To prepare for this Assignment, use the Netflix and Amazon Data Spreadsheet, located in this week’s Learning Resources, to generate a pro forma forecast and consider what this indicates about the future for these two companies.
In a
1- to 2-page paper, provide the following:
- A forecast of Netflix, Inc., and Amazon.com, Inc.’s revenue, costs, and estimated cash flows into the next five years.
- The appropriate
discount rate
for Netflix, Inc., and Amazon.com, Inc.’s forecasted cash flows.
- An appropriate risk-adjusted rate of return for use in evaluating an investment in Netflix, Inc., and Amazon.com, Inc.
- A determination of the
estimated fair market value
of 100% of Netflix, Inc., and Amazon.com, Inc.’s equity.
Netflix and Amazon Data Spreadsheet Netflix Income Statement Netflix Inc.201220132014 Revenues Cost of revenues*$ 3,609,282$ 4,374,562$ 5,504,656 Marketing*2,652,0583,117,2033,752,760 Technology and development439,208469,942607,186 General and administrative329,008378,769472,321 Operating income (loss)139,016180,301269,741 Other income (expense):49,992228,347402,648 Interest expense Interest and other income (expense)(19,986)(29,142)(50,219) Loss on extinguishment of debt474(3,002)(3,060) Income (loss) before income taxes- 0(25,129)- 0 Provision (benefit) for income taxes30,480171,074349,369 Net income (loss)13,32858,67182,570 Earnings per share:$ 17,152$ 112,403$ 266,799 Basic Diluted$ 0.31$ 1.93$ 4.44 Weighted-average common shares outstanding:$ 0.29$ 1.85$ 4.32 Basic Diluted55,52158,19860,078 58,90460,76161,699 Netflix Balance Sheet Netflix Inc.201220132014 Assets Current assets: Cash and cash equivalents$ 290,291$ 604,965$ 1,113,608 Short-term investments457,787595,440494,888 Current content library, net1,368,1621,706,4212,125,702 Other current assets124,551151,937206,271 Total current assets2,240,7913,058,7633,940,469 Non-current content library, net1,506,0082,091,0712,773,326 Property and equipment, net131,681133,605149,875 Other non-current assets89,410129,124192,981 Total assets$ 3,967,890$ 5,412,563$ 7,056,651 Liabilities and Stockholders' Equity Current liabilities: Current content liabilities$ 1,366,847$ 1,775,983$ 2,117,241 Accounts payable86,468108,435201,581 Accrued expenses53,13954,01869,746 Deferred revenue169,472215,767274,586 Total current liabilities1,675,9262,154,2032,663,154 Non-current content liabilities1,076,6221,345,5901,575,832 Long-term debt200,000500,000900,000 Long-term debt due to related party200,000- 0- 0 Other non-current liabilities70,66979,20959,957 Total liabilities3,223,2174,079,0025,198,943 Stockholders' equity: 566060 301,616777,4411,042,810 2,9193,575(4,446) 440,082552,485819,284 Total stockholders' equity744,6731,333,5611,857,708 Total liabilities and stockholders' equity$ 3,967,890$ 5,412,563$ 7,056,651 Netflix Statement of Cash Flow Netflix Inc.201220132014 Cash flows from operating activities: Net income (loss)$ 17,152$ 112,403$ 266,799 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Additions to streaming content library(2,515,506)(3,049,758)(3,773,459) Change in streaming content liabilities762,089673,785593,125 Amortization of streaming content library1,591,2182,121,9812,656,279 Amortization of DVD content library65,39671,32571,491 Depreciation and amortization of property, equipment and intangibles45,46948,37454,028 Stock-based compensation expense73,94873,100115,239 Excess tax benefits from stock-based compensation(4,543)(81,663)(89,341) Other non-cash items(8,392)5,33215,282 Loss on extinguishment of debt- 025,129- 0 Deferred taxes(30,071)(22,044)(30,063) Changes in operating assets and liabilities: Other current assets(5,432)62,234(8,758) Accounts payable(4,943)18,37483,812 Accrued expenses9,8061,94155,636 Deferred revenue20,67646,29558,819 Other non-current assets and liabilities4,719(8,977)(52,406) Net cash provided by (used in) operating activities21,58697,83116,483 Cash flows from investing activities: Acquisition of DVD content library(48,275)(65,927)(74,790) Purchases of property and equipment(40,278)(54,143)(69,726) Other assets8,8165,9391,334 Purchases of short-term investments(477,321)(550,264)(426,934) Proceeds from sale of short-term investments282,953347,502385,300 Proceeds from maturities of short-term investments29,36560,925141,950 Net cash provided by (used in) investing activities(244,740)(255,968)(42,866) Cash flows from financing activities: Proceeds from issuance of common stock4,124124,55760,544 Proceeds from issuance of debt- 0500,000400,000 Issuance costs(759)(9,414)(7,080) Redemption of debt- 0(219,362)- 0 Excess tax benefits from stock-based compensation4,54381,66389,341 Principal payments of lease financing obligations(2,319)(1,180)(1,093) Net cash provided by (used in) financing activities5,589476,264541,712 Effect of exchange rate changes on cash and cash equivalents(197)(3,453)(6,686) Net increase (decrease) in cash and cash equivalents(217,762)314,674508,643 Cash and cash equivalents, beginning of period508,053290,291604,965 Cash and cash equivalents, end of period$ 290,291$ 604,965$ 1,113,608 Non-GAAP free cash flow reconciliation: Net cash provided by (used in) operating activities$ 21,586$ 97,831$ 16,483 Acquisition of DVD content library(48,275)(65,927)(74,790) Purchases of property and equipment(40,278)(54,143)(69,726) Other assets8,8165,9391,334 Non-GAAP free cash flow$ (58,151)$ (16,300)$ (126,699) Amazon Income Statement Amazon.com Inc.201220132014 Sales/Revenues$61.09B$74.45B$88.99B Cost of Goods Sold (COGS) incl. D&A46.8B54.63B63.88B COGS excluding D&A44.65B51.38B59.14B Depreciation & Amortization Expense2.16B3.25B4.75B Depreciation1.65B2.46B3.62B Amortization of Intangibles506M793M1.13B Gross Income14.29B19.82B25.11B SG&A Expense13.96B18.96B25.37B Research & Development4.24B6.11B8.72B Other SG&A9.72B12.85B16.65B Other Operating Expense(506M)00 Unusual Expense-00 EBIT after Unusual Expense-00 Non Operating Income/Expense(239M)(250M)320M Non-Operating Interest Income40M38M39M Equity in Affiliates (Pretax)--- Interest Expense92M141M210M Gross Interest Expense92M141M210M Interest Capitalized--- Pretax Income544M506M(111M) Income Tax428M161M167M Income Tax - Current Domestic562M144M279M Income Tax - Current Foreign131M173M204M Income Tax - Deferred Domestic(156M)(133M)(136M) Income Tax - Deferred Foreign(109M)(23M)(180M) Income Tax Credits--- Equity in Affiliates(155M)(71M)37M Other After Tax Income (Expense)000 Consolidated Net Income(39M)274M(241M) Minority Interest Expense000 Net Income(39M)274M(241M) Extraordinaries & Discontinued Operations000 Extra Items & Gain/Loss Sale Of Assets000 Cumulative Effect - Accounting Chg000 Discontinued Operations000 Net Income After Extraordinaries(39M)274M(241M) Preferred Dividends000 Net Income Available to Common(39M)274M(241M) EPS (Basic)-0.090.6-0.52 Basic Shares Outstanding453M457M462M EPS (Diluted)-0.090.59-0.52 Diluted Shares Outstanding453M465M462M EBITDA2.99B4.11B4.49B Amazon Balance Sheet Amazon.com Inc. Assets201220132014 Cash & Short Term Investments$11.45B$12.45B$17.42B Cash Only8.08B8.66B14.56B Short-Term Investments3.36B3.79B2.86B Total Accounts Receivable3.36B4.77B5.61B Accounts Receivables, Net2.6B3B3.3B Accounts Receivables, Gross2.72B3.15B3.49B Bad Debt/Doubtful Accounts(116M)(153M)(190M) Other Receivables764M1.77B2.31B Inventories6.03B7.41B8.3B Finished Goods000 Work in Progress000 Raw Materials000 Progress Payments & Other6.03B7.41B8.3B Other Current Assets453M-0 Miscellaneous Current Assets453M-- Total Current Assets21.3B24.63B31.33B 201220132014 Net Property, Plant & Equipment7.06B10.95B16.97B Property, Plant & Equipment - Gross9.58B14.81B22.73B Buildings2.97B4.58B7.15B Land & Improvements--- Computer Software and Equipment866M1.1B1.3B Other Property, Plant & Equipment174M231M304M Accumulated Depreciation2.52B3.86B5.76B Total Investments and Advances151M520M886M Other Long-Term Investments99M482M811M Long-Term Note Receivable000 Intangible Assets3.28B3.3B4.08B Net Goodwill2.55B2.66B3.32B Net Other Intangibles725M645M764M Other Assets648M538M971M Tangible Other Assets648M538M971M Total Assets32.56B41.4B56.34B Liabilities & Shareholders' Equity 201220132014 ST Debt & Current Portion LT Debt1.14B1.74B3.6B Short Term Debt000 Current Portion of Long Term Debt1.14B1.74B3.6B Accounts Payable13.32B15.13B16.46B Income Tax Payable--- Other Current Liabilities4.55B6.11B8.03B Dividends Payable--- Accrued Payroll--- Miscellaneous Current Liabilities4.55B6.11B8.03B Total Current Liabilities19B22.98B28.09B Long-Term Debt3.83B5.18B12.49B Long-Term Debt excl. Capitalized Leases3.08B3.19B8.27B Non-Convertible Debt3.08B3.19B8.27B Convertible Debt000 Capitalized Lease Obligations746M1.99B4.22B Provision for Risks & Charges-457M510M Deferred Taxes(123M)344M750M Deferred Taxes - Credit-1.81B2.86B Deferred Taxes - Debit123M1.47B2.11B Other Liabilities1.53B1.22B1.66B Other Liabilities (excl. Deferred Income)1.42B1.22B1.66B Deferred Income108M-- Total Liabilities24.36B31.65B45.6B Non-Equity Reserves000 Preferred Stock (Carrying Value)000 Redeemable Preferred Stock000 Non-Redeemable Preferred Stock000 Common Equity (Total)8.19B9.75B10.74B Common Stock Par/Carry Value5M5M5M Retained Earnings1.92B2.19B1.95B ESOP Debt Guarantee000 Cumulative Translation Adjustment/Unrealized For. Exch. Gain(250M)(187M)(512M) Unrealized Gain/Loss Marketable Securities11M2M1M Revaluation Reserves000 Treasury Stock(1.84B)(1.84B)(1.84B) Total Shareholders' Equity8.19B9.75B10.74B Accumulated Minority Interest000 Total Equity8.19B9.75B10.74B Liabilities & Shareholders' Equity32.56B41.4B56.34B Amazon Statement of Cash Flows Amazon.com Inc. Cash flows from operating activities:201220132014 Net Income before Extraordinaries(39M)274M(241M) Depreciation, Depletion & Amortization2.16B3.25B4.75B Depreciation and Depletion1.65B2.46B3.62B Amortization of Intangible Assets506M793M1.13B Deferred Taxes & Investment Tax Credit(265M)(156M)(316M) Deferred Taxes(265M)(156M)(316M) Investment Tax Credit--- Other Funds802M1.34B1.68B Funds from Operations2.66B4.71B5.87B Extraordinaries--- Changes in Working Capital1.52B767M974M Receivables(861M)(846M)(1.04B) Accounts Payable2.07B1.89B1.76B Other Assets/Liabilities275M399M741M Net Operating Cash Flow4.18B5.48B6.84B Investing Activities 201220132014 Capital Expenditures(3.79B)(3.44B)(4.89B) Capital Expenditures (Fixed Assets)(3.79B)(3.44B)(4.89B) Capital Expenditures (Other Assets)000 Net Assets from Acquisitions(745M)(312M)(979M) Sale of Fixed Assets & Businesses--- Purchase/Sale of Investments935M(520M)807M Purchase of Investments(3.3B)(2.83B)(2.54B) Sale/Maturity of Investments4.24B2.31B3.35B Other Uses000 Other Sources000 Net Investing Cash Flow(3.6B)(4.28B)(5.07B) Financing Activities 201220132014 Cash Dividends Paid - Total000 Common Dividends000 Preferred Dividends000 Change in Capital Stock(960M)00 Repurchase of Common & Preferred Stk.(960M)00 Sale of Common & Preferred Stock000 Proceeds from Stock Options000 Other Proceeds from Sale of Stock000 Issuance/Reduction of Debt, Net2.79B(617M)4.43B Change in Current Debt000 Change in Long-Term Debt2.79B(617M)4.43B Issuance of Long-Term Debt3.38B394M6.36B Reduction in Long-Term Debt(588M)(1.01B)(1.93B) Other Funds429M78M6M Other Uses000 Other Sources429M78M6M Net Financing Cash Flow2.26B(539M)4.43B Exchange Rate Effect(29M)(86M)(310M) Miscellaneous Funds000 Net Change in Cash2.82B574M5.9B Free Cash Flow395M2.03B1.95B