Netflix Financial Analysis Essay

Decent Essays
I. Introduction
The advent of Internet capable devices has given greater popularity to streaming video on demand. Arguably, the most well-known company leading this change is Netflix. We will discuss the industry that Netflix works in and the competition it faces. Not every company that attempts to stream content succeeds, but one fact remains the same: these companies are all chasing the success Netflix has found, and there are a few which may be able to successfully compete with Netflix. In addition, we will use the past five years of financial statements to forecast the next three years of growth for the company.
II. Economic Overview The economic climate in the U.S. today suggests a robust labor market despite sharply declining industrial output. In fact, many have speculated that the government is underestimating economic growth, as suggested by the growth in wholesale inventories. “With the stock market at an all-time high, with unemployment at 5.8 percent, last quarter economic growth at 5 percent, relative mild consumer price-inflation, and the bonanza of cheap gas, there is increased optimism about the U.S. economy” (Chafuen).
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Because Netflix and other streaming services offer a substitute product for traditional cable (one that binge-watching Millennials are increasingly turning to), the declining growth in the cable sector is a source of new subscribers for Netflix. Low barriers to entry mean that a growing number of traditional telecom competitors (Verizon, AT&T) have announced recent streaming plays, and are crossing into internet publishing. But those providers see mobile video as a mechanism of increasing data usage, which is their real source of profit. Porter’s 5 forces model would suggest that this churn of competition will shrink the industry’s current robust profit
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