Third-quarter disposable income moved from 29 cents per share to 89 cents per share. This growth is derived from the change in the total earnings where Netflix net income surged to $403m from $130. The estimated revenue increment considering the increase in the value of a single share is over 30 % .However, analysts estimate the revenue to be $4b hence moving the earning per share to 68 cents from 89 cents ( Netflix, 2018) .
From the information provided by the expert analysis, Netflix shares have dropped by over 16% in the recent past. But still Netflix is still the leading streaming company having added HBO recently. This is unusual for most company considering the fact that the company original content was rolled out in the year 2013 ( Lüsted, 2013) . The reported increment for the company’s revenue is estimated to have improved by 33 % on third quarter. The following calculation will depict the estimated revenue growth for the company.
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According to the third quarter results, it seems that over 30% increase the revenue growth rate place Netflix in a good position as a technology firm ( Waite, 2012) . The company’s five years growth rate for operating margin basis is estimated to be 22% per year ( Netflix, 2018) . When estimating the terminal value of Netflix, discounted cash flow statement, liquidation value which is the present value and book value is the ideal technique to consider. Using the Discounted Cash flow approach, the intrinsic value is calculated with default parameters. Netflix terminal value is estimated based on the cash flow growth rate.
Considering the calculation in the excel worksheet, Netflix terminal value estimated growth rate is 10%. The rate is derived from assessing the tangible net book value (NBV) per share (Waite, 2012) . Unlike Net Current Asset, Median Ratio among other valuation methods, the discounted cash flow model assuming that the company has a constant rate of growth, the company can evaluate its terminal value on the basis of earnings per share and not Netflix’s assets
References
Lüsted, M. A. (2013). Netflix: The company and its founders . Minneapolis, MN: ABDO Pub.
Netflix Inc. (NFLX) | PV of FCFE. (2018). Retrieved from https://www.stock-analysis-on.net/NASDAQ/Company/Netflix-Inc/DCF/Present-Value-of-FCFE
Waite, T. (2012). Terminal value: A novel . United States: Marlborough Press.
