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    12oct2019 Netflix DT

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    Dimitra Taslim
    Netflix provided assumptions for its business model in 2000 including the number of movies watched and discs purchased per subscriber, monthly and annual churn rates, revenue from new and retained customers, costs per disc, and operating expenses. It also provided the number of paying subscribers as of December 31, 1999 and assumptions for new subscriber growth over subsequent six-month periods. The document outlines calculations to determine the pre-tax net present value of acquiring a new subscriber in the second quarter of 2000 and the fair market value of Netflix as of January 1, 2000 by forecasting customer numbers, revenues, costs, taxes, and cash flows over multiple periods and discounting the results.

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    12oct2019 Netflix DT

    Uploaded by

    Dimitra Taslim
    72 views9 pages
    Netflix provided assumptions for its business model in 2000 including the number of movies watched and discs purchased per subscriber, monthly and annual churn rates, revenue from new and retained customers, costs per disc, and operating expenses. It also provided the number of paying subscribers as of December 31, 1999 and assumptions for new subscriber growth over subsequent six-month periods. The document outlines calculations to determine the pre-tax net present value of acquiring a new subscriber in the second quarter of 2000 and the fair market value of Netflix as of January 1, 2000 by forecasting customer numbers, revenues, costs, taxes, and cash flows over multiple periods and discounting the results.

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    12oct2019 Netflix Dt

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    Netflix provided assumptions for its business model in 2000 including the number of movies watched and discs purchased per subscriber, monthly and annual churn rates, revenue from new and retained customers, costs per disc, and operating expenses. It also provided the number of paying subscribers as of December 31, 1999 and assumptions for new subscriber growth over subsequent six-month periods. The document outlines calculations to determine the pre-tax net present value of acquiring a new subscriber in the second quarter of 2000 and the fair market value of Netflix as of January 1, 2000 by forecasting customer numbers, revenues, costs, taxes, and cash flows over multiple periods and discounting the results.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    72 views9 pages

    12oct2019 Netflix DT

    Uploaded by

    Dimitra Taslim
    Netflix provided assumptions for its business model in 2000 including the number of movies watched and discs purchased per subscriber, monthly and annual churn rates, revenue from new and retained customers, costs per disc, and operating expenses. It also provided the number of paying subscribers as of December 31, 1999 and assumptions for new subscriber growth over subsequent six-month periods. The document outlines calculations to determine the pre-tax net present value of acquiring a new subscriber in the second quarter of 2000 and the fair market value of Netflix as of January 1, 2000 by forecasting customer numbers, revenues, costs, taxes, and cash flows over multiple periods and discounting the results.

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    The document outlines Netflix's assumptions and financial model for evaluating the value of acquiring new subscribers in 2000-2004.

    Netflix makes assumptions about the number of movies watched, discs purchased, churn/retention rates, and other factors to model the financial performance of acquiring new subscribers.

    Netflix calculates the number of paying subscribers each period by starting with the existing base and adding new subscribers, while subtracting those who churn out of the customer base over time based on the assumed churn rates.

    NETFLIX

    Assumptions - for both Q2 and Q3

    # movies watched per month 4.3


    # discs purchased for new subscriber 5.6
    # "new release" discs purchased for each subsquent month 0.56
    # "new release" discs purchased every 6 months 3.36
    Price charged to customers $ 19.95
    Revenue from new customers in a 6-month period $ 99.75
    Revenue from retained customers in a 6-month period $ 119.70
    Cost per disc $ 17.55
    Churn: monthly 1.25%
    Churn: 6-monthly 7.74%
    Churn: annual 16.08%
    Discount rate: monthly 1.17%
    Discount rate: 6-monthly 7.24%
    Discount rate: annual 15.00%
    # paying subscribers as of December 31, 1999 120,000
    # new subscribers during the first six months of 2000 150,000
    Growth in new subscriber additions every six months 50%
    Annual Opex $ 5,000,000
    6-monthly Opex $ 2,500,000
    Tax rate 35%

    Q2: Pre-tax NPV of a new Netflix subscriber

    Month M1
    Period 0
    Upfront cost (discs for new subscribers) $ (98.28)
    Ongoing cost ("new releases")
    Subscription fees
    Net CF $ (98.28)

    TV factor
    Discount factor 1.00
    Discount CF $ (98.28)

    NPV $ 340.03
    Q3: Fair market value of Netflix as of January 1, 2000

    Year End-1999
    6-monthly period
    Period

    Calculating customer numbers:


    Existing customers at end 1999 120,000
    New customers at H1 2000
    New customers at H2 2000
    New customers at H1 2001
    New customers at H2 2001
    New customers at H1 2002
    New customers at H2 2002
    New customers at H1 2003
    New customers at H2 2003
    New customers at H1 2004
    New customers at H2 2004
    New customers
    Retained customers
    Total customers

    Revenue:
    New customers
    Retained customers
    Total revenue

    Costs:
    Upfront costs (discs for new subscribers)
    Ongoing costs ("new releases")
    Opex
    Depreciation (assume no depreciation)
    Delivery costs (assume no delivery costs)
    Total costs

    EBIT
    Taxes
    EBIAT

    + D&A
    - Increase in NWC
    - Capex
    Proceeds from scraping

    FCF
    Discount factor
    Discounted FCF

    Sum of discounted FCF

    Terminal value factor


    Terminal value

    NPV
    M2 M3 M4 M5 M6
    1 2 3 4 5

    $ (9.83) $ (9.83) $ (9.83) $ (9.83) $ (9.83)


    $ 19.95 $ 19.95 $ 19.95 $ 19.95 $ 19.95
    $ 10.12 $ 10.12 $ 10.12 $ 10.12 $ 10.12

    0.99 0.98 0.97 0.95 0.94


    $ 10.00 $ 9.89 $ 9.77 $ 9.66 $ 9.55
    2000 2001 2002
    H1 H2 H1 H2 H1
    0 1 2 3 4

    110,714 102,147 94,242 86,949 80,221


    150,000 138,393 127,683 117,803 108,687
    225,000 207,589 191,525 176,704
    337,500 311,383 287,287
    506,250 467,075
    759,375

    150,000 225,000 337,500 506,250 759,375


    110,714 240,539 429,514 707,660 1,119,974
    260,714 465,539 767,014 1,213,910 1,879,349

    14,962,500 22,443,750 33,665,625 50,498,438 75,747,656


    13,252,468 28,792,535 51,412,854 84,706,930 134,060,888
    28,214,968 51,236,285 85,078,479 135,205,368 209,808,544

    14,742,000 22,113,000 33,169,500 49,754,250 74,631,375


    6,528,584 14,184,112 25,327,596 41,729,309 66,042,627
    2,500,000 2,500,000 2,500,000 2,500,000 2,500,000
    - - - - -
    - - - - -
    23,770,584 38,797,112 60,997,096 93,983,559 143,174,002

    4,444,384 12,439,173 24,081,384 41,221,809 66,634,542


    1,555,534.32 4,353,711 8,428,484 14,427,633 23,322,090
    2,888,849 8,085,462 15,652,899 26,794,176 43,312,453

    - - - - -
    - - - - -
    - - - - -
    - - - - -

    2,888,849 8,085,462 15,652,899 26,794,176 43,312,453


    1.00 0.93 0.87 0.81 0.76
    2,888,849 7,539,733 13,611,217 21,726,694 32,750,437

    626,044,675

    6.2
    2,249,604,048

    2,875,648,723
    M6 - TV
    5

    $ (9.83)
    $ 19.95
    $ 10.12

    40.78
    0.94
    $ 389.43
    2002 2003 2004
    H2 H1 H2 H1 H2
    5 6 7 8 9

    74,013 68,286 63,002 58,126 53,628


    100,276 92,517 85,357 78,752 72,658
    163,030 150,414 138,775 128,036 118,128
    265,056 244,545 225,622 208,162 192,054
    430,931 397,584 366,818 338,432 312,243
    700,612 646,397 596,376 550,227 507,649
    1,139,063 1,050,918 969,595 894,564 825,340
    1,708,594 1,576,377 1,454,392 1,341,847
    2,562,891 2,364,566 2,181,588
    3,844,336 3,546,849
    5,766,504
    1,139,063 1,708,594 2,562,891 3,844,336 5,766,504
    1,733,919 2,650,661 4,021,922 6,075,259 9,151,985
    2,872,981 4,359,255 6,584,812 9,919,595 14,918,489

    113,621,484 170,432,227 255,648,340 383,472,510 575,208,765


    207,550,104 317,284,128 481,424,040 727,208,466 1,095,492,587
    321,171,589 487,716,355 737,072,380 1,110,680,976 1,670,701,352

    111,947,063 167,920,594 251,880,891 377,821,336 566,732,004


    102,245,736 156,304,181 237,164,685 358,245,855 539,674,243
    2,500,000 2,500,000 2,500,000 2,500,000 2,500,000
    - - - - -
    - - - - -
    216,692,798 326,724,775 491,545,575 738,567,191 1,108,906,247

    104,478,791 160,991,580 245,526,804 372,113,785 561,795,105


    36,567,577 56,347,053 85,934,381 130,239,825 196,628,287
    67,911,214 104,644,527 159,592,423 241,873,960 365,166,818

    - - - - -
    - - - - -
    - - - - -
    - - - - -

    67,911,214 104,644,527 159,592,423 241,873,960 365,166,818


    0.71 0.66 0.61 0.57 0.53
    47,884,713 68,805,475 97,852,027 138,292,222 194,693,309

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