Running Head: INTEGRATIVE LEARNING PROJECT INTEGRATEIVE LEARNING PROJECT2 Integrative Learning Project: Netflix Valuation Julie Mather Liberty University Understanding with the Client and Scope of Work We at XYZ have established an understanding the ABC Company hereafter referred to as “the client” to include the nature purpose and objectives of the valuation agreement as is according to the USPAP. Any limitations or assumptions must be disclosed to the valuation analyst and included in the valuation report. We have established an understanding with the client and have there were no scope restrictions or limitations for analysis. In accordance with the Scope of Work Rule is USPAP, we must: 1. Identify the problem to be solved 2. Determine and perform the scope of work necessary to develop credible results 3. Disclose the scope of work in the report The purpose of this report is to gain and understanding of Netflix, Incorporated by reviewing their financial statements as provided by management and work environment surrounding the business. Economic considerations have been made as well and the impact on Netflix, Inc. We considered all valuation approaches and selected the most applicable method to evaluate the financial position of the company. The evaluation is in the attached report. · The History and Nature of the Business · General Economic and Industry Outlook · Book Value and Financial Position · Approaches to Value · Income Approach · Discounted Cash Flow Method · Cost of Capital · Cost of Equity · Cost of Debt · Market Approach · Reconciliation of Valuation Methods · Conclusion of Value · Appendix A – Assumptions and Limiting Conditions · Appendix B – Valuation Representation/Certification · Appendix C – Other Sources Consulted · Appendix D – ExhibitsExecutive Summary Purpose of Valuation To assist ABC in determining the fair market value for internal and purchase planning purposes of a 100% equity interest in Netflix, Incorporated as of July 10, 2018. Standard of Value Fair market value Premise of Value Going concern Conclusion Based on our analysis as described in this valuation report, the estimated value as of July 10, 2018 of a 100% equity interest in Netflix, Incorporated on a marketable basis is $55.4 million. Table of Contents Understanding with the Client and Scope of Work2 Executive Summary3 The History and Nature of the Business5 Market Area and Customers5 Competition5 Management and Key Persons6 Stock and Stockholders6 General Economic and Industry Outlook6 Economic Indicators6 Historical Business Cycle7 Summary and Outlook7 Book Value and Financial Position8 Income Statement Analysis8 Balance Sheet Analysis9 Working Capital.9 Total Assets9 Interest-Bearing Debt.9 Total Liabilities9 Stockholder’s Equity9 Projections9 Approaches to Value10 Income Approach11 Present Value of Cash Flows11 Discounted Cash Flow Method11 Cost of Capital12 Cost of Equity13 Cost of Debt14 Market Approach15 Guideline Compani.

1. Running Head: INTEGRATIVE LEARNING PROJECT
INTEGRATEIVE LEARNING PROJECT2
Integrative Learning Project: Netflix Valuation
Julie Mather
Liberty University
Understanding with the Client and Scope of Work
We at XYZ have established an understanding the ABC
Company hereafter referred to as “the client” to include the
nature purpose and objectives of the valuation agreement as is
according to the USPAP. Any limitations or assumptions must
be disclosed to the valuation analyst and included in the
valuation report. We have established an understanding with the
client and have there were no scope restrictions or limitations
for analysis. In accordance with the Scope of Work Rule is

2. USPAP, we must:
1. Identify the problem to be solved
2. Determine and perform the scope of work necessary to
develop credible results
3. Disclose the scope of work in the report
The purpose of this report is to gain and understanding of
Netflix, Incorporated by reviewing their financial statements as
provided by management and work environment surrounding the
business. Economic considerations have been made as well and
the impact on Netflix, Inc. We considered all valuation
approaches and selected the most applicable method to evaluate
the financial position of the company. The evaluation is in the
attached report.
· The History and Nature of the Business
· General Economic and Industry Outlook
· Book Value and Financial Position
· Approaches to Value
· Income Approach
· Discounted Cash Flow Method
· Cost of Capital
· Cost of Equity
· Cost of Debt
· Market Approach
· Reconciliation of Valuation Methods
· Conclusion of Value
· Appendix A – Assumptions and Limiting Conditions
· Appendix B – Valuation Representation/Certification
· Appendix C – Other Sources Consulted
· Appendix D – ExhibitsExecutive Summary
Purpose of Valuation
To assist ABC in determining the fair market value for internal
and purchase planning purposes of a 100% equity interest in
Netflix, Incorporated as of July 10, 2018.
Standard of Value
Fair market value
Premise of Value

3. Going concern
Conclusion
Based on our analysis as described in this valuation report, the
estimated value as of July 10, 2018 of a 100% equity interest in
Netflix, Incorporated on a marketable basis is $55.4 million.
Table of Contents
Understanding with the Client and Scope of Work2
Executive Summary3
The History and Nature of the Business5
Market Area and Customers5
Competition5
Management and Key Persons6
Stock and Stockholders6
General Economic and Industry Outlook6
Economic Indicators6
Historical Business Cycle7
Summary and Outlook7
Book Value and Financial Position8
Income Statement Analysis8
Balance Sheet Analysis9
Working Capital.9
Total Assets9
Interest-Bearing Debt.9
Total Liabilities9
Stockholder’s Equity9
Projections9
Approaches to Value10
Income Approach11
Present Value of Cash Flows11
Discounted Cash Flow Method11
Cost of Capital12
Cost of Equity13
Cost of Debt14
Market Approach15
Guideline Companies15

4. Selection of Guideline Companies16
Analysis of Guideline Companies17
Reconciliation of Valuation Methods19
Conclusion of Value19
Appendix A – Assumptions and Limiting Conditions20
Appendix B – Valuation Representation/Certification20
Appendix C – Other Sources Consulted20
Appendix D – Exhibits21
The History and Nature of the BusinessMarket Area and
Customers
Netflix has been an overachieving performer over the past five
years and has a market capitalization value of $47 billion. The
streaming of music, videos, TV, and network shows has become
more popular Netflix has navigated these changes to capitalize
on the market’s demands for entertainment. As technology has
improved, the capability for devices to stream content has
become more accessible and convenient. Their basic business
model consists of movie studios and broadcasters releasing the
rights to Netflix to distribute their content to monthly
subscribers and in return receiving payment for the
contribution. Additionally, Netflix original content has become
more popular in the past few years and has gained a following
in addition to the already comprehensive library of movies and
shows included. The original Netflix model mailed DVDs to
monthly subscribers who would return the movie when they
were finished watching it. While the primary platform for
streaming Netflix is mobile devices or home entertainment
systems, DVDs still make up a portion of the business’s
viewership. The business model for Netflix can be seen in
Exhibit 1.1.Competition
As mentioned earlier, Netflix competes with other entertainment
streaming services like Amazon Prime Video, Hulu, HBO, and
Direct TV. These services all provide similar content but
present it to their subscribers in different packaging. Netflix has
nearly 111 million paying customers globally with a market cap

5. of $122 billion in 2017. The US market is more advanced than
those internationally, but as customer growth continues this will
most likely change. It is assumed that with household sharing
subscriber growth will level off in the next few years and the
challenge for Netflix to earn new paying customer will
commence.Management and Key Persons
As of the valuation date the following management individuals
and key persons of Netflix, Inc. are included in Exhibit 1.2.
Reed Hastings the founder and CEO began Netflix in 1997 and
has continued to build the company into the mega million
entertainment streaming service that it is today. He is largely
influential in the new content and development strategies for the
future growth and without his knowledge of Netflix’s vision
would be a mediocre performer in the streaming network space.
Facilities
The corporate headquarters of Netflix, Inc is Los Gatos,
California and are sufficient for all administrative, software
development, and content creation. Acquiring Netflix Inc.
would not require the client to relocate any of this
production.Stock and Stockholders
As of the valuation date the following majority stockholders are
included in Exhibit 1.3. The majority stockholders are mutual
funds which blend Netflix stock with other high performing
companies for sale.General Economic and Industry
OutlookEconomic Indicators
As streaming online becomes the central mechanism for
bringing entertainment content home, it is highly likely that
Netflix will continue to grow and, in this growth, determining
how they can increase their profit margins will be key.
Acquiring content is a fixed cost for Netflix, so implying
economies of scale, as the demand for content increases so do
higher prices for consumers leading to higher revenues. Netflix
had solidified a competitive advantage in the entertainment
streaming industry by acquiring commitments from several of
the largest cable network providers including ABC Family,
NBC, FOX, Disney just to name a few. Families can subscribe

6. for multiple users, customize what content is available to
younger viewers in the home and monitor what shows are being
watched. While the market may seem saturated with products
like Amazon Prime Video, Hulu, HBO, and Direct TV, Netflix
still is the most popular entertainment streaming service
available in the United States and its value is a direct result of
users, content quality, and popularity in the industry.Historical
Business Cycle
According to the Wall Street Journal, Netflix Inc. has increased
in revenue by 33.46% in five years, increased net income by
79.45%, increased earnings per share by 74.63%, and increased
gross margins by 84.77%. It is interesting to note that cash flow
has decreased by 916.93% in five years. Subscriber growth will
plateau at some point in the United States as account sharing
has become popular among families combined with the multiple
screen subscription option for users.Summary and Outlook
Netflix operates in the Broadcasting Media and Entertainment
industry with nearly 53% of wi-fi households in the U.S. using
some sort of entertainment streaming service. According to a
report by comScore, Netflix leads with 75%, followed by
YouTube (53%), Amazon (33%), and Hulu (17%). Nearly 49
million homes in the U.S. are connected to wi-fi and have
ventured away from traditional entertainment sources like cable,
direct TV, and satellite. While many argue that Netflix has
reached market saturation for some time, the managing team
believe that there is still room for growth both domestic and
abroad.Book Value and Financial Position
Netflix, Inc.’s historical comparative income statements are
presented in exhibit 2.1 and balance sheets in exhibit 2.2. Three
years’ worth of financial data from their 2017 10-K annual
reports are included for reference and determinate of the the
final valuation.Income Statement Analysis
Net Revenues - Net revenues for the fiscal year ending
December 31, 2017 were $11.6 billion nearly $4 billion more
than in 2016. This is largely due to the increase in viewership
abroad and customers upgrading to the multiple screen

7. subscription options. An additional 31 million users were added
in 2017.
Gross Profit – Netflix’s gross profit increased by 42.8% from
$2.8 billion to $4.0 billion from 2016 to 2017. This was largely
due to capitalizing on foreign emerging markets for viewership
and increased subscriptions. Consideration was made for the
lease commitments to movie producers and broadcasters.
Selling, General and Administrative Expenses – SG&A took a
larger jump between 2017 and 2016 than from 2015 to 2016. As
a percentage of revenue SG&G for 2017 represented 17% of net
revenues and has remained consistent over the past three years.
Adjusted Income before Taxes – Adjusted income before taxes
was approximately $485 million as of December 31, 2017. This
was an increase of 42.8% from the previous year.
Adjusted Net income – Adjusted net income increased from
$186 million to $558 million in 2017. That is nearly a 300%
increase in one year. Taxes and expenses remained equal in
percentage of revenue across all three years, so this increase in
net income is largely due to the increased revenue
stream.Balance Sheet AnalysisWorking Capital – At year end
2017, Netflix had $7.6 million in total current assets. It is
interesting to note that they held no short-term investments in
2017 but had in the two years prior. As Netflix primarily deals
in online streaming services they had nothing listed for net
receivables and inventory. Total Assets – Total assets as of
December 2017 were $19 billion and including $10 billion in
intangible assets. Netflix listed their licenses and agreements to
list broadcasters and other digital media as intangible assets
because they are not a physical item. Those items that expire in
a year or less are listed as current and items over a year are
listed in non-current.Interest-Bearing Debt – The commitments
Netflix has entered with movie producers and television
broadcasters is considered a liability as they owe these licensing
fees to companies in Hollywood. These agreements are
considered long-term debt on the balance sheet.Total Liabilities
– Netflix listed total liabilities at 2017-year end as $15 billion.

8. As much growth occurred during 2017 it was highly likely that
the liabilities of Netflix would increase proportionately to their
customer acquisition rate.Stockholder’s Equity – The book
value of shareholder’s equity at December 31st is $3.5 billion or
roughly 18% of total assets. Netflix’s stock price has increased
in the past three years and currently is trading at $418.65 as of
July 10, 2018. Projections
Management projects that there is still room for subscription
growth in the next five years. They anticipate growth of 30%
increase in users and nearly the same in revenues. Consideration
should be made for the saturation level of streamed
entertainment because other competitors demand market shares
as well.Approaches to Value
Three approaches are traditionally used to determine value in an
operating business including the income approach, market
approach, and the asset approach. In determining the value of
Netflix, both the income and market-based approaches will be
used. Evaluation will be done based on the valuation that best
represents the company.
Income Approach
The income approach calculates the value of the business in the
present value given the financial data. For this valuation the
discounted cash flow method will be used. This reflects the
market rate of return expectations, market activity, and risk of
investment.
Market Approach
The market approach uses comparison to other similar
businesses or transactions to determine the value of the
company. For this valuation comparison to like business will be
used to determine the fair market value.
Asset Approach
The asset approach evaluates a company’s value by using one or
more of the asset-based methods using assets net of liabilities.
This approach is not necessary for companies that are operating
profitably and can be evaluated by the income and market
approaches.

9. Summary of Valuation
In our valuation of Netflix, Inc. both the income and market
approach will be used to determine the fair market value. Under
the income approach we will use the discounted cash flow
method and under the market approach we will used the
guideline public company method. The asset approach does not
prove to be the best method for valuation because intangible
assets primarily make up Netflix’s total assets. Income
Approach
The income approach uses earnings, cash flow, and dividend
paying capacity to estimate the fair market value. Using the
present worth of the future economic benefits discounted to the
present value gives a valuation closely resembling the true
value of the company.Present Value of Cash Flows
Using the present value, with cash flows of $1.3 billion, -$341
million, and $696 million over the past three years at a rate of
26% in perpetuity as projected by management, the present
value of the cash flows from 2015 to 2017 is $59.2 billion.
Using the cost of capital to calculate the present value of the
cash flows, Netflix is utilizing most of its cash to invest in long
term commitments for Hollywood shows and original content
creation.
Discounted Cash Flow Method
The discounted cash flow method provides a valuation of a
company’s cash discounted to the rate of risk associated. The
DCF includes adjusted cash invested in capital to conclude that
the present value of the Netflix, Inc as of July 10, 2018 is $61.2
billion. The difference with the DCF method is it includes taxes
and reduces the final valuation by interest- bearing long term
debt. At this time Netflix operates with 80% debt to finance its
long-term commitments to broadcasters and directors creating
original content for viewers. Consideration was made for
growth of 26% in perpetuity as indicated my managements
projections.
Cost of Capital
The cost of capital is used to determine how a company acquires

10. capital for expenditures, advancement and growth. There are
certain risks associated with gaining new subscribers and part of
this relates to the cost of capital. At what rate can Netflix
acquire capital and still profit? This was determined to be
approximately 11%. Assuming that the perpetual growth rate of
26% does continue for the foreseeable future, the weighted cost
of capital will slowly decrease because the funding needs are
generated by revenues and capital will be used primarily to
sustain Netflix products rather than acquire more users when the
market reaches the saturation point. The risks associated with
Netflix are uniquely attributable to their specific company as
their WACC is particularly low for a company that has just
turned over 5.7 times the revenues in the past three years.
Formulating a strategic plan for the future, investors and owners
should evaluate Netflix at the current revenue to net income
ratios for accurate risk calculations.
The formula for calculating the average cost of capital is:
WACC= (ke X We) + (kp X Wp) + (kd/(pt)[1-t] X Wd)
WACC = weighted average cost of capital
ke = cost of common equity capital
W = percentage of common equity in the capital structure, at
market value
Kp = cost of preferred equity
Wp = percentage of preferred equity in the capital structure, at
market value
kd/(pt) = cost of debt (pre-tax)
t = tax rate
Wp = percentage of debt in the capital structure, at market value
See Exhibit 3.2 for calculations.Cost of Equity
Using historical market transactions and stock sales, we have
determined that the cost of equity is approximately 11%. As an
investor the cost of equity is the equal to the required rate of
return on an investment. As the company the cost of equity can
be used to determine the rate of return on a project or business
segment. Typically, equity costs more than debt because while

11. debt is cheaper, it will be paid back leaving the company with
nothing other than a clean balance sheet. While the cost of
equity is higher than debt the Capital Asset Pricing Model
(CAPM) can be used to analyze the higher rates of return. For
Netflix, they have chosen to focus less on equity and more on
debt to fund their strategic growth plans. Shareholders are
mostly concerned with their return on investment and while
Netflix has increased its net worth since its launch in 1997,
some shareholders have become concerned with market
saturation and slowly have pulled away from the stock. Firms
use their cost of equity to compare their attractiveness of
investments for internal projects, acquisition opportunities and
stockholder appeal. Netflix has not chosen to invest largely in
their equity, but as they reach a plateau in the market it would
be our assumption that there may be a shift from debt focused to
equity focused.
Modified CAPM formula can be summarized by:
E(Ri) = Rf + β X (RPm) + RPs ± RPc
E(Ri) = expected rate or return on the security i
R = rate of return available on a risk-free security as of the
valuation date
β = beta
RPm = equity risk premium (market risk)
RPs = risk premium for small size
RPc = risk premium attributable to other company risk factors
See Exhibit 3.2 for calculations.Cost of Debt
The cost of debt is the rate at which a company accumulates
debt to cover expenses. After analysis of the financial
statements it was determined to be around 2.7%. As Netflix has
a substantial portion of long-term debt outstanding on its
balance sheet it would be assumed they have chosen to use debt
to further their commitments to stream content for viewers. The
SG&A expenses have not increased in relation to revenues, so
the debt is largely to solely increase content. As discussed
above, the cost of debt is less than the 11% cost of equity.

12. According to Forbes, Netflix has acquired nearly $1.5 billion in
debt financing for new original content programs. The company
"intends to use the net proceeds from this offering for general
corporate purposes, which may include content acquisitions,
production and development, capital expenditures, investments,
working capital and potential acquisitions and strategic
transactions," a press release reports. It is calculated that the
cost per show is less than the paid subscription per watch.
Calculations for cost of debt can be seen in Exhibit 3.2.Market
Approach
Under the market approach Netflix will be compared to two
additional online streaming broadcasting companies to set a
benchmark for their valuation in this report. This is a
confirming appraisal approach to compare with the income
approach discussed earlier in this report. Regardless of what
assets are being valued, the market approach studies recent
sales of similar assets, adjusting for differences in size, quantity
or quality. The market values of the comparable are calculated
using the share prices of the public companies. The values of
the public companies are standardized by converting them to a
multiple of an observable financial variable such as earnings
before interest, taxes, depreciation and amortization
(EBITDA).Guideline Companies
Guideline companies are selected to compare a business to those
in its industry. Netflix is by far the most popular online
streaming broadcast service in its segment and by comparing it
to two publicly traded companies within the same industry. For
this comparison Disney and Comcast will be used to compare
Netflix in the market approach. These companies would be
similarly affected by economic and industry factors and give a
comparative view to the broadcasting guideline companies. An
independent analysis will be performed on both Disney and
Comcast for accurate valuation of Netflix, Inc. as both Disney
and Comcast hold a sizable share of the online streaming market
and are publicly traded. Transactions of both companies are
considered credible sources of information for the guideline

13. public company method.Selection of Guideline Companies
Disney and Comcast were selected for comparison because they
hold a large portion of the market for entertainment
broadcasting. Disney began with cartoon television shows and
has developed a series of movies, theme parks, online streaming
services, and vacations based on the characters developed by
Walt Disney.
Disney – The Walt Disney Company along with its subsidiaries
operates as entertainment across North America and the world.
In 2017 they reported $55.1 billion in revenues and is listed as
one of the most powerful brands in the world. Disney commits
$3.26 billion dollars to licensing and publishing similar to
Netflix committing to movie studios and major broadcast
networks for content streamed online through their service. The
market capitalization of Disney was $152.3 billion. Disney has
not licensed many of its movies to Netflix and instead they have
introduced their own streaming service for families to enjoy
Disney movies, cartoons, and premium programming.
Comcast – Comcast operates as a media and technology
company all across the world. Cable communications, cable
networks, broadcast television, internet, voice, and XFINITY
streaming. Revenues at year end 2017 were $84 billion nearly
$30 million more than the Walt Disney Company. The market
capitalization of Comcast was $142.6 billion and is based on a
widely diversified media and entertainment from its own
broadcast network. While its market cap is slightly less than
Disney, their share price has decreased by 26%. As mentioned
earlier, similar industries respond the same way to economic
changes in the industry. Neither Disney nor Netflix experienced
a similar drop in share price in recent months. In comparison to
Netflix Comcast owns the majority of its subsidiaries rather
than contracting movies and major broadcast networks shows on
XFINITY.Analysis of Guideline Companies
The two publicly traded companies assessed in the guideline
company method greatly outperform Netflix by the standard
measures of performance. Their revenues and net income are

14. nearly one hundred times greater and their debt ratios are much
smaller. The maturity of both Disney and Comcast can be
attributed to their larger revenues, yet the growth rates of
Netflix have not been seen in companies like Disney and
Comcast for nearly 20 years.
Revenue - Based on revenues Netflix ($11.6 billion) barely
compares to Disney ($55 billion) and Comcast ($84 billion). It
is likely that the subsidiaries and divisions of both Disney and
Comcast contributed to such large revenues, while Netflix has a
more streamlined product line in this stage of the business life
cycle.
Debt to Equity Ratio – Netflix has the highest debt to equity
ratio of 1.63 which is likely caused by the content commitments
it added in the past year nearly $1.5 billion of debt financing.
Disney has the lowest debt to equity ratio at .55 and Comcast
lists at .96.
Net Profit Margin – Relative to their net revenues Comcast has
a net profit margin of 26.79%, Disney 20.16%, and Netflix
falling in last at 5.0%. Rapid growth has caused some growing
pains for Netflix as the cost of revenue has not regulated to the
level of revenues. As the company matures in the broadcasting
industry, investors can except more level cost of sales and
better profit margins.
Growth Rate – Netflix has grown at a fast past of 27.1% growth
over the past three years. It is still in the growth phase of the
business life cycle and President Hastings concludes that there
is still room for growth in the next five years at the current
pace. Disney has grown at a moderate 8% in the past three years
with only conservative increases in growth. Slightly
overperforming Disney, Comcast had an average growth rate of
10.4% in the past three years.
Net Income – Disney topped it off with $8.9 billion in net
income in 2017, Comcast with $22.7 billion and Netflix falling
in last with $585 million. If using ratios to compare revenue to
net income Disney performed at 16%, Comcast the highest at
27% and Netflix following up with 5%. If Netflix were able to

15. classify their commitments to movie studios and broadcasting
stations as intangible assets on their balance sheet, the current
ratio would be much less in comparison to these large mature
companies that have limited their debt and primarily use
operating income to fund their growth strategies and planning.
Share Price – While Netflix may be the new company on the
block, its share price is much higher than both Disney and
Comcast, nearly four times greater. Currently selling at
$418.65, Netflix outperforms Disney selling at $108.25 and
Comcast selling at $34.55. The risks associated with Netflix
stock is somewhat higher than for Disney and Comcast because
it is newer to the market and there is still so much growth. This
leaves room for large economies of scale within the stock
market and can affect the stock price fairly quickly if one
majority shareholder decides to sell some of their stock in
Netflix.
WACC – The weighted average cost of capital for all three
companies is fairly close. Netflix does come in at 11% and both
Disney and Comcast at 9%. As mentioned earlier the cost of
capital is what companies use to determine the rate of return
they need to see on a project or business segment before
analyzing profitability. Divisions that are not performing well
will most likely not receive capital funding in the following
quarter due to the losses generated. Netflix has been able to
reduce their WACC over the last three years and has seen rapid
growth in their international subscriber’s market. Plans to
increase the content available to international markets will help
management evaluate the returns necessary to keep the
international segment or do away with it if the profit margin
doesn’t match the WACC.Reconciliation of Valuation Methods
Comparison of the guideline public companies provided a
unique perspective on where Netflix fits in an already mature
broadcasting entertainment industry. While Netflix did not meet
the same goals as Disney and Comcast, in their own right
performed very well and profited this year. The income
approach gave a more detailed look at the present value of the

16. company while the market approach provided more perspective
to the net worth of Netflix at this point in time.
See Exhibit 4.2 for the reconciliation of the valuation methods
used in this report.Conclusion of Value
After reviewing the two valuation methods used to calculate the
value of Netflix, Inc. we conclude the fair market value of
Netflix to be $60.8 billion. We have performed the valuation
engagement as defined by the USPAP to determine the fair
market value of Netflix, Inc. for the internal use of ABC
company in preparation for purchase. There were no restrictions
or limitations to the scope of this valuation on the date of
evaluation.
Appendix A – Assumptions and Limiting Conditions
1. The concluded fair market value is only valid on the date of
the valuation
2. Financial Statements were provided by Netflix, Incorporated.
3. Public information, industry analysis, and statistics were
from reliable sources.
4. Perpetuity Growth Rate = 26% (average growth rate three
years) established by management projections. Appendix B –
Valuation Representation/Certification
I represent/certify that, to the best of my knowledge and belief:
1. The statements of fact contained in this report are true and
correct.
2. The reported analysis, opinion, and conclusions of value are
my honest conclusions.
3. I have no financial interest in the business or property related
to this report.
4. My valuation engagement conforms to the guidelines set by
the USPAP.Appendix C – Other Sources Consulted
Yahoo Finance
Hitchner, James R. Financial Valuation: Application and
Modesl, 4th ed. (Hoboken, NJ: John Wiley & Sons, 2017)
Netflix, Incorporated
The Walt Disney Company
Comcast & XFINITY

17. Uniform Standards of Professional Appraisal Practice,
Appraisal Foundation
Appendix D – Exhibits
Exhibit 1.1
Exhibit 1.2
Name
Title
Wilmot Reed Hastings
Chairman, President, and Chief Executive Officer
David B. Wells
CFO & Principal Accounting Officer
Gregory K. Peters
Chief Product Officer
Theodore A. Sarandos
Chief Content Officer
Kelly Bennett
Chief Marketing Officer
Jessica Neal
Chief Talent Officer
Exhibit 1.3
Name
Shares Held

18. Shares Out
Δ in Shares
% of Assets
As of
American Funds Growth Fund of America
21,634,471
4.98%
-912,000
4.90%
03/31/18
Vanguard Total Stock Market Index Fund
10,286,231
2.37%
+32,738
0.57%
05/31/18
Fidelity Contrafund
9,551,514
2.20%
+16,179
2.97%
05/31/18
American Funds AMCAP Fund
8,959,000
2.06%
-982,000
5.82%
03/31/18
Vanguard 500 Index Fund
7,768,461
1.79%
+36,924
0.73%
05/31/18
SPDR S&P 500 ETF

19. 4,851,121
1.12%
-33,280
0.73%
07/02/18
American Funds Capital World
4,801,489
1.11%
-630,100
2.14%
03/31/18
Vanguard Institutional Index Fund
4,216,300
0.97%
-18,732
0.74%
04/30/18
Harbor Capital Appreciation Fund
3,951,252
0.91%
-91,945
4.91%
01/31/18
PowerShares QQQ Trust
3,500,860
0.81%
+15,279
2.11%
06/15/18
Exhibit 2.1
Income Statement
All numbers in thousands
Revenue
12/31/2017
12/31/2016
12/31/2015

20. Total Revenue
11,692,713
8,830,669
6,779,511
Cost of Revenue
7,659,666
6,029,901
4,591,476
Gross Profit
4,033,047
2,800,768
2,188,035
Operating Expenses
Research Development
1,052,778
852,098
650,788
Selling General and Administrative
2,141,590
1,568,877
1,231,421
Non-Recurring
-
-
-
Others
-
-
-
Total Operating Expenses
-
-
-

21. Operating Income or Loss
838,679
379,793
305,826
Income from Continuing Operations
Total Other Income/Expenses Net
-115,154
30,828
-31,225
Earnings Before Interest and Taxes
723,525
410,621
274,601
Interest Expense
238,204
150,114
132,716
Income Before Tax
485,321
260,507
141,885
Income Tax Expense
-73,608
73,829
19,244
Minority Interest
-
-
-
Net Income from Continuing Ops
558,929
186,678
122,641

22. Non-recurring Events
Discontinued Operations
-
-
-
Extraordinary Items
-
-
-
Effect of Accounting Changes
-
-
-
Other Items
-
-
-
Net Income
Net Income
558,929
186,678
122,641
Preferred Stock and Other Adjustments
-
-
-
Net Income Applicable to Common Shares
558,929
186,678
122,641

23. Exhibit 2.2
Balance Sheet
All numbers in thousands
Period Ending
12/31/2017
12/31/2016
12/31/2015
Current Assets
Cash and Cash Equivalents
2,822,795
1,467,576
1,809,330
Short Term Investments
-
266,206
501,385
Net Receivables
-
-
-
Inventory
-
-
-
Other Current Assets
4,847,179
3,986,509
3,121,125

24. Total Current Assets
7,669,974
5,720,291
5,431,840
Long Term Investments
-
-
-
Property Plant and Equipment
319,404
250,395
173,412
Goodwill
-
-
-
Intangible Assets
10,371,055
7,274,501
4,312,817
Accumulated Amortization
-
-
-
Other Assets
652,309
341,423
284,802
Deferred Long Term Asset Charges
-
-
-
Total Assets
19,012,742
13,586,610
10,202,871

25. Current Liabilities
Accounts Payable
674,649
510,474
393,880
Short/Current Long-Term Debt
-
-
-
Other Current Liabilities
4,791,663
4,076,183
3,135,744
Total Current Liabilities
5,466,312
4,586,657
3,529,624
Long Term Debt
6,499,432
3,364,311
2,371,362
Other Liabilities
3,465,042
2,955,842
2,078,459
Deferred Long Term Liability Charges
-
-
-
Minority Interest
-
-
-
Negative Goodwill
-
-

26. -
Total Liabilities
15,430,786
10,906,810
7,979,445
Stockholders' Equity
Misc. Stocks Options Warrants
-
-
-
Redeemable Preferred Stock
-
-
-
Preferred Stock
-
-
-
Common Stock
1,871,396
1,599,762
1,324,809
Retained Earnings
1,731,117
1,128,603
941,925
Treasury Stock
-
-
-
Capital Surplus
-
-
-
Other Stockholder Equity
-20,557

27. -48,565
-43,308
Total Stockholder Equity
3,581,956
2,679,800
2,223,426
Net Tangible Assets
-6,789,099
-4,594,701
-2,089,391
Exhibit 2.3
Cash Flow
All numbers in thousands
Period Ending
12/31/2017
12/31/2016
12/31/2015
Net Income
558,929
186,678
122,641
Operating Activities, Cash Flows Provided By or Used In
Depreciation
6,330,385
4,924,978
3,547,045
Adjustments To Net Income
-8,734,239
-6,778,020
-4,592,012
Changes In Accounts Receivables

28. -
-
-
Changes In Liabilities
366,870
197,704
172,560
Changes In Inventories
-
-
-
Changes In Other Operating Activities
-307,893
-5,324
327
Total Cash Flow From Operating Activities
-1,785,948
-1,473,984
-749,439
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures
-173,302
-107,653
-91,248
Investments
268,040
235,536
-8,074
Other Cash flows from Investing Activities
-60,409
-78,118
-79,870
Total Cash Flows From Investing Activities
34,329
49,765
-179,192

29. Financing Activities, Cash Flows Provided By or Used In
Dividends Paid
-
-
-
Sale Purchase of Stock
56,225
26,279
60,351
Net Borrowings
3,020,510
1,000,000
1,500,000
Other Cash Flows from Financing Activities
255
230
-545
Total Cash Flows From Financing Activities
3,076,990
1,091,630
1,640,277
Effect Of Exchange Rate Changes
29,848
-9,165
-15,924
Change In Cash and Cash Equivalents
1,355,219
-341,754
695,722
Other Items
-
-
-
Net Income
Net Income
558,929

30. 186,678
122,641
Preferred Stock And Other Adjustments
-
-
-
Net Income Applicable To Common Shares
558,929
186,678
122,641
Exhibit 3.1
2015
2016
2017
2018
Net Revenues

31. 6,779,511.00
8,830,669.00
11,692,713.00
14,921,519.04
Growth Rate
23%
32%
28%
Cost of Sales
4,591,476.00
6,029,901.00
7,659,666.00
9,774,793.25
Gross Profit
2,188,035.00
2,800,768.00
4,033,047.00
5,146,725.79
Operating Expenses
305,826.00
379,793.00
838,679.00
1,845,909.63
EBITDA
1,882,209.00
2,420,975.00
3,194,368.00
3,300,816.16
Earnings Before Taxes
1,882,209.00

32. 2,420,975.00
3,194,368.00
3,300,816.16
Estimated Income Tax
658,773.15
847,341.25
1,118,028.80
1,155,285.66
Cash Flow to Invested Capital
1,223,435.85
1,573,633.75
2,076,339.20
2,145,530.50
PV of Cash Flows to Invested Capital
43,861,290.68
PV through 2018
61,512,623.24
Less: Interest Bearing Debt
238,204.00
Indicated Value of 100% Equity
61,274,419.24

33. Exhibit 3.2
Cost of Equity
11%
After-Tax Cost of Debt
Borrowing Rate
10.5%
Estimated Tax Rate
33%
Cost of Debt
4.50%

34. Weighted Average Cost of Capital
Capital Structure
Cost
Debt
5%
4.5%
.23%
Common Equity
95%
11%
10.45%
WACC =
10.68%
Rounded =
11%
Exhibit 4.1
Important Ratios
Period Ending:

35. 12/31/2017
12/31/2016
12/31/2015
12/31/2014
Liquidity Ratios
Current Ratio
140%
125%
154%
147%
Quick Ratio
140%
125%
154%
147%
Cash Ratio
52%
38%
65%
60%
Profitability Ratios
Gross Margin
34%

36. 32%
32%
32%
Operating Margin
7%
4%
5%
7%
Pre-Tax Margin
4%
3%
2%
6%
Profit Margin
5%
2%
2%
5%
Pre-Tax ROE
14%
10%
6%
19%
After Tax ROE
16%
7%
6%
14%
Exhibit 4.2

37. Value Indication
Income Approach
Present Value of Cash Flows Method
61,512,623.24
Discounted Cash Flows Method
61,257,981.15
Market Approach
Guideline Public Company Method
59,743,432.31
Selected 100% of the Equity
60,838,012.23
Helpful Reminders in Completing the Unit V Essay:
(1) The headings: Introduction of Problem,

38. Solution
, and Conclusion are required for the essay. Essays without
headings will lose organization points. Information on what to
include in the sections is in the syllabus.
(2) It is required that the term globalization be applied in some
capacity. Essays without the term will lose quality of discussion
points.
(3) Paper length requirement is 2 pages (double spaced, 12 point
font) APA formatted in-text citations and an apa formatted
reference list are required for this assignment:
(4) At least TWO sources are required for the assignment. The
two source requirement does not include the text book.
Developing Nation Problem-