Netflix - Team 5 Case Assignment
The basic elements of a subscriber model for
this case are:
- The monthly subscriptions fees,
- The fixed number of rented movies,
- The cost of shipping and acquisition cost
Data Analysis
STEP 1- First /Free month eval
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Zero subsrciption fees
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Initially we calculated monthly shipping cost per
subscriber the first month, Netflix would ship four DVDs
in the beginning and
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Second element of the model was to calculate disc
acquisition cost using disc acquistion cost per month
and number of new acquisitions
●
Adding all of the above for the first month came upto
-102.28 as expenditure for NETFLIX.
Step 2 – 6 month eval
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Subscription fees per month 19.95
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Cost of disc acquision for new release
dropped to 0.56,hence the acqusition
second month dropped to 9.83$
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Shipping included return from second
month as 4.3
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Adding all the above and subtracting
subscription fees, NETFLIX sees 5.82 of
positive cash flow for next 5 months.
Step 3 – 60 month eval
Extrapolating the same for 5 years with a 20% discount rate, we can calculate the NPV to $46.52.
Company Eval = REVENUE - COST
Revenue Eval
Revenue is equal to the number of subscribers multiplied
by the value per subscriber. So we multiply the value of
every new subscriber by the prediction number from next 4
years, and add the existing subscriber’s value then we can
get the terminal value by using a 20% discount rate and
49% new subscriber growth rate to evaluate the revenue’s
present value is $274,451,750 .
Cost Valuation
Cost evaluation was derived by multiplying 3% growth rate to
each of the operating expense and NPV was calculated for
operating expenses around 185,787,764.33
Current Company VALUATION = REVENUE – COST =
88,663,985.45$
Given the positive NPV, we do not think Netflix should change its
current business model to avoid any negative cash flows in the
future.They can try to reduce the operating costs but raising
monthly subscription fees is definitely going to work in the long run.