Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024

DOI: 10.54254/2754-1169/103/2024BJ0110

A Financial Analysis and Valuation of Netflix

Xuan Su1,a,*
1
School of Economics, Guangdong University of Technology, Guangzhou, 510520, China
a. [email protected]
*corresponding author

Abstract: As the streaming competition has intensified in recent years, Netflix has maintained
its highest subscriber base since its inception, and research has shown that Netflix's success
has had a significant impact on investors making the right investment decisions. This paper
examines why Netflix, a streaming platform, outperforms its competitors. Choose Comcast;
the other four most prominent companies in the entertainment industry, Walt Disney,
Paramount Global, and WBD, perform a comparative analysis of financial data on liquidity,
solvency, and profitability. The conclusion is that Netflix has plenty of liquidity, significant
even available funds, robust debt management, and excellent profitability. Based on valuation
analysis, it can be seen that Netflix has managed both its 𝛽𝐴 and financial performance well
and has a range of operational strategies. However, considering the unknown market changes
(such as stronger competitors and a possible slowdown in its user growth), its stock price is
considered to be overvalued when taking all factors into account.

Keywords: Netflix, Video Streaming Industry, Financial Valuation

1. Introduction
The video streaming industry is currently valued at over $500 billion. It is expected to grow to over
$1.9 trillion by 2030 at a CAGR of 19.3%. With that, the streaming platforms continue to rise [1].
Netflix is a leading company in streaming services with over 260 million paid memberships in over
190 countries and took up 20% market share in 2023 Q2. Even though Netflix stays on the top lists
and has the most significant number of subscribers, its market share has shrunk in recent years by
around 30% compared to 2021 (50%) [2]. Meanwhile, the video streaming industry has a lot of
competitors, and they are burgeoning in rocket paces—for example, Amazon Prime Video, Apple
TV+, Disney+, Hulu, etc.
According to the 2023 annual report, by region, Netflix has four main markets: the U.S. and
Canada (UCAN), Europe, the Middle East, and Africa (EMEA), Latin America (LATAM), and Asia-
Pacific (APAC), creating the local characteristics TV series or movies to fulfill the international and
diverse requirements [3]. For example, Squid Game, differing from the traditional romantic K-drama,
it made history at 2022’s SAG Awards.
As for business segments, Netflix operates as one operating segment; contents are derived from
two main methods: licensed or produced (original). In 2023, Netflix had $12.72 billion in licensed
content assets and $18.94 billion in produced content assets. According to the financial statement,
Netflix is trying to increase the portion of original content and decrease the licensing at the same time.

© 2024 The Authors. This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0
(https://creativecommons.org/licenses/by/4.0/).

33
 Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024
DOI: 10.54254/2754-1169/103/2024BJ0110

Netflix’s revenues are primarily derived from membership fees for services related to streaming
content for their customers, and these revenues increased by 7% to $33,640,458 in 2023. The other
business is traditional DVD renting, decreasing 43% from 2022. Overall, compared with 2022, the
total revenues increased by 7%. Including licensed content and produced content, in 2023, Netflix
had $12.72 billion in licensed content assets and $18.94 billion in produced content assets [3].
According to the financial statement, Netflix is trying to increase the portion of original content and
decrease the licensing at the same time.
On May 23rd, 2023, Netflix announced the crackdown on the password-sharing policy [4]. As
Netflix’s assessment, due to that policy, brought out in 2019 to face the decline of subscribers, there
were at least 1 billion users sharing accounts with others. On April 18th, 2024, Netflix said it would
stop telling the world how many subscribers it has. This partly triggered a fall in stock prices on April
19. This paper will analyze Netflix’s financial performance, valuation evaluation, strategy & risks by
comparing it with four other competitors.
2. Performance Evaluation
The financial report shows the company's operation well-being [5]. To better analyze Netflix's current
financial condition and security, the top 5 companies in the entertainment industry are selected as
comparisons. However, different companies have unique business segment markets and main
businesses. Netflix is the only pure player as a streaming service platform. The other four competitors
are all established US linear providers, to some extent, all having the streaming segments by acquiring
or building up subsidiaries. For example, Walt Disney has the original Disney+, and they took over
Hulu’s complete operational control from Comcast to expand their market share in November 2023,
keeping ESPN+ in Sports entertainment. Paramount Global, which was ViacomCBS, debuted its
Paramount+ in 2021. Comcast’s typical platforms are Peacock and Sky, and WBD has HBO Max.
Here are the performance evaluations from liquidity, solvency, and profitability [5].
2.1. Liquidity

Table 1: Liquidity ratios of Netflix and its competitors.

Company Name Current ratio Quick ratio Cash ratio
Netflix 1.12 1.12 0.68
Walt Disney 1.05 0.99 0.46
PARA 1.29 1.03 0.25
Comcast 0.60 0.49 0.15
WBD 0.93 0.64 0.25
Data source: Yahoo Finance & Stock Analysis

Generally, Netflix did a great job in liquidity management. It can be seen from Table 1 that its current
ratio, quick ratio, and cash ratio all showed at leading levels. Notably, both its current and quick ratios
reached 1.12, and its cash ratio is 0.68, meaning that Netflix has sufficient current assets to pay off
its current liability while keeping ample cash piles and instantly realizable assets. Notably, Netflix's
balance sheet does not reflect its inventory. This may be because Netflix products are basically digital
film and television productions; everything in the Netflix library is open to its subscribers. So, they
have very little, if any, negligible inventory. This results in an equal rate of current ratio and quick
ratio. At the same time, it can be seen from the quick ratio that they have a large number of assets
that can be instantly realized. This may be because the content is copyrighted most of the time; as
long as they sell their film and TV content to other companies or reap a lot of new subscribers, they
can get a lot of cash immediately.

34
 Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024
DOI: 10.54254/2754-1169/103/2024BJ0110

However, a higher cash ratio also presents an insufficient usage of their cash. Netflix can use that
cash to invest in some external potential investment opportunity, a standard method for publicly
traded companies to manage their assets. According to Netflix’s announcement in May 2023, its
expenses are directly associated with content acquisition, licensing, and production. Furthermore,
based on the increasingly saturated North American market, Netflix must expand the international
market, build up overseas offices, cultivate local teams, and acquire local studios to produce content
that matches subscribers’ tastes.
By contrast, other companies in the industry, such as Comcast, Walt Disney, Paramount Global,
and WBD, generally have lower liquidity data. For example, Comcast has a liquidity ratio of only
0.60, a quick ratio of 0.49, and a cash ratio of 0.15, to some extent indicating that Comcast may be
facing liquidity crises that make it challenging to meet their short-term liabilities [6]. The liquidity
indicators for Walt Disney and WBD are relatively low. These data comparisons highlight Netflix's
liquidity advantage, demonstrating that it is more solvent and flexible in the short term, providing a
solid financial basis for its continued growth. It also indicates the prospective future of the streaming
industry.
2.2. Solvency

Table 2: Solvency ratios of Netflix and its Ccmpetitors.

Company Name Total Debt Ratio Long-Term Debt Ratio Times-Interest-Earned
Netflix 0.58 0.29 9.29
Walt Disney 0.45 0.20 3.42
Paramount Global 0.57 0.27 -0.36
Comcast 0.68 0.36 6.01
WBD 0.62 0.34 -0.74
Data source: Yahoo Finance & Stock Analysis

Figure 1: Total debt ratio and long-term debt ratio (Photo/Picture credit: Original).

Solvency ratios indicate whether a company’s cash flow is sufficient to meet its long-term liabilities
and thus measure its financial health. An unfavorable ratio can indicate some likelihood that a
company will default on its debt obligations.

35
 Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024
DOI: 10.54254/2754-1169/103/2024BJ0110

Based on the company's total liabilities as a percentage of its total assets, Netflix's 0.58 indicates
that more than half of its assets are financed through debt (see Table 2). Still, Netflix's performance
is at the median of five companies, mainly on the industry average, by industry comparison, as Figure
1 shown. At the same time, in terms of long-term debt ratios, Netflix relies relatively less on long-
term debt financing and tends to use short-term debt or other financing instruments. However, Netflix
has a much higher interest protection multiple (9.29) than its competitors, indicating that it is more
profitable to cover its interest costs. In contrast, Paramount Global and WBD's interest protection
multiplier is negative, showing that their earnings are insufficient to cover interest costs, which may
increase their debt servicing risk.
In case Netflix might meet some massive repayment due, after checking its 2023 annual report, it
indicates that Netflix has less pressure to repay in 2024. However, in FY 2025, it will be necessary to
repay the $1,819 million long-term debt. In addition, long-term liabilities of up to $3,500 million
must be repaid even in FY 2028. Netflix, which may currently appear to have less pressure on long-
term debt, will have more repayment pressure in 2025 and 2028. Despite its low long-term debt ratio,
Netflix's interest protection multiplier remains high, indicating a more cautious financial strategy to
ensure long-term solvency.
2.3. Profitability

Table 3: Profitability ratios of Netflix and its competitors.

Company Name Profit Margin Operating Margin Asset Turnover
Netflix 16.00% 21.00% 69.00%
Walt Disney 3.00% 10.00% 44.00%
Paramount Global -2.00% -2.00% 51.00%
Comcast 13.00% 19.00% 47.00%
WBD -8.00% -2.00% 31.00%
Data source: Yahoo Finance & Stock Analysis

Figure 2: Profitability ratios (Photo/Picture credit: Original).

According to Table 3, Netflix excels at profitability. Profit Margin, Operating Margin, and Asset
Turnover, 16.00%, 21.00%, and 69.00%, respectively, are significantly higher than those of other
competitors. This data shows that Netflix retains higher profits per sale, its core business profitability
is considerably better than that of the rest of the industry, and it leverages its assets more efficiently

36
 Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024
DOI: 10.54254/2754-1169/103/2024BJ0110

to generate sales. This data highlights Netflix's profitability lead (see Figure 2), allowing it to maintain
a competitive edge while providing investors with more attractive investment opportunities.
Thanks to the development of the Internet, unlike traditional cable TV manufacturers, the
streaming platform has broken through the ceiling as users only need to use mobile devices and watch
videos individually on demand. As a result, Netflix absorbs 200 million subscribers from 192
countries. They have significantly increased subscription revenue while consistently taking the
audience first in the business process. Early adoption of the "de-advertisement" strategy gained a
large fan base, later by adjusting subscription plans. Give users a cost-effective viewing experience.
On the contrary, while several major media companies have primarily established a monopoly on
the production, licensing, and distribution of film and television content, "Copyright + Box Office +
TV Subscription + Advertising" is a rigid profit model that also prevents them from meeting the trend
of the Internet era [7]. The pace of building streaming platforms is losing ground in the battleground
of the streaming industry [8]. Additionally, Netflix’s global subscription model allows its content to
cover members from all over the world, having higher scalability and stability, and its flexible pricing
strategy will enable it to quickly adapt to the global market, for example, the secret sharing policy in
2022, and ad-offering plan in 2023.
3. Valuation
3.1. Forcast

Table 4: Valuation forcast of Netflix and its competitors.

Netflix Walt Disney Paramount Global Comcast WBD
Market Value Of Equity 239.29B 206.56B 8.53B 159.91B 20.59B
Market Value Of Debt 16.6B 47.69B 16.12B 103.68B 47.29B
Enterprise Value 246.69B 247.06B 21.93B 250.78B 60.48B
Leverage 6.73% 19.30% 73.51% 41.34% 78.19%
Total debt/equity (mrq) 77.70% 45.20% 69.92% 124.21% 101.76%
Debt-To-Equity Ratio 0.71 0.47 0.7 1.17 0.97
EPS (TTM) 12.05 1.63 -2.06 3.48 -1.28
P/E Ratio (TTM) 46.14 69.09 N/A 10.85 N/A
Marginal Corporate Tax 13.00% 21.00% 18.00% 26.00% 16.00%
Rate
Equity Beta(𝛽) 1.22 1.39 1.78 0.97 1.49
Business risk(𝛽𝐴 ) 1.32 1.80 7.74 1.85 7.81
Data source: Yahoo Finance & Stock Analysis

Based on Table 4, Netflix has the highest market capitalization among all companies, surpassing
established broadcast and cable TV manufacturers. This shows that the market is optimistic about
Netflix's financial condition and is willing to invest in its profitability and potential growth. For
leverage comparison, Netflix did not finance a large-scale debt, only 6.73%. On a side note, it has
sufficient assets to uphold its expansion. Total debt/equity illustrates the company's book value ratio.
Netflix has a middle-level ratio of 77.7% compared with WBD and Comcast, which is still acceptable.
𝛽𝐴 is a straightforward and efficient index to measure the operational risk of a corporation. As
regards the calculation results, Netflix has the smallest 𝛽𝐴 1.32 of the five companies, but it is still
above 1, which means the fluctuation is more intense than the whole market. By contrast, Paramount
Global and WBD had dramatic figures of over 7, so they might have more unstable stock prices and
be in an insecure position in the market, which might cause investors to have a risk of trust. Several

37
 Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024
DOI: 10.54254/2754-1169/103/2024BJ0110

factors generate Netflix's relatively low business risk, and the analysis below will focus on Netflix's
business strategy.
3.2. Strategy & Risks
Internet and Technology Support: Communications technology breakthrough innovation, driving the
global video industry into the streaming media era, Netflix captured the opportunity to transform from
a DVD lens company to a streaming platform. Netflix's main service was SVOD, which is very
different from traditional linear television. The users can enjoy the content whenever and wherever
they want on their mobile devices, such as iPads and smartphones, so it is available to attract more
consumers to shift their entertainment expenses to streaming companies like Netflix [9]. Since then,
Netflix accumulated amounts of subscribers. In contrast, fewer people tended to choose linear
providers [7]. Besides, since 2006, recommendation, big data, and machine learning have been critical
factors in improving their service offerings to keep recommend contents that correspond to the
subscribers’ interest, increasing user stickiness to the platform [10, 11]. On 2023 April 18th, Netflix
officially became a technology company after it abandoned its DVD-by-mail business.
Producing original content to expand across the globe: In August 2017, Disney announced that
"the partnership agreement with Netflix is no longer renewed and no new content will be available
for 19 years". This means that other companies copyright the content on the platform. Termination of
cooperation will directly result in losing users, especially in cases such as Marvel and Star Wars, epic
films with many avid fans worldwide. Fans will choose the same streaming company because they
can keep watching the movie. Similarly, fans who had left would re-subscribe to the original package
for a new series season. That's the main reason Netflix insists on producing original content, and its
original content attracts more users [12]. For example, in 2021, Squid Game became Netflix's most-
watched TV series ever. The show had more than 132 million global viewers in the first 23 days,
more than the 111 million previously counted. Wednesday II and Squid Game II are about to become
public in 2024, which might lead to a new round of user growth for Netflix. The only thing that
remains unchanged is that no one will buy a member of the streaming media that doesn't match the
user's needs. Therefore, Apart from acquiring and licensing content from other studios or partners,
Netflix keeps producing original content.
Non-Anglophone shows have been a hit. On March 14, 2024, according to Variety’s news, Netflix
spent more money outside North America to produce the series. For the first time, Netflix's overseas
content spending will exceed North American expenditures (see Figure 3). According to U.S.
entertainment media variety 3.12 news, third-party agencies, Netflix $1.54 million this year for
content production, half of which will be spent outside North America (see Figure 4). Variety's
analysis suggests that content production and production costs in international markets are much
lower than in the United States. American audiences have been more open to non-English content in
recent years, such as the Squid Game [13]. Still, its production costs are less than 10/4 of Oddball's
fourth season, and the local U.S. streaming market is getting saturated.
Under the growth pressure, streaming companies are looking to ramp up content production in
other regions, producing more content consistent with local culture and aesthetics [14]. For example,
as the number of subscribers in North America grows in Africa and India, streaming companies also
know the need to rely on new markets for future growth.

38
 Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024
DOI: 10.54254/2754-1169/103/2024BJ0110

Figure 3: Regional revenues ratio in 2023 (Photo/Picture credit: Original).

Figure 4: Content expense (Photo/Picture credit: Original).

Restrict sharing secret policy: In April 2022, Netflix introduced a shared password policy for the
first time in a decade as subscribers and profits plummeted. However, on May 24, 2023, to tap
potential users to inspire a new round of user growth, Netflix's new sharing policy cracks down on
users using shared accounts outside of the household. They can choose to subscribe to their account
alone using Netflix. Or pay per extra member for $7.99/month. Netflix gains nearly 6M subscribers
as paid sharing soars [15].
Ad-supported subscription plan: Adjusting the subscription scheme, on the one hand, raising the
price of the Premium from $17.99 per month to $19.99 per month and Standard from $13.99 per
month to $15.49 per month, and on the other hand, introducing the low-prized + advertising plan,
Netflix launched an advertised but lower-priced $6.99 pay plan in August 2022, which was chosen
by about 40% of users, with significant results.
Netflix may face slowing growth. On April 18th, 2024, Netflix said it would stop telling the world
how many subscribers it has every season, published only when significant milestones are reached.
And they hope investors pay attention to traditional indicators such as income and operating margins.
The news triggered a plunge in Netflix shares on April 19. Some analysts express their concern that
revenue guidance implies a decelerating rate of sales growth in the second half of 2024, and Netflix’s

39
 Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024
DOI: 10.54254/2754-1169/103/2024BJ0110

announcement that it will cease reporting subscriber numbers in 2025 may be a sign subscriber growth
is due to cool.
With the rise of rival streaming platforms, Netflix’s market share has kept dropping. The
competitors include other streaming entertainment service providers, linear television, broadcast, etc.
Different streams have matured over time to provide viewers with more quality content, posing a
considerable challenge for Netflix [2].
4. Conclusion
For investors, Netflix’s current stock price is overvalued. According to the financial performance and
valuation analysis, Netflix has a healthier financial condition than other competitors, Comcast, WBD,
Walt Disney, and Paramount Global, with relatively higher liquidity ratios and ample cash flow to
support its further strategies. Although Netflix's solvency levels are at the center of the competition,
concerning Netflix's more stressful repayments in 2025 and 2028, the likelihood of successful
repayment is high based on Netflix's strategy to expand revenue channels and past puncture
repayment records. Netflix's profitability performance was remarkable, with three metrics higher than
the rest of the business, and growing user data year on year was superficially popular.
Valuation analysis shows that Netflix has a lower business risk with lower 𝛽𝐴 . Besides, despite the
North American streaming industry’s growth gradually slowing down, competitors quickly capture
market share. Netflix is actively responding to market changes, including implementing global
strategies, flexible alignment of subscription programs, rich revenue channels to introduce advertising,
and more, controlling business risk within a healthy range. However, after the growth of the password
policy and ad-supported plan, what is the subsequent increase in empowerment to support its debt?
The main contribution of this paper is to analyze the main reasons behind Netflix's frequent
adjustments to subscriptions, which are stressful to Netflix's growth, as well as to analyze Netflix's
unique growth strategies and risks. Help other researchers analyze the characteristics of the streaming
industry and help investors understand Netflix's value, prospects, and future growth potential.
This study is limited in length and focuses on subscription plans, original content, and technology
support in the Business Strategy Analysis section. Without considering Netflix's gaming business, to
some extent, the research is incomplete, and future research can provide a more complete analysis of
Netflix's business strategy. Financial Data Comparison In contrast to valuation analysis, this paper
uses a lateral comparison approach, which mainly compares Netflix with other competitors in the
entertainment industry and lacks a lateral comparison of Netflix's previous and current data.
References
[1] Duarte, F. (2024). Video Streaming Services Stats (2024). Retrieved from https://explodingtopics.com/blog/video-
streaming-stats
[2] Sneha Pandey, I. M. (2023). Netflix’s Market Share Decline Continues In 2023: Analysis Of Leading Streaming
Platforms. Retrieved from https://www.similarweb.com/blog/insights/media-entertainment-news/streaming-q1-
2023/
[3] Netflix. (2024). 2023 Netflix Annual Report. Retrieved from https://ir.netflix.net/financials/annual-reports-and-
proxies/default.aspx
[4] Netflix. (2023). Update on Sharing. Retrieved from https://about.netflix.com/en/news/update-on-sharing-may-us
[5] Wang, Y. T., & Destech Publicat, I. (2016). Financial Analysis Based on Financial Reports and Suggestions. Paper
presented at the International Conference on Management, Economics and Social Development (ICMESD), Wuhan,
China.
[6] Choudhary, M. A., & Limodio, N. (2021). Liquidity Risk and Long-Term Finance: Evidence from a Natural
Experiment. The Review of Economic Studies, 89(3), 1278-1313.
[7] Chen, R. (2023). Overview and analysis of the current development of the traditional media industry in the United
States. Journal of Chinese Radio & Television, (11), 77-80.

40
 Proceedings of Innovative Strategies in Microeconomic Business Management - ICEMGD 2024
DOI: 10.54254/2754-1169/103/2024BJ0110

[8] Yu, Y. (2019). Valuation analysis of the streaming media industry based on Netflix company, Huazhong University
of Science and Technology.
[9] Zhang, C. (2023). Analysis of competitive advantage of streaming media platforms based on VRIO perspective,
Donghua University.
[10] Wayne, M. L. (2022). Netflix audience data, streaming industry discourse, and the emerging realities of ‘popular’
television. Media, Culture & Society, 44(2), 193-209.
[11] Kübler, R., Seifert, R. & Kandziora, M. (2021). Content valuation strategies for digital subscription platforms. J
Cult Econ 45, 295–326.
[12] Wayne, M. L., & Uribe Sandoval, A. C. (2023). Netflix original series, global audiences and discourses of streaming
success. Critical Studies in Television, 18(1), 81-100.
[13] Liu, Y. (2023). A study on the global localization path of Netflix and South Korean co-produced dramas, Northeast
Normal University.
[14] Lotz, A. D. (2021). In between the global and the local: Mapping the geographies of Netflix as a multinational
service. International Journal of Cultural Studies, 24(2), 195-215.
[15] Sperling, N. (2023). Netflix Starts to Crack Down on Password Sharing. International New York Times. Retrieved
from link.gale.com/apps/doc/A751163939/AONE?u=anon~2d3ee9a&sid=googleScholar&xid=7b90c22f.

41