Projected and Consolidated Financial Opportunities of NetFlix

Prompt Taking into consideration that Netflix is not a manufacturing entity, there cannot be a prospect for a new facility. The hypothetical new investment project for Netflix is a cost-cutting investment. Notably, the corporation can make an investment in the production of new Netflix original content, such as TV shows, movies and documentaries. Content is exceedingly the largest spending priority for Netflix, with the corporation increasing its spending from $6 billion to $8 billion. However, this investment will help the company in cutting against the rising costs.

Bearing in mind that Netflix has market presence in all markets across the globe, with the exception of the Chinese market, the corporation can secure international rights to these original shows and movies that have more attractive terms as compared to nation-by-nation or regional deals. Majority of the original content distributed and showed by Netflix, such as The Crown, YOU, and Marvel’s Luke Cage have been largely successful in each geographic region.

Making investments and obtaining rights to these high quality content will be a cost cutting measure for Netflix as they generate the highest consumer engagement (Kalogeropoulos, 2017). Projected Consolidated Financial Opportunities 1. Revenue Projection The financial performance of Netflix, Inc. in recent years has been remarkable. We expect this trend to continue in the forthcoming years. According to Fitzgerald (2018), in 2011, Netflix had a consumer subscriber base of 25 million people. In 2018, this figure has increased substantially to 125 million, which signified an increase of 400 percent.

According to financial forecasting, it is suggested that the company will have 200 million subscribers by the years 2020 and a decade later approximately 360 million, if Netflix managers to sustain the growth rate (Fitzgerald, 2018). This indicates that the revenue of the company is expected to gradually increase in the course of the next three years. In our projections, we expect the revenues of the company to increase by 15 percent in 2019, by 20 percent in 2020 and further up by 25 percent in 2021.

Therefore, we expect the revenue to increase to $18.16 billion in 2019 to $21.80 billion in 2020 and further up to $27.25 billion in 2021. This is illustrated in the chart below. 2. Cost of Sales and Gross Profit Projections Netflix sets a cost of revenue amount of approximately 60 percent. We expect this amount to slightly increase and therefore we project the cost of sales for the next three financial years to be set at 64 percent.

Owing to the increase in the revenues of the company, we expect the gross profit generated by Netflix to gradually increase in the forthcoming financial years. This is illustrated by the chart below. 3. Operating Expenses Projection Growth of a company comes along with increase in expenses as well. It is expected that Netflix will have to conduct extensive research and development in order to attain the most ideal content for its subscribers and improving its technology.

Taking this into consideration, it is projected that the research and development expenses for Netflix will increase by 10 percent in the first year, by 15 percent in the second and further up by 20 percent in the third year. In the same manner, the selling, general and administrative expenses of the company will gradually increase in the next three years. The total operating expenses increase is demonstrated below: 4.

Operating Income Projection In spite of the increase in the operating expenses, we still expect Netflix to generate a positive and gradual increase in terms of the operating profits attained in the next three years. The char below shows the operating profit of Netflix for 2019, 2020 and 2021. 5. Net Income Projection In total, we project that the net income generated by Netflix, Inc. will increase gradually for the next three financial years. In 2018, the company generated a net income of $1.21 billion.

It is projected that this amount will increase to $1.47 in 2019, further up to $2.141 in 2020 and further up to $3.20 billion in 2021. The illustration in Appendix I below shows the projected consolidated income statement for Netflix, Inc. for the next three financial years. Part B Projections for best and worst case scenario Over the past five years, the investors of Netflix Inc. have seen a 565 percent return. During the same period, the corporation was able to increase its annual sales threefold (Bylund, 2018).

Best case scenario, it is expected that the performance of the company will be even better and surpass these expectations. In the past year, Netflix spent $8 billion on content. Therefore, in the best case scenario is expected that the content put out by the company will be exceedingly positively received. In addition, it is expected that the subscriber base of the company will substantially increase thereby increasing the revenues generated by the company (Martin, 2018).

Therefore, in a good case scenario, we project that the revenues generated by the company could increase by as much as 25 percent in the forthcoming financial year. This also implies that there would be a better grasp in operations of the company and therefore the expenses incurred in operations would be slightly lower. In overall, the net income of the company would be greater than two fold in the best case scenario.

In spite of the favorable and positive projections that have been made for Netflix, Inc., it could all go wrong in the next year. Imperatively, Netflix has made a perceptible alteration in its business model in recent years, transforming from solely being a content distributor to a content producer. Actually, the corporation is in the path toward becoming the largest content producer globally. However, this transition has come at a cost. In 2016 spent $5 billion, which increased to $6 billion in 2017 and further increased to $8 billion in 2018.

Notably, most of this money being spent is borrowed money, which is precisely why the company has a negative cash flow. This is largely being steered by the fact that investors have been perceiving that the investments made by Netflix are sensible and that the content being offered is good. However, a worst case scenario could be the change in perception and taste by the investors in that the content could be perceived in a negative manner (Martin, 2018).

However, in the worst case scenario, it is expected that Netflix will barely experience an increase in the revenue generated and increased costs would be incurred, thereby generating a lower income. The illustration in the Appendix II below portrays the best case scenario and the worst case scenario for Netflix Inc. in the next financial year. Part C Discussion of finding The assumptions, forecasting methodology and information gaps have an impact on the projections made above. To begin with, the assumption that Netflix, Inc.

will continue to generate greater revenues due to impressive content and a greater subscriber base influences the projections in a positive and gradual manner. This is in the sense that the revenues generated by the company are projected to increase in a substantially increasing manner, thereby impacting the net income generated and the financial health of the company as a whole. In the same manner, the assumption that Netflix will increase the produced and distributed content to its subscribers influenced the expenses incurred by the corporation.

This is in the sense that the research and development expenses of the company will constantly increase in the next three years owing to the need to embrace technology to further expand the business development, increase the consumer base and also produce greater and more quality content. Similarly, the selling, general and administrative expenses of the company are expected to gradually increase in the next three years.

For instance, in order to increase its subscriber base and also increase the sales of the content being produced, the company will have to incur higher marketing and advertising expenses for the forthcoming financial years. In the same manner, to expand into greater number of countries and guarantee the effective and constant streaming of the content, Netflix will also incur and increase in the administrative expenses. This assumption results in an increase in the total operating expenses of the corporation. There are also information gaps that impact my projections.

For instance, the 2018 consolidated income statement of Netflix.