Replies to post #161 on Netflix Inc (NFLX)

[dougSF30]

A follow up: Verne,

I think what you were detailing was actually a hybrid of "assets" (dvd value, cash on hand, investments, etc.) + some estimate of the future *revenue* stream, assuming no growth, and that current customers stick around at the same price for two years.

I don't see why one should add these two quantities, nor what bearing they have on the market cap of the company.

Someone mentioned EV (enterprise value), where (I believe) you take the market cap and subtract assets (and add debts).

This is the portion of the market cap that should be justified by current (or in the case of a growing enterprise) future earnings. But it's earnings, not revenues.

It's got to be earnings, otherwise, have each customer pay $1020 per month, and NFLX issue them a $1000 check each month, in addition to renting them DVDs. Revenues just went way up, but that wouldn't justify a higher market cap, because earnings remained the same.

Doug

[ohio_jim]

With a just profitable company, you should be looking at least 12 months forward and you should be looking for a consisten trend of earnings as a % of revenue (since revenue is growing so quickly).

I'm a bit unclear of what the question is but I like to look at free cash flow as a better guage of earnings. Cash flow is what earnings are meant to approximate in the first place.