Netflix Inc (NFLX): Verne, I think you're confusing reven...

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dougSF30

Re: Verne Spunky post# 154

Friday, 07/25/2003 6:11:20 PM

Friday, July 25, 2003 6:11:20 PM

Verne,

I think you're confusing revenues with market caps. There really isn't that much relation between them, especially in mature companies.

It's about earnings. Think of earnings as the equivalent of interest on a bank account. What's a good return right now? Money Markets are risk-free but pay what? 1%? 2%? So how about 5%? That means you'd accept a market cap of 20 times their earnings. The old 20 P/E ratio.

When a company is growing, this doesn't apply so straightforwardly, and one has to attempt to model the future earnings stream.

But revenues, without costs, aren't much use. I don't understand the calculation. Why 24 months? they may bring in $20 per month, but what does it *cost* the company per month?

I guess I'm saying that 2 * annual revenues != market cap. That arbitrary number doesn't say anything about the worth of the company. There is no direct relationship between revenues and market cap. Comparing revenues between different companies isn't going to tell you much. Earnings, now that's better.

Doug