*All numbers in millions unless indicated otherwise

CAGR 5Y Average 2012 2013 2014

Revenue 3,609.28 4,374.56 5,504.66
22.62% % Growth 12.63% 21.20% 25.83%
23% -Costs of Goods Sold 2,625.87 3,083.26 3,752.76
69.48% % of Revenue 72.75% 70.48% 68.17%
Gross Profit 983.42 1,291.31 1,751.90
30.52% % of Revenue 27.25% 29.52% 31.83%
27% -Operating Expenses 933.42 1,062.96 1,349.25
25.97% % of Revenue 25.86% 24.30% 24.51%
28% -SG&A Expenses 887.96 1,014.59 1,295.22
24.99% % of Revenue 24.60% 23.19% 23.53%
EBITDA 95.46 276.72 456.68
5.53% % of Revenue 2.64% 6.33% 8.30%
6% -D&A 45.47 48.37 54.03
0.98% % of Revenue 1.26% 1.11% 0.98%
EBIT 49.99 228.35 402.65
4.55% % of Revenue 1.39% 5.22% 7.31%
-Taxes 13.33 58.67 82.57
20% 19.72% % EBIT 26.66% 25.69% 20.51%
NOPAT 36.66 169.68 320.08
3.68% % of Revenue 1.02% 3.88% 5.81%
(0.00) - -
Free Cash Flow to Firm 2012 2013 2014
+D&A 45.47 48.37 54.03
28% -Capital Expenditures 40.28 54.14 69.73
1.24% % of Revenue 1.12% 1.24% 1.27%
49% Working Capital (183.21) (295.85) (344.60)
-6.18% % of Revenue -5.08% -6.76% -6.26%
-WC Investment 6.48 (112.63) (48.75)
-1.28% % of Revenue 0.18% -2.57% -0.89%
Free Cash Flow 35.38 276.54 353.13
4.71% % of Revenue 0.98% 6.32% 6.42%
Discount Factor
PV of FCF

Value of operations 63,315.88 Current Valuation

Add: Net Non-Operating Asset 1,341.20 Market Cap
Enterprise Value 64,657.08 Net Debt
Less: Interest-bearing Debts 3,365.40 Shares Outstanding
Value of common equity 61,291.68 Current Share Price
Number of shares oustanding ( 430.60 Target Price (Perpetuity)
Target price per share 142
Current price $ 169
Potential upside -16%
 2015 2016 2017E 2018E 2019E 2020E 2021E
6,779.51 8,830.67 11,674.14 15,433.22 20,402.72 26,972.39 35,657.50
23.16% 30.26% 32.20% 32.20% 32.20% 32.20% 32.20%
4,591.48 6,029.90 7,422.83 9,137.53 11,248.34 13,846.75 17,045.40
67.73% 68.28% 63.58% 59.21% 55.13% 51.34% 47.80%
2,188.04 2,800.77 4,251.31 6,295.69 9,154.38 13,125.64 18,612.10
32.27% 31.72% 36.42% 40.79% 44.87% 48.66% 52.20%
1,882.21 2,420.98 3,072.33 3,898.93 4,947.93 6,279.16 7,968.55
27.76% 27.42% 26.32% 25.26% 24.25% 23.28% 22.35%
1,819.93 2,363.45 3,018.80 3,855.88 4,925.07 6,290.73 8,035.07
26.84% 26.76% 25.86% 24.98% 24.14% 23.32% 22.53%
368.11 437.32 1,232.51 2,439.81 4,229.31 6,834.92 10,577.03
5.43% 4.95% 10.56% 15.81% 20.73% 25.34% 29.66%
62.28 57.53 61.01 64.71 68.63 72.79 77.19
0.92% 0.65% 0.52% 0.42% 0.34% 0.27% 0.22%
305.83 379.79 1,117.97 2,375.10 4,160.68 6,762.13 10,499.84
4.51% 4.30% 9.58% 15.39% 20.39% 25.07% 29.45%
19.24 73.83 220.45 468.33 820.42 1,333.39 2,070.41
6.29% 19.44% 19.72% 19.72% 19.72% 19.72% 19.72%
286.58 305.96 897.52 1,906.76 3,340.26 5,428.74 8,429.43
4.23% 3.46% 7.69% 12.35% 16.37% 20.13% 23.64%
- - - - - - -
2015 2016 2017E 2018E 2019E 2020E 2021E
62.28 57.53 61.01 64.71 68.63 72.79 77.19
91.25 107.65 137.65 176.00 225.03 287.73 367.90
1.35% 1.22% 1.18% 1.14% 1.10% 1.07% 1.03%
(408.50) (600.15) (721.46) (953.77) (1,260.89) (1,666.89) (2,203.63)
-6.03% -6.80% -6.18% -6.18% -6.18% -6.18% -6.18%
(63.90) (191.65) (149.28) (197.35) (260.90) (344.91) (455.97)
-0.94% -2.17% -1.28% -1.28% -1.28% -1.28% -1.28%
321.52 447.49 970.17 1,992.83 3,444.75 5,558.70 8,594.69
4.74% 5.07% 8.31% 12.91% 16.88% 20.61% 24.10%
87% 75% 65% 57% 49%
841.66 1,499.83 2,249.14 3,148.60 4,223.39

urrent Valuation WACC

$ 70,209 Risk-Free Rate % 2.69%
3,365 Beta 1.27
ares Outstanding 430.60 Equity Risk Prem % 10.4000% 15.9%
urrent Share Price $ 163.05 Cost of Debt 2.84% 5%
rget Price (Perpetuity) $ 142 Tax Rate 24.12% 95%
Debt 3,365.40 2%
Equity 70,209.00 NOT SURE HOW TO FIND COST OF DEBT
WACC 15.3% COST OF EQUITY ATTACHED IN NEXT PAG

Terminal Value
Average growth 32.20%
Perp Growth 3.00%
EV/EBIT 8.7x
EV/EBITDA 25.5x
EV/Sales 1.8x
 Terminal Year
36,727.22 Netflix revenues are to grow at 32.20% per year as per Nasdaq predictions
3.00% terminal growth rate at 3%
20,351.43 CAGR used to forecast
55.41%
16,375.80
44.59%
8,921.74 CAGR used to forecast
24.29%
4,918.50 CAGR used to forecast
24.17%
2,535.55
6.90%
68.87
0.19%
7,454.06
20.30%
1,469.83 Using average rate of taxes
19.72%
5,984.23
16.29%

Terminal Year
68.87
405.54 CAGR used to forecast
1.10%
(2,269.74) forecasted using average
-6.18%
(469.65) forecasted using average
-1.28%
6,117.21
16.66%

51,353.27

Required return on equity

weight of debt
 weight of equity
After tax cost of debt
NOT SURE HOW TO FIND COST OF DEBT
OST OF EQUITY ATTACHED IN NEXT PAGE
Netflix Inc., required rate of return

Assumptions
Rate of return on LT Treasury Composite 2.69%
Expected rate of return on market portfolio 13.09%
Systematic risk () of Netflix's common stock 1.27

Required rate of return on Netflix's common stock 15.90%

Market Portfolio, PRAT model

Average 2016
Ratios
Retention rate 0.50
Profit margin 9.39%
Asset turnover 0.70
Financial leverage 2.82
Averages
Retention rate 0.57
Profit margin 9.39%
Asset turnover 0.78
Financial leverage 2.60
Estimates
Market portfolio dividend growth rate 10.86%
Add: Market portfolio dividend yield 2.23%
Expected rate of return on market portfolio 13.09%
Less: Risk-free rate of return 2.69%
Market portfolio risk premium 10.40%
2015 2014 2013 2012

0.50 0.58 0.64 0.64

9.00% 9.34% 10.21% 9.00%
0.72 0.81 0.82 0.85
2.72 2.55 2.41 2.50