In the next five financial of Netflix, estimated cash flow, costs, and revenue of the company is expected to increase at a yearly rate of approximately 23.75 percent. According to the trends of estimated income, costs and revenue as depicted by Netflix’s financial report the earning is expected to upsurge by 143.64 percent over what was experienced in the previous year for the next five years. Moreover, in the subsequent year, the company’s forecasted earning was expected to increase by 85.79 percent over what was earned in this contemporary year and this trend is foreshowed that will increase from 2013 to the next five years (Netflix, Inc. Analyst Forecasts Earnings Growth – nasdaq.com, 2017). On the other hand, Amazon.com expects to grow its revenue, costs and estimated cash flows over the next half a decade. The earning of the company is expected to increase by 33.55 percent over what the company experienced the previous year. The growth of the companies earning is expected to upsurge by 76. 55 percent over what the company had forecasted in the previous year (Amazon.com, Inc. Analyst Forecasts Earnings Growth – Nasdaq.com, 2017). The positive trends in the earning of the company are attributed to the ever-increasing subscribers to the company.
The appropriate discount rate for Netflix, Inc., and Amazon.com, Inc.’s forecasted cash flows.
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The future cash flow of Netflix Company is approximated to upsurge in the next a half a decade. The estimate was obtained by examining the cash flow of the company for the last four years. It was observed that the cash flow of the last four years was equal to the operating cash flow of the company minus the capital expenditure of the Netflix. For Amazon.com, the same trend is expected to be mirrored into the company’s cash flow over the next half a decade.
An appropriate risk-adjusted rate of return for use in evaluating an investment in Netflix, Inc., and Amazon.com, Inc.
Provided the investment horizon of thirty days, Netflix Inc. has a beta of -2.04790, the beta indicates the returns its benchmark growth, returns on holding Netflix Inc. are anticipated to decrease by same significant amount. Similarly, during market mayhem, Netflix Inc. is expected to outperform its benchmark. Moreover, Netflix has alpha which is negated, this implies that the risk that the company is exposed too by holding this type of equity is not vindicated. The company is underperforming DOW. Currently, the Risk Adjusted Performance of Netflix Inc. is 0.05 ( Netflix Risk Analysis – macroaxis.com, 2017). In contrast, Amazon.com has a positive alpha, implying that the risk that the company is exposed too by holding this type of equity is vindicated (Amazon.com Inc. 2017). The company is not underperforming DOW. Currently, the Risk Adjusted Performance of Netflix Inc. is 1.00
| Netflix |
|
= | (0.05) |
ER[a] = Expected return on investing in Netflix
RFR = Risk Free Rate of return. Typically T-Bill Rate
STD[b] = Standard Deviation of selected market or benchmark.
(Netflix Risk Adjusted Performance – macroaxis.com, 2017)
RAP = (ER[a] - RFR) * STD[b])/STD[b]
RFR
| Netflix |
|
= | (1.00) |
ER[a] = Expected return on investing in Amazon
RFR = Risk Free Rate of return. Typically T-Bill Rate
STD[b] = Standard Deviation of selected market or benchmark.
(Amazon Risk Adjusted Performance – macroaxis.com, 2017)
A determination of the estimated fair market value of 100% of Netflix, Inc., and Amazon.com, Inc.’s equity.
Estimated fair market value of 100% of Netflix Inc. and Amazon Inc. is calculated by multiplying the number of shares outstanding by the current share price. In 2013 the number of shares outstanding of Netflix was 425.33M and the current share price was 0.26, therefore, the estimated fair market value of Netflix was 110.5858 M. (FIN 552 Mergers and Acquisition: Netflix Valuation Report, 2017) whereas, in 2013 the number of shares outstanding of was 459,264,535 and the current share price was 358.69. Therefore the estimated fair market value of Netflix was 164,733,596,059 M (Amazon.com Inc. 2017) .
References
Amazon.com, Inc. (2017). Analyst Forecasts Earnings Growth – Nasdaq.com, 2017. Retrieved 29-6-2017 from: http://www.nasdaq.com/symbol/amzn/earnings-growth
FIN 552 Mergers and Acquisition: Netflix Valuation Report, 2017. Retrieved 30-6-2017 from https://www.slideshare.net/TriciaKubair/netflix-valuation
Netflix, Inc. Analyst Forecasts Earnings Growth – nasdaq.com, 2017. Retrieved 28-06-2017 from: http://www.nasdaq.com/symbol/nflx/earnings-growth
Netflix Risk Analysis – macroaxis.com, 2017. Retrieved 30-6-2017 from: https://www.macroaxis.com/invest/market/NFLX--volatility--Netflix-Inc
