Company Analysis: Netflix
Company Description
Company Profile
Netflix is an internet subscription company that allows users to access movies and
television shows through DVD-by-mail and/or instantly through the use of a streaming device
(Netflix, n.d.). Content is obtained through streaming license agreements made with studios,
DVD direct purchases, and through DVD revenue sharing agreements. Netflix markets their
services through online advertising, television and radio, and partnerships (Standard & Poor’s,
2012).
Products and Services
Netflix maintains a large library of movies and television shows that are made available
to their members through DVD or unlimited online streaming with use of a computer or
streaming device. Users can rate their viewed movies and television shows in order to receive
precise recommendations for future viewing (Netflix, n.d.).
Location
100 Winchester Circle
Los Gatos, CA 95032
(408) 540-3700
www.netflix.com (Netflix, n.d.)
History
Netlix was co-founded by Reed Hastings and Marc Randolph and then launched in 1999.
Then, in 2000, the personalized movie recommendation system was introduced to their members.
After some time, in 2007, Netflix announces their new online instant streaming option to allow
greater flexibility to their subscribers. In 2008, Netflix partners with electronic companies to
allow streaming on the Xbox 360, Blu-ray disc player, and Apple computers. Through another
partnership in 2009, users are able to stream through the Nintendo PS3. Throughout 2010,
Netflix became available on the Apple iPad, iPhone and iPod Touch, the Nintendo Wii, and other
Internet connected devices. That same year, Netflix is revealed in Canada. Next, Netflix
becomes available in Latin America. Following that subscriptions were made available in the
Caribbean in 2011 and then in the United Kingdom and Ireland in 2012 (Netflix, n.d.).
Industry Description
Industry Classification
Primary Industry Classification
Dow Jones Industry Interactive Television
SIC
7841
Video Tape Rental
NACE
92.13 Motion picture projection
NAICS
53223 Video Tape and Disc Rental (Factiva, 2012).
Secondary Industry Classification
NAICS
517919
All Other Telecommunications
NAICS
532230
Video Tape and Disc Rental (Factiva, 2012).
Competitive Environment
Industry Competitors
Amazon.com, Inc.
Priceline.com, Inc.
Groupon, Inc. (Standard & Poor’s, 2012)
Company Competitors
Amazon.com, Inc.
Blockbuster LLC
Redbox Automated Retail, LLC (Colbert, n.d.)
Key Employees
Reed Hastings, Co-founder & Chief Executive Officer
Neil Hunt, Chief Product Officer
Jessie Becker, Interim Chief Marketing Officer
David Wells, Chief Financial Officer
Ted Sarandos, Chief Content Officer
Jonathan Friedland, Chief Communications Officer (Netflix, n.d.)
Global Environment
Throughout the past few years, Netflix has expanded their service from the United States
to other countries globally. An advantage to their service is their technology-based online model
which allows for easy access for worldwide production. At this time, memberships have
increased worldwide due to the rising demand for online streaming (DataMonitor, 2011).
Risks
Increasing costs of online streaming content is one of the first risks that Netflix faces.
Online streaming requires legal sharing agreements with the studios that were not previously
needed with DVD services. In addition, demand has increased with competition from other
online video services; therefore, the studios have raised the prices of their content. Due to the
increase from the studios, Netflix must increase member subscription prices (DataMonitor,
2011).
At the same time the increase in internet scams pose a serious risk for Netflix. Recently,
a phony Netflix Android App has been in circulation. The issue is that it looks like the genuine
Netflix app; however, it steals account information. This could have a serious impact on
Netflix's reputation which could create a loss of consumer confidence and possible loss of
memberships (DataMonitor, 2011).
Trends
Since its origination in 1997, Netflix has grown tremendously in membership size. At the
end of 20110, Netflix has 23 million members. In fact, within just ten years, their membership
rate has risen more than 20 million. However, since the fee increase as well as the online / DVD
division, Netflix has lost subscribers. While their loss is noticed, Netflix began launching their
services globally; thereby reaching a larger audience and gaining subscribers (Netflix, n.d.). See
figure A. for a comparison chart for Netflix profits from 2010 and 2011.
Although Netflix has last subscribers within the past year, their future looks satisfactory.
Netflix relies heavily on online consumer spending and the long-term outlook in this area is
excellent. However, they must think of new ways to regain canceled memberships while
continuing to grow globally (DataMonitor, 2011). According to Reed Hastings, there is a threeyear process in place to improve their services; however, they will not do anything dramatic to
win back their lost members (Netflix Investors Retreat Over Growth Fears, Shares Plunge, Ian
Sherr DOW JONES NEWSWIRES 24 April 2012 Dow Jones News Service,
global.factiva.com).
Figure A.
Period End Date
31-Dec-2011
31-Dec-2010
Accounting Standard
U.S. standards (GAAP)
U.S. standards (GAAP)
Annual Income
Statement: (USD, In
millions)
Net Sales or Revenue
3,204.58
2,162.63
Cost of Goods Sold incl.
Depreciation
2,039.90
1,357.36
Cost of Goods
Sold excl.
Depreciation
1,200.28
1,018.66
Depreciation,
Depletion and
Amortization
839.62
338.70
Depreciation
43.75
38.10
795.87
300.60
1,164.68
805.27
779.61
527.72
Research and
Development
259.03
163.33
Other Selling,
General and
Administrative
Expenses
520.58
364.39
0.00
0.00
385.07
277.55
Amortization of
Intangibles
Gross Income
Selling, General and
Administrative Expense
Other Operating
Expenses
Operating Income
(Factiva)
News
Video Privacy Protection Act
Netflix hired Greenberg Traurig, P.A. to lobby the U.S. Senate in early 2012 regarding
the Video Privacy Protection Act amendments. Netflix is attempting to amend the 1988 law that
prohibits disclosing video rental or sale records without a customer’s written consent. They want
Congress to pass legislation that would allow members to be able to use Facebook in order to
share details about what they watch (Ramonas, 2012).
Lawsuit
A class action lawsuit has been filed against Netflix in United States District Court for
the Northern District of California on behalf of purchasers of the common stock of Netflix, Inc.
between December 20, 2010 and October 24, 2011. The Complaint alleges that Netflix violated
federal securities laws. Specifically, through failing to disclose financial information about
higher rates from content providers, rate increases, and license fees. All of these reasons affected
the decision to raise subscription prices which resulted in loss of business and their stocks to
plummet (Factiva, 2012).
Stock
Ticker: NFLX (Factiva)
As of 5/4/12 the price is 73.45 which is dramatic drop from last year on May 31, 2011
(Netflix, n.d.). Figure B. reflects the extraordinary decrease over a year.
Figure B.
(Factiva, 2012)
Conclusion
Netflix is still a profitable company with an inventive idea; however, with some bad
business decisions, they lost a great portion of their customer base which drove down the price of
the stock shares. In order to recover, they must come up with a way to bring back their lost
customers while adding new users. Most likely their new business will occur by targeting new
countries which will help their business to grow. At the moment, I do not feel that it is wise to
invest in Netflix since they took such a dramatic turn for the worse within one year and do not
show any sign of soon returning to their former glory.
References
Colbert, C. (n.d.) Hoovers. Retrieved from http://www.hoovers.com
DataMonitor. (2011). Netflix, Inc. Company Profile. Retrieved from http://www.ebscohost.com
Factiva. (2012). Retrieved from https://global.factiva.com
Factiva. (2012). Dow Jones Company Report. 1-6. Retrieved from https://global.factiva.com
Factiva (2012). Newman Ferrara LLP; Newman Ferrara LLP Pursues Securities Fraud Claims
Against Netflix, Inc. and Reminds Investors of March 13, 2012 Deadline. Investment
Weekly News. Retrieved from https://global.factiva.com
Netflix. (n.d.). Retrieved from http://www.netflix.com/
Ramonas, A. (2012). Netflix bolsters lobbying team. The National Law Journal. 34(35).
Retrieved from https://global.factiva.com
Standard & Poor’s NetAdvantage. (2012). Retrieved from
http://www.netadvantage.standardpoor.com