Valuing High-growth Companies: A Case Study of Netflix Inc

Karolis Vilkevicius & Ignas Stanislovaitis

Student thesis: Master thesis

Abstract

The purpose of this thesis is to identify the most difficult challenges when valuing high – growth companies. Secondly, based on theoretical research and historical real life experience to find solution for the main obstacles that analysts face with during computations of fair value of the high – growth enterprise. Thirdly, as an example – Netflix Inc. was chosen to be investigated. Nowadays, especially in Internet Industry, a lot of companies show off unbelievable high financial results (Only 31,78% of all young start – up’s survive 7 years). A lot of investors and business analysts do try to measure whether such firms are expected to maintain the growth, how long booming period will last and to determine the maximum potentiality of the enterprise. Deep analysis of phenomenon were conducted and the most important information was collected from the various reports (Deutsche Bank, Morgan Stanley, UBS Evidence Lab etc.), educational books and other reliable articles to detect the main differences between valuing standard and high – growth companies. The structured theoretical solution was identified and represented in this project. Netflix Inc. – a company that has been featuring booming period recently, started expansion into new markets since the growth pace in Domestic Segment is slowing down. Innovative and modern products of Netflix are expected to conquer the foreign markets. In order to determine competitiveness of the company and its product, many strategical analysis were applied: SWOT, Porter’s 5 Forces, VRIO. Furthermore, the profitability analysis were conducted too in order to determine the firm’s effectiveness, risks, financial structure etc. Based on the findings from the strategic and financial analysis, the high – growth companies’ value is mainly depended on the estimates of the revenue (potential market size & growth rate), and the operational margin. Due to implemented Scenario Analysis, the price of stock of Netflix Inc. is estimated to vary from 67,18 USD to 202,23 USD.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2017
Number of pages101