Netflix Brand Value Analysis

1819 words (7 pages) Essay in Finance

23/09/19 Finance Reference this

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Branding Project

Legend has it that the Netflix founder and CEO Reed Hastings, came up with the idea for the DVD-by-mail rental business that would go on to shutter video-rental stores nationwide and upend the world of media 20 years ago today, because he was late returning a videotape. In the Nineties, Hastings have rented the movie “Apollo 13” from his local Blockbuster Video store and lost it. He said that, the penalty for such an infraction was a $40 fine, and it made he think that there was a big market out there for movie rental. Lately, he started to investigate the idea of how to create a movie-rental business by mail. [1]

Officially, on August 29, 1997, the company was incorporated in the US state of Delaware. The based video business was called Kibble, before the name was changed to NetFlix.com, and later Netflix. It began renting DVD rentals by mail in April 1998 and introduced its subscription model the following year. Nearly a decade later, Netflix started streaming video and changed the way we watch everything. Today, it’s one of the biggest Hollywood distributors and producers of online video and a prolific global storyteller.

Netflix is the world’s leading internet entertainment service with 149 million paid memberships in over 190 countries. By providing on-demand content, creating compelling original programs, using user data to better serve customers and letting customers consume content in the way that they prefer, Netflix is the first major disruption of television, forcing cable companies to change the way they do business. In my opinion, Netflix’s success may be viewed as the first step of cable’s downfall, and that is what makes Netflix brand so impactful.

BRAND VALUE[2]

 

In order to estimate Netflix’s brand value, we must analyze some of its financials. 

. The first step is to calculate Netflix’s average Net Income per year.

Netflix Net Profit in:

  • 2016 ~ $186M
  • 2017 ~$558M
  • 2018 ~ $1.21B

If we add and divide by 3, we will get Netflix’s average Net Income: $651,000,000.

. In the second step, we will make an extremely aggressive valuation, by multiplying 15x earnings, simulating a 15-year gap.

  • (Netflix’s average Net Income) $651,000,000 X 15 = $9,765,000,000

. In order to make the final calculation, we need Netflix’s Market Cap. According to Yahoo Finance, Netflix actual market cap is ~$147B

. Now that we have the market cap value, lets subtract it by the result that we got from the aggressive valuation, in order to find Netflix simulated brand value.

  • Brand Value: ~$147B – ~$10B (rounded number) = $137B

OTHER PUBLISHED ESTIMATES OF NETFLIX BRAND’S VALUE[3]

The world’s biggest tech companies have consolidated their power in recent years, driving huge profits and soaring market values. Apple (phones), Google (search), Microsoft (software), Facebook (social) and Amazon (retail) dominate their respective sectors thanks to winning products and services. But perhaps their most prized and valuable attribute: strong brand names.

In 2018, Netflix reached the #55 position in the “Forbes World’s Most Valuable Brands” ranking. According to Forbes, Netflix (brand value $11.5 billion, up 35%) and PayPal (brand value $7.5 billion, up 33%) were the biggest gainers in the top 100. Netflix doubled its global subscriber base over the past three years to 139 million. Netflix’s premium brand helped push through a U.S. price increase last year and still add to its subscriber base.

As we can see, there is a big difference between Forbes’ analysis and mine. In my opinion, that happened because Forbes has taken into consideration the way that Netflix generates Net Profit, that is through subscriptions ($13.99 premium). Maybe that will change in the next 15 years (time that I did my valuation), if Netflix finds new ways to achieve profit, that will lead to a bigger Net Profit. Furthermore, Netflix Net Profit in 2016 ($186M) and 2017 ($558M) were way smaller than in 2018 ($1.21B), as Netflix is an emerging company that is increasing profits every year. I believed that influenced the difference between both analyses.

NETFLIX BRAND STATURE AND STRENGHT

 

Brand equity is a set of assets or liabilities in the form of brand visibility, brand associations and customer loyalty that add or subtract from value of a current or potential product or service driven by the brand. It is a key construct in the management of not only marketing, but also business strategy.

In order to measure brand equity, we can use the Brand Asset Valuator, that is measuring brand equity, through perceptions of various aspects of the brand, such as: Differentiation, Relevance, Esteem, and Knowledge. Differentiation and Relevance show us the brand’s strength, while Esteem and Knowledge show us the brand’s stature. Furthermore, analyzing a brand’s strength and stature, allows us to make accurate comparisons between rival brands. So, let’s analyze Netflix brand strength and brand stature, before taking any step further.

  • Netflix competitors (differentiation): Amazon.com, Inc. and Hulu, LLC
  • Netflix relevance: $147.419B Market Cap, $15.79B revenue in 2018, and $13.99 for premium subscription.
  • Netflix esteem: During holidays and when they have big new arrivals (original TV shows and original movies), Netflix explodes in trending. As they have a big arrival almost every month, we can say that Netflix is always trending.  Furthermore, “Netflix and Chill” is a famous expression nowadays.
  • Netflix knowledge: Netflix have over 149M streaming subscribers worldwide. Of these subscribers, 60.55M were from the United States. As the popularity of Netflix’s streaming service has increased, the company has seen its DVD section decline.

COMPARISON[4]

In order to make a fair comparison between Netflix, Hulu and Amazon based on their brand strength and brand stature, I will take under consideration Amazon Prime Video, Amazon’s streaming service, instead of Amazon’s entire company.

  • Differentiation: Netflix has a more diverse and much bigger overall library, with much more original content (Currently spending as much as $13 billion on content per year). However, an Amazon Prime account, offers advantages in every Amazon platform, such as two-day shipping, discounted prices on select items, cloud storage, and on-demand video and music streaming. Furthermore, Hulu has the cheapest price for subscription, but offers the lowest amount of advantages.
  • Knowledge: 60M to 90M Prime subscribers in U.S, 60.55M Netflix in US, and 25M Hulu in US. Worldwide, Netflix is the leader in subscribers with 149M.
  • Finance: Amazon has an enormous market cap ($816.857B), but we must take under consideration the fact that Netflix is only a streaming company. In the streaming “environment”, Netflix generates more revenue, net profit, and has a bigger market cap than Hulu, for example.
  • Esteem: As I said, Netflix spends $13B on original content every year (more than any competitor), that can be considered a competitive advantage, and results in trending. Furthermore, they are the only streaming service with an own expression (“Netflix and Chill”).

ONE FUTURE IMC ACTIVITY

Based on the stature and strength of the brand (Netflix), one future IMC activity that I would recommend to Netflix is to generate a New Product.

As I said during this project, Netflix profit depends on subscriptions, so the best way for them to generate more profit, in my opinion, is to create a new product on their platform. More ways to generate profit, would certainly increase Netflix brand value and revenue.

My new product idea for Netflix, would be a sports instant and/or on demand streaming which have a great potential market since only Amazon Prime Video is currently providing this kind of service (with Sports TV shows such us All or Nothing) and having a great result with it. Netflix would offer a new type of subscription plan, that you can add to your current subscription, or pay separately. A “Sports” category would be added to Netflix.

REFERENCES


[1] Rodriguez, Ashley, and Ashley Rodriguez. “Netflix Was Founded 20 Years Ago Today Because Reed Hastings Was Late Returning a Video.” Quartz, Quartz, 29 Aug. 2017, qz.com/1062888/netflix-was-founded-20-years-ago-today-because-reed-hastings-was-late-a-returning-video/..

[2] • “HM-B.ST : Summary for Hennes & Mauritz AB, H & M Ser.” Yahoo! Finance, Yahoo!, 27 Jan. 2019, finance.yahoo.com/quote/HM-B.ST?p=HM-B.ST&.tsrc=fin-srch

[3] • Badenhausen, Kurt. “The World’s Most Valuable Brands 2018.” Forbes, Forbes Magazine, 24 May 2018, www.forbes.com/sites/kurtbadenhausen/2018/05/23/the-worlds-most-valuable-brands-2018/#64eaeb31610c.

[4] • Waniata, Ryan, and Ryan Waniata. “Netflix vs. Hulu vs. Amazon Prime: Battle of the on-Demand Streaming Giants.” Digital Trends, Digital Trends, 25 Jan. 2019, www.digitaltrends.com/home-theater/best-on-demand-streaming-services/

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