Is Netflix Worth its Valuation?

Netflix has grown to become a $180 billion dollar Market Cap company. If you add their net debt, that adds up to a total capitalization – aka Enterprise Value – of $192 Billion.  Not bad for a company founded in 1997. Not bad at all.

Price Per Potential Subscriber

If you divide the $192 billion Enterprise Value by the 236 million people that populate the United States of America, you arrive at a value of about $815 per each compatriot of Wilmont Reed Hastings Jr. This is where you might point out that Netflix is a global brand with a global audience. Well, that computation, my friend, would allocate $25 worth of Netflix per human inhabitant of the earth.

NFLX EV/EBITDA Multiple

In the last twelve months, Netflix’s Earnings Before Interest, Tax, Depreciation and Amortization was $2 billion. That means that Netflix is trading at a multiple of 96 times its trailing EBITDA. Disney, by comparison, is trading at a multiple of 11.

So, imagine this scenario: For the next 10 years, Netflix grows its EBITDA by an annual rate of 24.19%. At the end of the tenth year, Netflix’s EBITDA will have reached $17.5 billion. That’s a very healthy growth. But for this to happen, paid subscriptions would have to be close to 1 billion.

Needless to say, a Netflix with 1 billion subscribers does not have the same growth potential as a Netflix with 130 million paid subscribers. What if Netflix was now trading at the same multiple as Disney is trading at today? That would mean that after ten years the enterprise value of Netflix would be $192 billion.

Price is what you pay for. Value is what you get.

 

 

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Gísli Eyland

There are just too many interesting things going on

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