Projected and Consolidated Financial Opportunities of NetFlix Essay

Total Length: 1841 words ( 6 double-spaced pages)

Total Sources: 3

Page 1 of 6

Prompt

Taking into consideration that Netflix is not a manufacturing entity, there cannot be a prospect for a new facility. The hypothetical new investment project for Netflix is a cost-cutting investment. Notably, the corporation can make an investment in the production of new Netflix original content, such as TV shows, movies and documentaries. Content is exceedingly the largest spending priority for Netflix, with the corporation increasing its spending from $6 billion to $8 billion. However, this investment will help the company in cutting against the rising costs. Bearing in mind that Netflix has market presence in all markets across the globe, with the exception of the Chinese market, the corporation can secure international rights to these original shows and movies that have more attractive terms as compared to nation-by-nation or regional deals. Majority of the original content distributed and showed by Netflix, such as The Crown, YOU, and Marvel’s Luke Cage have been largely successful in each geographic region. Making investments and obtaining rights to these high quality content will be a cost cutting measure for Netflix as they generate the highest consumer engagement (Kalogeropoulos, 2017).

Projected Consolidated Financial Opportunities

1. Revenue Projection

The financial performance of Netflix, Inc. in recent years has been remarkable. We expect this trend to continue in the forthcoming years. According to Fitzgerald (2018), in 2011, Netflix had a consumer subscriber base of 25 million people. In 2018, this figure has increased substantially to 125 million, which signified an increase of 400 percent. According to financial forecasting, it is suggested that the company will have 200 million subscribers by the years 2020 and a decade later approximately 360 million, if Netflix managers to sustain the growth rate (Fitzgerald, 2018). This indicates that the revenue of the company is expected to gradually increase in the course of the next three years. In our projections, we expect the revenues of the company to increase by 15 percent in 2019, by 20 percent in 2020 and further up by 25 percent in 2021. Therefore, we expect the revenue to increase to $18.16 billion in 2019 to $21.80 billion in 2020 and further up to $27.25 billion in 2021. This is illustrated in the chart below.

2. Cost of Sales and Gross Profit Projections

Netflix sets a cost of revenue amount of approximately 60 percent. We expect this amount to slightly increase and therefore we project the cost of sales for the next three financial years to be set at 64 percent. Owing to the increase in the revenues of the company, we expect the gross profit generated by Netflix to gradually increase in the forthcoming financial years.

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This is illustrated by the chart below.

3. Operating Expenses Projection

Growth of a company comes along with increase in expenses as well. It is expected that Netflix will have to conduct extensive research and development in order to attain the most ideal content for its subscribers and improving its technology. Taking this into consideration, it is projected that the research and development expenses for Netflix will increase by 10 percent in the first year, by 15 percent in the second and further up by 20 percent in the third year. In the same manner, the selling, general and administrative expenses of the company will gradually increase in the next three years. The total operating expenses increase is demonstrated below:

4. Operating Income Projection

In spite of the increase in the operating expenses, we still expect Netflix to generate a positive and gradual increase in terms of the operating profits attained in the next three years. The char below shows the operating profit of Netflix for 2019, 2020 and 2021.

5. Net Income Projection

In total, we project that the net income generated by Netflix, Inc. will increase gradually for the next three financial years. In 2018, the company generated a net income of $1.21 billion. It is projected that this amount will increase to $1.47 in 2019, further up to $2.141 in 2020 and further up to $3.20 billion in 2021.

The illustration in Appendix I below shows the projected consolidated income statement for Netflix, Inc. for the next three financial years.

Part B

Projections for best and worst case scenario

Over the past five years, the investors of Netflix Inc. have seen a 565 percent return. During the same period, the corporation was able to increase its annual sales threefold (Bylund, 2018). Best case scenario, it is expected that the performance of the company will be even better and surpass these expectations. In the past year, Netflix spent $8 billion on content. Therefore, in the best case scenario is expected that the content put out by the company will be exceedingly positively received. In addition, it is expected that the subscriber base of the company will substantially increase thereby increasing the revenues generated by the company (Martin, 2018). Therefore, in a good case scenario, we project that the revenues generated by the company could increase by as much as 25 percent in the forthcoming financial year. This also implies that there would be a better grasp in operations of the.....

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References

Bylund, A. (2018). Where Will Netflix Inc. Be in 5 Years? The Motley Fool. Retrieved from: https://www.fool.com/investing/2018/10/31/where-will-netflix-inc-be-in-5-years.aspx

Fitzgerald, T. (2018). How Fast Is Netflix Growing? It Will Be Up Eightfold By 2020. Forbes. Retrieved from: https://www.forbes.com/sites/tonifitzgerald/2018/08/24/how-fast-is-netflix-growing-it-will-be-up-eightfold-by-2020/#6dae07195416

Martin, V. (2018). Here Is How It All Could Go Wrong for Netflix, Inc. Stock. Investor Place. Retrieved from: https://investorplace.com/2018/04/netflix-stock-go-wrong/

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