Netflix's $5.6 Billion Obligation Is Key to Its Success

In the following video, Motley Fool consumer goods analyst Blake Bos does a breakdown for investors of how Netflix (NASDAQ: NFLX  ) accounts for its content library as intangible assets on its balance sheet. He notes that Netflix's model of offering unlimited access to content for a certain length of time can be quite expensive, and that the company currently showed $1.37 billion in liabilities for current content, and $1.1 billion for non-current liabilities. Blake tells investors how to get an accurate picture of Netflix's costs as it acquires new content, and these numbers continue to grow. He also shows what level of liability growth would be unsustainable at its current subscriber growth rate.

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  • Report this Comment On April 05, 2013, at 11:08 AM, jb757 wrote:

    I'll assume your total cost 5-yr, $5 billion estimate is correct. Now overlay that against a chart showing $4.5 billion average annual revenue over the same 5-yr period, and you come up with $22.5 billion, or the "what's the problem" response.

    What's the problem?

  • Report this Comment On April 05, 2013, at 5:41 PM, TMFBos wrote:

    Hello jb757,

    The chart is for Netflix's contracted obligations as of fiscal year 2012's annual report. I wouldn't use that number to estimate what the cost of content will be over the next five years as the bulk of content cost isn't visible over 3 years. So the last 2 years in the 10k and table above are dramatically understated. As an investor I would only use it to focus on cost <1 year due bucket to make sure content cost aren't projected to increase at rates we saw during 2012.The point was that Netflix needs to achieve those lofty revenue and member addition goals set by the street and keep content cost at a reasonable rate to support current share prices. If they can achieve that and keep content cost in check then recent share price run ups will be warranted in my opinion. If not, it could get ugly.

    Fool On!

    Blake Bos

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