Netflix Case Analysis

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Case Analysis:, Inc k JAVK Consulting Company 6/14/2011
600 Civic Center Dr
Detroit, MI 48226
Dear Mr. Hastings,
Our company JAVK Consulting has examined the Netflix customer model and looked into the company’s five year financial future. We have analyzed Netflix with a scope of entering a rocky internet based company marketplace and seeing success in the future. The company currently is pumping lots of money into marketing strategy in order to growth their customer base and is in turn facing financial troubles while they approach their initial public offering stage.
As you read through our analysis of Netflix you will find our company’s thought on your financial performance so far,
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Netflix has an extremely high growth rate for their revenues as they are doubling every six months. While revenues are doubling in the last year sales and marketing expenses have gone up more than three times. The main objective now is to make sure that after an initial public offering Netflix will continue to create positive cash flows.
We believe that Netflix has chosen the subscriber model to forecast its cash flow requirements because it is the most precise representation of how the company receives cash on a monthly basis. Netflix at its core is in the movie rental industry, the only cash inflows received are from subscribers that pay monthly subscription fees. The basic elements of the subscriber model are monthly subscribers, subscription fees, and movie usage including movies rented and shipping costs. Based on these elements costs and revenues can be narrowed down and correlated to individual aspects of the model and accurate cash flows can be formed in order to predict future profitability. The subscriber model is fitting for Netflix for these reasons as subscribers are essentially their only cash inflows. Exhibit A, illustrates the subscribe model premise.
In our analysis, we used the subscriber model to forecast future cash flows. This allows us to see potential revenues month to month based on

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