As we are still in the Chinese New Year period, I’d like to wish all my Chinese readers 恭喜发财!🍊🧧🍊 I hope you’ve had a great long weekend celebrating it with your loved ones. 😊

While a lot of companies saw their businesses being severely impacted as a result of lockdowns and movement restrictions implemented by governments all around the world in an attempt to curb the further community spread of the virus, one of the companies that have benefitted from this (in my personal opinion) is Netflix Inc. (NASDAQ:NFLX), as people spend more time in front of their television at home.

The NASDAQ-listed company is current the world’s #1 subscription streaming entertainment service with over 167 million paid streaming memberships in over 190 countries around the world!

With a financial year-end every 31 December, Netflix Inc. released its full-year results for the financial year 2020 (ended 31 December 2020) a couple of weeks ago (on 19 January 2021.) In my writeup today about the video streaming company, you will learn about its financial performance, as well as its debt profile over the past 6 years (between FY2015 and FY2020), whether or not its current share price is considered cheap or expensive, as well as my personal opinions to share.

Let’s begin…

Netflix Inc.’s Financial Performance between FY2015 and FY2020

Total Revenue & Net Profit (US$’mil):

FY2015FY2016FY2017FY2018
Total Revenue
(US$’mil)
$6,780m$8,831m$11,693m$15,794m
Net Profit
(US$’mil)
$123m$187m$559m$1,211m
FY2019FY2020
Total Revenue
(US$’mil)
$20,156m$24,996m
Net Profit
(US$’mil)
$1,867m$2,761m

Netflix Inc.'s Total Revenue and Net Profit between FY2015 and FY2020

One of the reasons why I was drawn into the company was its improving top- and bottom-line every single year over the past 6 years I have looked at – the former saw a compound annual growth rate (CAGR) of 24.3%, while the latter grew at a CAGR of 68.0% – an impressive feat in my opinion.

Gross & Net Profit Margin (%):

The following are Netflix’s gross and net profit margins over the past 6 years I’ve calculated:

FY2015FY2016FY2017FY2018
Gross Profit
Margin (%)
32.3%29.1%31.3%36.9%
Net Profit
Margin (%)
1.8%2.1%4.8%7.7%
FY2019FY2020
Gross Profit
Margin (%)
38.3%38.9%
Net Profit
Margin (%)
9.3%11.0%

Netflix Inc.'s Gross and Net Profit Margin between FY2015 and FY2020

The company’s growth in its gross and net profit margin is also equally impressive – the former have recorded improvements every single year since FY2016, where it went up from 29.1% to 38.9% in FY2020; the latter saw year-on-year (y-o-y) improvements every single year over the entire 6-year period I’ve looked at – from 1.8% in FY2015 to 11.0% in FY2020.

Return on Equity (%):

Another statistic I look at when I study about a particular company is its Return on Equity (RoE) – in layman terms, it is a measure (in percentage terms) the amount of profits a company is able to generate for every dollar of shareholders’ money it uses in its businesses.

With that, the following table is Netflix’s RoE over the past 6 years which I’ve calculated:

FY2015FY2016FY2017FY2018
Return on
Equity (%)
5.5%7.0%15.6%23.1%
FY2019FY2020
Return on
Equity (%)
24.6%25.0%

Netflix Inc.'s Return on Equity between FY2015 and FY2020

I’m happy to note that its RoE have climbed over the years – from 5.5% in FY2015 to a high of 25.0% in FY2020; Also, just like the growth over the years in its top- and bottom-line, as well as its net profit margin, Netflix’s RoE have also recorded improvements in all of the 6-years I have looked at.

Debt Profile of Netflix Inc. between FY2015 and FY2020

Apart from a company’s financial performance, in my personal opinion, it is also equally important to also look at its debt profile to make sure it does not take on too much debt than it can handle.

The following table is Netflix’s debt profile between FY2015 and FY2020:

FY2015FY2016FY2017FY2018
Cash & Cash
Equivalents
at the End of
Period
(US$’mil)
$1,809m$1,468m$2,823m$3,812m
Total
Borrowings
(US$’mil)
$2,371m$3,364m$6,499m$10,360m
Net Cash/
Debt
(US$’mil)
-$562m-$1,896m-$3,676m-$6,548m
FY2019FY2020
Cash & Cash
Equivalents
at the End of
Period
(US$’mil)
$5,044m$8,239m
Total
Borrowings
(US$’mil)
$14,759m$16,309m
Net Cash/
Debt
(US$’mil)
-$9,715m-$8,070m

While the company was able to improve on its cash and cash equivalents over the past 6 years (it recorded a CAGR of 28.7%), but it also took on an increasing amount of borrowings, where its total borrowings grew at a CAGR of 37.9% over the same time period. As its total borrowings grew faster than its cash and cash equivalents, the company was in an increasing net debt position in all of the 6 years I have looked at (except for in FY2020, where its net debt position have recorded a slight improvement compared to the previous year.)

Is the Company Able to Fulfil its Short-Term Debt Commitment?

To find out whether or not a company is able to fulfil its short-term debt commitments, we can look at its current ratio – if it is above 1.0, it means that the company have no problem in fulfilling its short-term debt commitments.

With that, let us take a look at Netflix’s current ratio over the past 6 years which I’ve calculated:

FY2015FY2016FY2017FY2018
Current
Ratio
1.51.21.41.5
FY2019FY2020
Current
Ratio
0.91.3

From the calculated ratios above, Netflix’s current ratio have been maintained at above 1.0 in all but one of the years – meaning that it is able to fulfil its short-term debt obligations.

Is Netflix’s Current Share Price Considered Cheap or Expensive?

One of the ways I use to find out whether or not the current share price of a company is considered cheap or expensive is to compare its current valuations (based on its current share price) against its average.

The following table is Netflix’s historical valuations over a 6-year period (between FY2015 and FY2020), as well as its average I’ve calculated (notice that the dividend yield is missing because the company does not pay out any dividend over the 6 years I have looked at):

FY2015FY2016FY2017FY2018
P/E Ratio408.5287.9153.699.9
P/B Ratio22.019.923.222.3
FY2019FY2020Average
P/E Ratio78.388.9186.2
P/B Ratio18.721.621.3

At the time of writing, the shares of Netflix was trading at $556.52. As such, its current valuations are as follows (taken from the ShareInvestor WebPro platform):

P/E Ratio: 89.3
P/B Ratio: 22.3

Comparing its current vs. its 6-year average in terms of valuations, even though its current P/B ratio is slightly higher than its average, but its current P/E ratio is way lower than its average – suggesting that Netflix’s current traded price could be considered to be trading at a slight discount.

What is the Consensus Estimate on the ShareInvestor WebPro Platform?

At the time of writing, the consensus estimate on the ShareInvestor’s WebPro platform is $630.14:

Consensus Estimates of Netflix's Share Price on the ShareInvestor WebPro Platform

Based on its current traded price of $556.52, there still remains a 11% upside.

In Conclusion

While I like how Netflix Inc. have managed to record strong improvements in its financial statements over the past 6 years (between FY2015 and FY2020), but one thing to take note is that the company is in an increasing net debt position over the same time period.

No doubt its current share price seem to be at a slight discount at the moment, but you need to ask yourself whether or not you are comfortable with investing in a company where its total borrowings have been on the rise over the years. However, despite having said that, this post is by no means a recommendation for you to buy or sell shares of Netflix Inc. As always, please do your own due diligence before you make any investment decisions.

With that, I have come to the end of today’s share. I do hope you find the contents above useful and here’s wishing you a great day ahead!

Disclaimer: At the time of writing, I am not a shareholder of Netflix Inc.

 

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