FINANZAS

CORPORATIVAS

Finanzas Corporativas
hosted by
Germán Estrada
Pontificia Universidad Católica del Perú
Business Description
Europe, Middle East,
U.S and Canada
and Africa (33%) Overview
(44%)

One of the world's leading entertainment companies

222 million subscribers in more than 190 countries
Streaming, DVD-by-mail service, mobile games

Business Model

Netflix's revenues comes from memberships for

streaming services.

Asia-Pacific Netflix has benefited from the effects of the

(11%)
Latin America (12%) COVID-19.

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Industry overview

Video streaming industry is expected to exceed $241 billions at 17% of

compound annual growth rate (CAGR) between 202 and 2032.
Other

New competitors have appeared in the last years such as Disney Plus,
HBO Max, Hulu, Apple TV and Amazon Prime Video threatening
Netflix's market share

Netflix's market share in decline

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Competitive positioning

Apple TV+ $4.99

Amazon Prime Video $9.99

Hulu $5.99
Netflix´s prices varies between $9 and $15 per month
Disney+ $8.00
Higher prices: Netflix and HBO Max
HBO Max $15.00 Lower prices: Disney Plus and Apple Tv+

Netflix $14.00

0 5 10 15

Strong threats : bargaining power of suppliers, bargaining power of

customers and Competitive Rivalry,
Moderate threat: Threat of substitutes
Low threat: Threat of new entrants

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Investment thesis
The recommendation is based on three key value drivers: Europe, Middle East, and Africa

U.S and Canda

Netflix's competitiveness and market reach in the different

regions where it operates, especially Asia-Pacific.

APAC is a region with great

potential to capture new users.

The region currently accounts for

15% of Netflix's total global
subscribers and is expected to be
the main driver of further
expansion.
Asia-Pacific
add around 6.8 million customers for
the full year, with 79% coming from
Latin America
Asia Pacific

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Investment thesis
The recommendation is based on three key value drivers:

Potential for proprietary content creation and innovation

in the video game market

Figure 8: Netflix's market share

Netflix's net cash (1Q)

The world's largest subscription streaming service across

2021
all key metrics: paid memberships, engagement, revenue
and earnings
47 % 2022

0 250 500 750 1000

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Valuation
As we do not take videogames business into consideration, then a
multisegmented structure will not be required. The procedure is
EV/EBITDA Multiple
focused only in the streaming service' revenues to obtain the
We estimated a 13.63x EV/EBITDA multiple, which is below in
accurate and representative value of the Enterprise. For that, it was
comparison to other similar companies EV/EBITDA 2021. In
necessary to develop some drivers
contrast to the fundamental value, the relative valuation
indicates that the Fair Value is 13.74% higher compared to its
DFCFF model: Fundamental value Target Price.

In terms of the DFCFF approach, a discount rate has been

constructed based on the perceived risks in the Cost of Debt and the
implicit volatility because of the sensitivity to the economic cycle.

Netflix will NOT recover its pandemic occupancy level, but will
decrease slightly until 2025 and then it will resume its expansion.

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 WACC Beta Damoradan

1 MODEL 2 BETA
Figure 21: Beta & WACC

Unlevered

Damodaran

Beta

0.91

0.977
New Beta

Source: Team Elaboration

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Investment Risks
Competition risk
Netflix competitors's strategies in pricing are really
attractive so this might affect Netflix in terms of new
potential customers
Netflix's disadvantage: They don´t generate revenues
from other businesses.Therefore, their main
competitors might attract more suscribers in the
upcoming days.

Content risk
One main issue is that Netflix highly rely on third-party
content for licensed shows and movies, even though
they have spent millions of dollars every year in original
content.
Objective: improve their original content so that
existing members don't cancel their service or new
members join their service.

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Investment Risks
Slower membership growth
Membership growth is slower in countries where Netflix has
been operating for many years or where it is highly
penetrated.
Impact on valuation: If there is no membership growth,
Netflix revenues by region will be negatively affected.

Taxation in multiple jurisdictions

Netflix is a U.S.-based multinational company subject to tax in
multiple U.S. and foreign tax jurisdictions.
Impact on valuation: If U.S. or other foreign tax authorities
change applicable tax laws or successfully challenge how
or where Netflix profits are currently recognized, its overall
taxes could increase, and its business, financial condition
or results of operations may be adversely impacted.

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Financial Analysis
Revenue Growth (MM. USD)
Revenues increased $13.9 billion between
2018 and 2021
Higher average paid memberships
Higher average monthly revenue per
paid membership

2018 2019 2020 2021
Revenue
15,794,341 20,156,447 24,996,056 29,697,844
Revenue Growth

27.6% 24.0% 18.8%

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Profitability Ratios
Operating Profit Margin Net Profit Margin EBITDA

Highest growth in 2020
Less spending on marketing
Administrative and technology and development
expenses grew at a slower rate than revenues
Highest growth in 2021 EBITDA increased from US$9,261,683 million to
US$18,633,288 million
Higher operating income
Growth in operating income
Stable management of financial expenses: foreign
exchange gains of $403 million 80.1% growth in depreciation and amortization of
property, equipment and intangibles in 2021

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 (ROA) follows an increasing
Figure : ROA 2018-2021
slope

ROIC, ROA, ROE

Average operating revenue

growth (2018-2021): 58%

Average growth in total assets

(2018-2021): 19%


2018 2019 2020 2021

Profitability Analysis

Highest variation in 2020

Return on Assets
6.18% 7.67% 11.67% 13.89%

Return on Equity
23.12% 24.62% 24.96% 32.28%
Good investments in money
Return on Invested

13.43% 13.61% 20.65% 21.52% market funds in 2020.
Capital
Source: Annual Report (2021), Team elaboration

Figure : ROIC 2018-2021 Figure : ROE 2018-2021

(ROIC) follows an No significant variations
increasing slope

Similar growth in equity and net
Highest variation in 2020 income

Increase in equity
Significant 76% increase in

operating income 1) increase in retained earnings

Successful year, over 200 2)increase in common stock
million subscribers

Source: Annual Report (2021), Team elaboration Source: Annual Report (2021), Team elaboration

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Liquidity Ratios
Ebitda plus Cash 11 times financial expenses

Currente pasive exceeded Cash &

Cash Equivalents

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Solvency Ratios

No bank loans
Financial debt is formed almost entirely by the long-term financial debt: Senior Notes.
Financial debt was affected upwards due to the issuance of Senior Notes in 2018, 2019
and 2020, but with a small downward correction in 2021.

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Environment

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Social
Employee participation 2019-2021
COVID 19
Emergency fund: 150 million
+40 languages

Respecting users' privacy

Women's inclusion
Equitable and
inclusive wages
and benefits

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Corporate Governance

The board is currently composed of 12 voting members.

Ownership Summary Percent of common An adequate balance of rights and responsibilities among its
shares outstanding. shareholders, board and its management team.
. Netflix grants several freedoms to its board and management team
Institutions 82.4%
Corporations (private) 0.04% to be forward-thinking and make their own investments.
Insiders 1.32% Netflix provides access to a service to report misconducts.
State owned shares 0.04%
Netflix seeks to reinforce that its business is managed in an ethical and
Public and other 16.19%
comprehensive manner.

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Thank You!