ROPI: 

For the ROPI model, I assumed a baseline starting ROPI of $1,635.68 based on the three year average from 2021-2023, excluding 2021 as an outlier. I also assumed a growth rate tapering from 20.93% down to 5% over 10 years. I calculated a present value of expected future ROPI of $56,577. Combined with net operating assets of $31,651 and excess cash of $6,058, I estimated a total firm value of $94,286. With debt of $16,932, I calculated an equity value of $77,354. Spread over 438 shares, this results in an estimated value per share of $176.74 for Netflix based on the ROPI model. 

The Residual Operating Income (ROPI) model values Netflix at $176.74 per share. This relies on assumptions of future residual operating income, driven by revenue growth rates tapering from 20.93% to 5% over 10 years. However, given Netflix’s variable subscriber growth and reliance on creating appealing new content, estimating smooth future profit growth is difficult. The ROPI model may oversimplify Netflix’s situation.

Additionally, the ROPI model derives over 60% of Netflix’s valuation from the terminal value, indicating value depends heavily on cash flows 10+ years out. With disruption in the streaming industry likely within the next decade, terminal values based on perpetual stable growth are unrealistic. The ROPI model does not sufficiently factor in Netflix’s risk and uncertainty. 

Market Multiples:

For the market multiples approach, I chose comparable companies: Paramount (PARA), Comcast (CMCSA), AMC (AMC), and Dish (DISH). I calculated market multiples for all companies such as price to sales (0.29x to 1.39x), market to cash flow (0.62x to 15.32x), price to earnings (2.26x to 37.44x), and price to book (0.13x to 2.03x). Excluding outliers, I determined industry average, first quartile, and third quartile multiples. Applying those multiples to Netflix metrics from fiscal year 2023, I estimated prices per share ranging from $17.12 to $341.84. Taking an average of all prices except outliers, I estimated a market multiple-based price of $62.64 per share for Netflix. 

The market multiples model values Netflix at $62.64 per share based on comparable companies’ ratios of price to sales, cash flow, earnings and book value. However, the streaming business has vastly different economics from traditional media companies. Factors like subscriber-based revenue versus advertising, and content ownership versus licensing impact financial ratios. No companies are truly comparable to Netflix. Also, by relying on current market ratios, the multiples valuation assumes the market is efficiently pricing its peers. However, digital disruption means investors are still struggling to properly value streaming platforms. Comparable multiples fail to capture the complexity of valuating high-growth tech companies like Netflix.

Calculation Source: Post 7, 8, 9 .xlsx