Introduction

Netflix, Inc. (NFLX) operates as one operating segment. Its’ revenues are primarily derived from monthly membership fees for services related to streaming content to Netflix ‘s members. 

Profitability analysis

Year ended December 31,
		2023				2022				2021
Revenues		$	33,723,297			$	31,615,550			$	29,697,844
Cost of revenues		19,715,368				19,168,285				17,332,683
Marketing		2,657,883				2,530,502				2,545,146
Technology and development		2,675,758				2,711,041				2,273,885
General and administrative		1,720,285				1,572,891				1,351,621
Operating income		6,954,003				5,632,831				6,1

Netflix’s revenues were $33.7 billion,$31.6 billion and $29.7 billion in 2023,in 2022 and in 2021,respectively.

Netflix’s revenues in 2023 was up $2.1 billion or 6.65% year-on-year.

Netflix’s revenues in 2022 was up $1.9 billion or 6.4% year-on-year.

We could see that Netflix’s revenues seems to be stuck at a bottleneck. Netflix should not be a growth stock.

Netflix reported cost of revenues of $19.7 billion,$19.17 billion and $17.3 billion, respectively.

The gross profit margin was 41.5%, 39% and 41.7% in 2023, in 2022 and in 2021, respectively.

The gross profit margin is relatively low, compared with Google and Meta.

Income before income taxes		6,205,405				5,263,929				5,840,103
Provision for income taxes		(797,415)				(772,005)				(723,875)
Net income		$	5,407,990			$	4,491,924			$	5,116,228

Net income was $5.4 billion,$4.49 billion and $5.11 billion in 2023,in 2022 and in 2021,respectively.

The net profit margin was 16%,14.2% and 17.2% in 2023, in2022 and in 2021,respectively.

The net profit margin is better than we expect.

Net cash provided by operating activities in 2023 was $7.27 billion. Net cash provided by operating activities in 2023 was more than net income in 2023, which indicate that the quality of earnings is high.

Asset structure analysis

Netflix’s total assets were $48.73 billion and $48.6 billion in 2023 and in 2022,respectively.

Netflix reported content assets, net of $31.66 billion as of December 31,2023, a decrease of 3%, compared with $32.73 billion as of December 31,2022.

The ratio of content assets, net to total assets was very high, which reached 65%. This has to do with its business model.

Liquidity and solvency analysis

Total current assets were $9.9 billion as of December 31,2023.

Total current liabilities were $8.86 billion as of December 31,2023.

The current ratio was about 1.1 to 1. Is the current ratio bad? Answer is no.  Why? Because cash in total current assets hit $7.1 billion as of December 21,2023, which is dominant in total current assets.

As of December 31, total non-current liabilities was about $20 billion, which need cash flow to support it.

Net cash provided by operating activities was $7.28 billion, $2.0 billion and $0.4 billion in 2023, in 2022 and in 2021,respectively.

We could see that net cash provided by operating activities in 2023 is far more than 2022. Because additions to content assets in 2023 were $12.55 billion, down from $16.8 billion in 2022. The difference is $4.25 billion , which would lead to a increase in net cash .

We guess that the decrease in additions to content assets in 2023 is due to running out of money. If Netflix in net cash provided by operating activities only had $2 billion every year for a long time, it would not be enough. Because Netflix need to repurchasing stock and service debt.

Good news is that there was no decline in revenues.

Cash flow analysis

Actually, we have already analyzed a lot of it.

We will just say one thing. Netflix’s net cash provided by operating activities is extremely unstable, which may be related to business model and fierce competition.

From a cash flow perspective, Netflix dose not seems to build a competitive advantage.

Summary

Netflix’s net cash provided by operating activities is extremely unstable. The valuing is very difficult.

We reckon that Netflix’s reasonable market capitalization is $100 billion to $150 billion.