MBA202 Financial Reporting Fall 2012

Haas School of Business Professor Xiao-Jun Zhang Case: Netflix

Please refer to the 2011 10-K report of Netflix in the course reader. 1.

Comment on any trend you observe in the company’s revenues, operating income, and net income from 2009 to 2011.

2.

How did Netflix finance its recent growth?

3.

What does “content library” (both current and non-current) on the company’s balance sheet represent?

4.

Discuss Netflix’s accounting policy for its content library. Roughly estimate how the 2011 net income would change if the company had been using the doubledeclining balance method for amortizing its content library. Explain your assumptions.

5.

Calculate the amount of average monthly revenue per subscriber for 2009, 2010, and 2011. Speculate on the reason for any trend in these numbers.

6.

To the best you can, forecast Netflix’s income statement, balance sheet and cash flow statement for 2012. List your assumptions.

7.

Compare the P/E ratio (price divided by basic earnings per share) of Netflix with Apple, Amazon, Google, Microsoft, Yahoo, and Facebook. Do you think Netflix is over-priced?