIX INC has not changed since 10/16/2014. As of 7/28/2016, the stock was trading at a price of $91.65 which is 31.2% below its 52-week high of $133.27 and 14.6% above its 52-week low of $79.95. 2 Year Chart 2014 2015 $50 $100 $150 H O LD : $ 51 .6 7 B U Y : $ 60 .6 7
MOST RECENT RATINGS CHANGES
Date Price Action From To
10/16/14 $51.67 Downgrade Buy Hold
7/28/14 $60.67 No Change Buy Buy
Price reflects the closing price as of the date listed, if available
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS (as of 7/28/2016)
39.43% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months.
31.33% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 29.24% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns.
TheStreet Ratings
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Research Contact: 212-321-5381 Sales Contact: 866-321-8726
VALUATION
HOLD. NETFLIX INC's P/E ratio indicates a significant premium compared to an average of 151.03 for the Internet & Catalog Retail industry and a significant premium compared to the S&P 500 average of 25.11. For additional comparison, its price-to-book ratio of 16.26 indicates a significant premium versus the S&P 500 average of 2.81 and a discount versus the industry average of 16.48. The price-to-sales ratio is well above both the S&P 500 average and the industry average, indicating a premium. The valuation analysis reveals that, NETFLIX INC seems to be trading at a premium to investment alternatives within the industry.
1
2
3
4
5
Price/Earnings
premium discount
NFLX 286.41 Peers 151.03
• Premium. A higher P/E ratio than its peers can signify a more expensive stock or higher growth expectations.
• NFLX is trading at a significant premium to its peers.
1
2
3
4
5
Price/CashFlow
premium discount
NFLX NM Peers 27.71
• Neutral. The P/CF ratio, a stock’s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. • NFLX's P/CF is negative making the measure
meaningless.
1
2
3
4
5
Price/Projected Earnings
premium discount
NFLX 108.33 Peers 140.59
• Premium. A higher price-to-projected earnings ratio than its peers can signify a more expensive stock or higher future growth expectations.
• NFLX is trading at a significant premium to its peers.
1
2
3
4
5
Price to Earnings/Growth
premium discount
NFLX NM Peers 0.63
• Neutral. The PEG ratio is the stock’s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples.
• NFLX's negative PEG ratio makes this valuation measure meaningless.
1
2
3
4
5
Price/Book
premium discount
NFLX 16.26 Peers 16.48
• Average. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet.
• NFLX is trading at a valuation on par with its peers.
1
2
3
4
5
Earnings Growth
lower higher
NFLX -27.98 Peers 667.43
• Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher
price-to-earnings ratios.
• However, NFLX is expected to significantly trail its peers on the basis of its earnings growth rate.
1
2
3
4
5
Price/Sales
premium discount
NFLX 5.15 Peers 3.47
• Premium. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. • NFLX is trading at a significant premium to its
industry.
1
2
3
4
5
Sales Growth
lower higher
NFLX 24.74 Peers 25.17
• Average. Comparing a company's sales growth to its industry helps to determine if the company is adding or losing market share.
• NFLX is keeping pace with its peers on the basis of sales growth.
DISCLAIMER:
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers.
TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at