Expert answer:Generate a pro forma forecast
Solved by verified expert:Imagine that you are a financial advisor for Netflix, Inc., and Amazon.com, Inc. You are tasked with creating a comprehensive forecast of the revenue, costs, and cash flows of these companies, answering key questions that may influence their future decisions. Use the Netflix and Amazon Data Spreadsheet to generate a pro forma forecast and consider what this indicates about the future for these two companies. In a 2-page paper, provide the following: A forecast of Netflix, Inc., and Amazon.com, Inc.’s revenue, costs, and estimated cash flows into the next five years.The appropriate discount rate for Netflix, Inc., and Amazon.com, Inc.’s forecasted cash flows.An appropriate risk-adjusted rate of return for use in evaluating an investment in Netflix, Inc., and Amazon.com, Inc.A determination of the estimated fair market value of 100% of Netflix, Inc., and Amazon.com, Inc.’s equity.
netflixamazondataspreadsheet.xls
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Netflix Inc.
2012
2013
Revenues
Cost of revenues*
Marketing*
Technology and development
General and administrative
Operating income (loss)
Other income (expense):
Interest expense
Interest and other income (expense)
Loss on extinguishment of debt
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Earnings per share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
$
3,609,282 $
2,652,058
439,208
329,008
139,016
49,992
4,374,562
3,117,203
469,942
378,769
180,301
228,347
$
(19,986)
474
30,480
13,328
17,152 $
(29,142)
(3,002)
(25,129)
171,074
58,671
112,403
$
$
.31 $
.29 $
1.93
1.85
55,521
58,904
58,198
60,761
2014
$
5,504,656
3,752,760
607,186
472,321
269,741
402,648
$
(50,219)
(3,060)
349,369
82,570
266,799
$
$
4.44
4.32
60,078
61,699
Netflix Inc.
2012
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Current content library, net
Other current assets
Total current assets
Non-current content library, net
Property and equipment, net
Other non-current assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Current content liabilities
Accounts payable
Accrued expenses
Deferred revenue
Total current liabilities
Non-current content liabilities
Long-term debt
Long-term debt due to related party
Other non-current liabilities
Total liabilities
Stockholders’ equity:
$
$
$
Total stockholders’ equity
Total liabilities and stockholders’
$ equity
2013
290,291 $
457,787
1,368,162
124,551
2,240,791
1,506,008
131,681
89,410
3,967,890 $
604,965
595,440
1,706,421
151,937
3,058,763
2,091,071
133,605
129,124
5,412,563
1,366,847 $
86,468
53,139
169,472
1,675,926
1,076,622
200,000
200,000
70,669
3,223,217
1,775,983
108,435
54,018
215,767
2,154,203
1,345,590
500,000
79,209
4,079,002
56
301,616
2,919
440,082
744,673
3,967,890 $
60
777,441
3,575
552,485
1,333,561
5,412,563
2014
$
$
$
$
1,113,608
494,888
2,125,702
206,271
3,940,469
2,773,326
149,875
192,981
7,056,651
2,117,241
201,581
69,746
274,586
2,663,154
1,575,832
900,000
59,957
5,198,943
60
1,042,810
(4,446)
819,284
1,857,708
7,056,651
Netflix Inc.
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Additions to streaming content library
Change in streaming content liabilities
Amortization of streaming content library
Amortization of DVD content library
Depreciation and amortization of property, equipment and intangibles
Stock-based compensation expense
Excess tax benefits from stock-based compensation
Other non-cash items
Loss on extinguishment of debt
Deferred taxes
Changes in operating assets and liabilities:
Other current assets
Accounts payable
Accrued expenses
Deferred revenue
Other non-current assets and liabilities
Cash flows from investing activities:
Acquisition of DVD content library
Purchases of property and equipment
Other assets
Purchases of short-term investments
Proceeds from sale of short-term investments
Proceeds from maturities of short-term investments
Cash flows from financing activities:
Proceeds from issuance of common stock
Proceeds from issuance of debt
Issuance costs
Redemption of debt
Excess tax benefits from stock-based compensation
Principal payments of lease financing obligations
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Non-GAAP free cash flow reconciliation:
Net cash provided by (used in) operating activities
Acquisition of DVD content library
Purchases of property and equipment
Other assets
Non-GAAP free cash flow
2012
$
ontent library
tent liabilities
g content library
17,152 $
2013
112,403
(2,515,506)
762,089
1,591,218
65,396
45,469
73,948
(4,543)
(8,392)
(30,071)
(3,049,758)
673,785
2,121,981
71,325
48,374
73,100
(81,663)
5,332
25,129
(22,044)
urrent assets and liabilities
Net cash provided by (used in) operating activities
(5,432)
(4,943)
9,806
20,676
4,719
21,586
62,234
18,374
1,941
46,295
(8,977)
97,831
Net cash provided by (used in) investing activities
(48,275)
(40,278)
8,816
(477,321)
282,953
29,365
(244,740)
(65,927)
(54,143)
5,939
(550,264)
347,502
60,925
(255,968)
Net cash provided by (used in) financing activities
4,124
(759)
4,543
(2,319)
5,589
124,557
500,000
(9,414)
(219,362)
81,663
(1,180)
476,264
$
(197)
(217,762)
508,053
290,291 $
(3,453)
314,674
290,291
604,965
$
21,586 $
97,831
zation of property, equipment and intangibles
stock-based compensation
ets and liabilities:
$
(48,275)
(40,278)
8,816
(58,151) $
(65,927)
(54,143)
5,939
(16,300)
2014
$
266,799
(3,773,459)
593,125
2,656,279
71,491
54,028
115,239
(89,341)
15,282
(30,063)
(8,758)
83,812
55,636
58,819
(52,406)
16,483
(74,790)
(69,726)
1,334
(426,934)
385,300
141,950
(42,866)
60,544
400,000
(7,080)
89,341
(1,093)
541,712
$
(6,686)
508,643
604,965
1,113,608
$
16,483
$
(74,790)
(69,726)
1,334
(126,699)
Amazon.com Inc.
Sales/Revenues
Cost of Goods Sold (COGS) incl. D&A
COGS excluding D&A
Depreciation & Amortization
Expense
Depreciation
Amortization of
Intangibles
Gross Income
SG&A Expense
Research & Development
Other SG&A
Other Operating Expense
Unusual Expense
EBIT after Unusual Expense
Non Operating Income/Expense
Non-Operating Interest Income
Equity in Affiliates (Pretax)
Interest Expense
Gross Interest Expense
Interest Capitalized
Pretax Income
Income Tax
Income Tax – Current Domestic
Income Tax – Current Foreign
Income Tax – Deferred Domestic
Income Tax – Deferred Foreign
Income Tax Credits
Equity in Affiliates
Other After Tax Income (Expense)
Consolidated Net Income
Minority Interest Expense
Net Income
Extraordinaries & Discontinued
Operations
Extra Items & Gain/Loss
Sale Of Assets
Cumulative Effect Accounting Chg
Discontinued Operations
Net Income After Extraordinaries
Preferred Dividends
Net Income Available to Common
EPS (Basic)
Basic Shares Outstanding
EPS (Diluted)
Diluted Shares Outstanding
EBITDA
2012
2013
2014
$61.09B
46.8B
44.65B
2.16B
$74.45B
54.63B
51.38B
3.25B
$88.99B
63.88B
59.14B
4.75B
1.65B
506M
2.46B
793M
3.62B
1.13B
14.29B
19.82B
25.11B
13.96B
4.24B
9.72B
(506M)
(239M)
40M
92M
92M
544M
428M
562M
18.96B
6.11B
12.85B
0
0
0
(250M)
38M
141M
141M
506M
161M
144M
25.37B
8.72B
16.65B
0
0
0
320M
39M
210M
210M
(111M)
167M
279M
131M
(156M)
173M
(133M)
204M
(136M)
(109M)
(23M)
(180M)
(155M)
0
(39M)
0
(39M)
0
(71M)
0
274M
0
274M
0
37M
0
(241M)
0
(241M)
0
0
0
0
0
0
0
0
0
0
(39M)
0
274M
0
(241M)
0
(39M)
274M
(241M)
-0.09
453M
-0.09
453M
2.99B
0.6
457M
0.59
465M
4.11B
-0.52
462M
-0.52
462M
4.49B
Amazon.com Inc.
2012
2013
$11.45B
$12.45B
8.08B
8.66B
3.36B
3.79B
3.36B
4.77B
2.6B
3B
2.72B
3.15B
(116M)
(153M)
764M
1.77B
6.03B
7.41B
Finished Goods
0
0
Work in Progress
0
0
Raw Materials
0
0
6.03B
7.41B
453M
–
453M
–
21.3B
24.63B
Assets
Cash & Short Term Investments
Cash Only
Short-Term
Investments
Total Accounts Receivable
Accounts Receivables,
Net
Accounts Receivables,
Gross
Bad Debt/Doubtful
Accounts
Other Receivables
Inventories
Progress Payments &
Other
Other Current Assets
Miscellaneous Current
Assets
Total Current Assets
2012
Net Property, Plant &
Equipment
Property, Plant &
Equipment – Gross
Buildings
Land & Improvements
Computer Software
and Equipment
Other Property, Plant
& Equipment
Accumulated
Depreciation
Total Investments and
Advances
Other Long-Term
Investments
Long-Term Note
Receivable
Intangible Assets
Net Goodwill
Net Other Intangibles
Other Assets
2013
7.06B
10.95B
9.58B
14.81B
2.97B
4.58B
–
–
866M
1.1B
174M
231M
2.52B
3.86B
151M
520M
99M
482M
0
0
3.28B
3.3B
2.55B
2.66B
725M
645M
648M
538M
Tangible Other Assets
Total Assets
648M
538M
32.56B
41.4B
Liabilities &
Shareholders’ Equity
2012
ST Debt & Current
Portion LT Debt
2013
1.14B
1.74B
0
0
1.14B
1.74B
13.32B
15.13B
–
–
4.55B
6.11B
Dividends Payable
–
–
Accrued Payroll
–
–
4.55B
6.11B
Short Term Debt
Current Portion of
Long Term Debt
Accounts Payable
Income Tax Payable
Other Current
Liabilities
Miscellaneous Current
Liabilities
Total Current Liabilities
Long-Term Debt
Long-Term Debt excl.
Capitalized Leases
Non-Convertible Debt
Convertible Debt
Capitalized Lease
Obligations
Provision for Risks &
Charges
Deferred Taxes
Deferred Taxes – Credit
Deferred Taxes – Debit
Other Liabilities
19B
22.98B
3.83B
5.18B
3.08B
3.19B
3.08B
3.19B
0
0
746M
1.99B
–
457M
(123M)
344M
–
1.81B
123M
1.47B
1.53B
1.22B
Other Liabilities (excl.
Deferred Income)
1.42B
1.22B
Deferred Income
108M
–
Total Liabilities
24.36B
31.65B
Non-Equity Reserves
0
0
Preferred Stock
(Carrying Value)
0
0
0
0
0
0
8.19B
9.75B
Redeemable Preferred
Stock
Non-Redeemable
Preferred Stock
Common Equity (Total)
Common Stock
Par/Carry Value
Retained Earnings
ESOP Debt Guarantee
Cumulative Translation
Adjustment/Unrealize
d For. Exch. Gain
Unrealized Gain/Loss
Marketable Securities
Revaluation Reserves
Treasury Stock
Total Shareholders’ Equity
Accumulated Minority
Interest
Total Equity
Liabilities &
Shareholders’ Equity
5M
5M
1.92B
2.19B
0
0
(250M)
(187M)
11M
2M
0
0
(1.84B)
(1.84B)
8.19B
9.75B
0
0
8.19B
9.75B
32.56B
41.4B
2014
$17.42B
14.56B
2.86B
5.61B
3.3B
3.49B
(190M)
2.31B
8.3B
0
0
0
8.3B
0
31.33B
2014
16.97B
22.73B
7.15B
1.3B
304M
5.76B
886M
811M
0
4.08B
3.32B
764M
971M
971M
56.34B
2014
3.6B
0
3.6B
16.46B
8.03B
8.03B
28.09B
12.49B
8.27B
8.27B
0
4.22B
510M
750M
2.86B
2.11B
1.66B
1.66B
45.6B
0
0
0
0
10.74B
5M
1.95B
0
(512M)
1M
0
(1.84B)
10.74B
0
10.74B
56.34B
Amazon.com Inc.
Cash flows from operating activities:
Net Income before Extraordinaries
Depreciation, Depletion &
Amortization
Depreciation and Depletion
Amortization of Intangible Assets
Deferred Taxes & Investment Tax
Credit
Deferred Taxes
Investment Tax Credit
Other Funds
Funds from Operations
Extraordinaries
Changes in Working Capital
Receivables
Accounts Payable
Other Assets/Liabilities
Net Operating Cash Flow
Investing Activities
Capital Expenditures
Capital Expenditures (Fixed Assets)
Capital Expenditures (Other Assets)
Net Assets from Acquisitions
Sale of Fixed Assets & Businesses
Purchase/Sale of Investments
Purchase of Investments
Sale/Maturity of Investments
Other Uses
Other Sources
Net Investing Cash Flow
Financing Activities
Cash Dividends Paid – Total
Common Dividends
Preferred Dividends
Change in Capital Stock
Repurchase of Common & Preferred
Stk.
Sale of Common & Preferred Stock
Proceeds from Stock Options
Other Proceeds from Sale of Stock
Issuance/Reduction of Debt, Net
Change in Current Debt
Change in Long-Term Debt
Issuance of Long-Term Debt
Reduction in Long-Term Debt
Other Funds
Other Uses
Other Sources
Net Financing Cash Flow
Exchange Rate Effect
Miscellaneous Funds
Net Change in Cash
Free Cash Flow
2012
(39M)
2.16B
2013
274M
3.25B
2014
(241M)
4.75B
1.65B
506M
(265M)
2.46B
793M
(156M)
3.62B
1.13B
(316M)
(265M)
802M
2.66B
1.52B
(861M)
2.07B
275M
4.18B
(156M)
1.34B
4.71B
767M
(846M)
1.89B
399M
5.48B
(316M)
1.68B
5.87B
974M
(1.04B)
1.76B
741M
6.84B
2012
2013
2014
(3.79B)
(3.79B)
(3.44B)
(3.44B)
(4.89B)
(4.89B)
0
0
0
(745M)
935M
(3.3B)
4.24B
0
0
(3.6B)
(312M)
(520M)
(2.83B)
2.31B
0
0
(4.28B)
(979M)
807M
(2.54B)
3.35B
0
0
(5.07B)
2012
2013
2014
0
0
0
(960M)
(960M)
0
0
0
0
0
0
0
0
0
0
0
0
0
2.79B
0
2.79B
3.38B
(588M)
429M
0
429M
2.26B
(29M)
0
0
0
(617M)
0
(617M)
394M
(1.01B)
78M
0
78M
(539M)
(86M)
0
0
0
4.43B
0
4.43B
6.36B
(1.93B)
6M
0
6M
4.43B
(310M)
0
2.82B
395M
0
574M
2.03B
0
5.9B
1.95B
…
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