Key Financial Ratios for Netflix 2012 - Essay Example

A Summary of Key Financial Ratios for Netflix Ratios Calculations (Approximate Values in 000s) Values Impact LIQUIDITY RATIOS Current Ratio 3,967/ 3,223 1.23 Strength Quick Ratio 3,967-0/ 3,223 1.23, Inventory=0 Strength LEVERAGE RATIOS Debt to Total Assets 1147:3968 0.1241 Weakness Debt to Equity 1147:745 1.53 Strength LT Debt to Equity 200: 199.1 1.004 Strength Times Interest Earned Ratio 30.5:20 1.525 Strength ACTVITY RATIOS Inventory Turnover 3609.3: 0 NA, Inventory =0 Neutral Fixed Asset Turnover 3609.3: 131.7 27.405 Strength Total Asset Turnover 3609.3: 3967.7 0.9096 Weakness Account Receivable Turnover Annual Credit Sales= 0, Account Rec= 0 NA Neutral Avg Collection Period Account Rec=0 , Credit Sales= 0 NA Neutral PROFITABILITY RATIOS Gross Profit Margins (3609.3-2625.9)/3609.3 0.2724 Strength Operating Profit margin 50.0: 3609.3 0.0138 Weakness Net Profit Margin 17.2/3609.3 0.0047 Weakness Return on Total Assets 17.2: 3967.9 0.0043 Weakness Return on Equity 17.2: 744.7 0.0231 Strength EPS $0.29 per share on 01/25/2013 $0.29 Strength Price Earnings Ratio 625.17 Strength SWOT Analysis for Netflix Strengths 1. In spite of increase in competing providers, the average member viewership for Netflix has increased. 2. Company uses complex algorithms to keep track of viewership data and customize programming options for their clients. 3. Very strong and distinctive brand identity. 4. Offers a very competitive package of $7.99 per month for unlimited access to stream videos from their extensive collection. 5. Has restricted access through exclusive contacts to content that is available only through Netflix and is restricted to competing brands like Hulu and Amazon Prime. 6. The mail-in DVD subscription is extremely profitable to the company and contributes to profit margins as high as 50% (Sparks, 2012). 7. Netflix has the fastest delivery time for their online DVD rentals; the service ensures that 90% of the orders are processed within one day of placing an order. 8. Unlike some competing brands, Netflix allows for their customers to view Seasons from the pilot episode commercial-free, this gives the consumers are wholesome viewership experience. 9. The company’ propriety technology makes use of data provided by 3 billion consumers ratings to generate recommendations tailored to users having similar user preferences, this ensures there is maximum content utilization. Weakness 1. Two major costs pertaining to shipping of DVDs and cost of exclusive rights to air content are not in the control of the company. 2. DVD subscriptions are amongst the most profitable segment for Netflix and they have taken downturn to 8.47 subscribers in 2012 from 13.81 million last year. This could be because of popularity of other forms of DVD rentals such as Redbox at $1 for DVD rentals per day. 3. Price changes have become exceedingly difficult for the brand, since the prices are so clearly stated and price hikes are not welcomed by consumers. The brand took a bad hit when they increased prices the last time. 4. Presently the most popular form of subscription is that of video streaming only, but is not as profitable for the company as their DVD rentals. Opportunities 1. International expansion holds a lot of promise for the brand because of the availability of high speed internet and strict copyright laws in many developed nations o the world. 2. Netflix has made another positive step towards offering their original productions to the consumers such as “the house of cards” which has had high viewership rating which should project more segments the company can enter into. 3. The company has so far not been able to penetrate into Latin America because a great deal of the economy works on cash, with a cultural change of high acceptance and usage of debit and credit cards the brand could easily penetrate the market. 4. Rental video games would also be a segment that the company can enter into, since purchasing original video games is an expensive feat, video-game rentals should be a welcome change. Threats 1. The barriers to entry in the industry are low because the start-up cost is less. 2. Technological developments can also be a potential threat because new methods and technologies can make the present systems obsolete. 3. Competitors like Hulu, Amazon and HBO are also investing greatly in launching their original productions. 4. Netflix collects data from their subscribers, over the years this practice by other companies has received a lot of criticism. Eventually an increased regulation in this regard could result in restricting Netflix’s ability to use technology for data collection and making recommendations. Netflix- IFE Matrix   Key Internal Factors Weight Rating Score   STRENGTHS       1 Company share price has increased significantly from $50 in 2012 to more than $180 0.08 3 0.24 2 Company recovered from the Qwikster debacle in 2011, in less than 3 years. 0.05 2 0.1 3 Largest Collection of online video library over 60,000 titles 0.06 4 0.24 4 Netflix can be viewed using various devices with internet connection 0.03 2 0.06 5 Has 33.3 billion global subscribers for streaming content alone 0.07 3 0.21 6 Total revenue reported $875.6 million for 2012, increase by 47% 0.06 4 0.24 7 1.9 million international subscribers 0.05 3 0.15 8 Provide storage devices to ISPs, to offer higher birate for streaming HD and 3D Titles. 0.07 3 0.21 9 DVD may be old media but offer better copyright protection and earlier release time 0.04 1 0.04     WEAKNESSES     1 High credit risk, license content and then attract subscribers 0.08 3 0.24 2 In 2012, lost 3 million DVD subscribers. 0.03 2 0.06 3 Profits fall from all-time high $304 for $90 a share after Qwikster 0.1 4 0.4 4 intangible asset ratio of 27% is alarming 0.07 3 0.21 5 DVDs delivery time is not instant as compared to Redbox 0.03 1 0.03 6 Technology reduces the cost of manufacturing DVDs so people buy instead 0.02 1 0.02 7 Before Qwikster total cost $9.99 for both, later $7.99 each led to customer decline 0.05 2 0.1 8 Streaming Library is weak compared to Amazon, cable and iTunes 0.04 3 0.12 9 Studious dictate content availability time and duration 0.07 2 0.14   Total 1   2.81 References Jacobs, Y. (2011). How I Predicted Netflixs Fall, And Why Its Prospects Are Getting Worse. 2013 Seeking Alpha. Retrieved http://seekingalpha.com/article/294587-how-i-predicted-netflix-s-fall-and-why-its-prospects-are-getting-worse Lawler, A. (2013). As ISPs Like Cablevision Cozy Up To Its Open Source CDN, Netflix Makes 3D And “Super HD” Video Available. AOL Inc 2013. Retrieved http://techcrunch.com/2013/01/08/netflix-open-connect-3d-super-hd/ Netflix (NFLX). Ratios financial. BarChart.com Inc. 2013. Retrieved http://www.barchart.com/profile.php?sym=NFLX&view=ratios Netflix Inc. Financial Statements. Bloomberg Business Week 2013. Retrieved http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=NFLX Steltar, B. (2012). A Turnaround at Netflix, as Its Mail Sector Shrink. 2012 The NewYork Times Company. Retrieved http://www.nytimes.com/2012/01/26/business/media/a-turnaround-at-netflix-as-its-mail-sector-shrinks.html?_r=0 Read More