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A Company Profile is a valuation of a company that we currently hold in The BAG Fund. In these profiles we outline what we consider to be the most important factors that represent the company. If you are new to the world of investing, some of the things that are written here may be somewhat difficult to understand – even though we try to make it as least complicated as possible. Reading the articles in the “Business & Investing” section will help you absorb this information better.
Company Profile
Netflix (NFLX) provides online movie rental subscription services in the United States. The company provides its subscribers with an immense library of movies, television shows and other filmed entertainment on DVD.
Subscribers order movies over the company’s website and get them delivered to their homes by mail. They can return the titles at their convenience using prepaid mailers and after a DVD has been returned, the company mails the next available DVD in the subscriber’s queue. Netflix also streams certain videos such as TV shows and some movies.
Netflix has approximately 10 million subscribers and is growing rapidly with approximately 100,000 DVD and Blu-ray titles as well as a library of 12,000 videos.
The company was founded in 1997 and is headquartered in Los Gatos, California.
Qualitative Valuation
- Netflix ran its biggest competitor (Blockbuster) into bankruptcy and is now the leading video rental provider in the United States
- Has a strong brand and has an excellent reputation among its consumers and is well known for their services’ ease of use and efficiency
- The company is constantly expanding, now moving into the online world by streaming videos
- Has a recommendation service for movies that is second to none
- Partnering up with other companies and products in order to broaden their distribution range – for instance, allowing movies to be streamed by Netflix via gaming systems
- Determined and innovative management
Quantitative Valuation
- Market capitalization of just under $3 billion
- Revenue growth of over 13% from 2007 to 2008, 21% in 2006 to 2007, 46% from 2005 to 2006 and 36% from 2004 to 2005.
- Although revenue growth is slowing, net income growth is still high with 24% growth in 2008, 37% in 2007 and 17% in 2006.
- Cash reserves high enough to pay off all debts many times over and almost all liabilities
- Debt at 16% of equity isn’t at zero but is still significantly lower than Blockbuster’s 313%
- Is more profitable than Blockbuster in virtually every single way
- Insider ownership at a very comfortable place – at 19%
Closing Thoughts
Even though revenue and net income growth is slowing down for the last couple years, the company’s qualitative benefits far outweigh its financial shortcomings – of which are still above average. The company is destroying its major competitor (Blockbuster) and has built a name and reputation for itself which will be very difficult to overthrow – even for Google, if it decides to venture into the world of movie rentals. Netflix is definitely going places and has massive room for growth.
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