Netflix Inc Valuation – March 2019 #NFLX

Company Profile (excerpt from Reuters): Netflix, Inc., incorporated on August 29, 1997, is a provider an Internet television network. The Company operates through three segments: Domestic streaming, International streaming and Domestic DVD. The Domestic streaming segment includes services that streams content to its members in the United States. The International streaming segment includes services that streams content to its members outside the United States. The Domestic DVD segment includes services, such as digital optical disc (DVD)-by-mail.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NFLX – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $156,739,041,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.49 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 616.45% Pass
6. Moderate PEmg Ratio PEmg < 20 159.11 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 30.93 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.49 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.23 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.26
MG Growth Estimate 15.00%
MG Value $86.91
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $32.73
MG Value based on 0% Growth $19.19
Market Implied Growth Rate 75.31%
Current Price $359.17
% of Intrinsic Value 413.28%

Netflix, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.36 in 2015 to an estimated $2.26 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 75.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Netflix, Inc. revealed the company was trading above its Graham Number of $31.39. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 159.11, which was above the industry average of 35.38. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.48.

Netflix, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.48
Graham Number $31.39
PEmg 159.11
Current Ratio 1.49
PB Ratio 30.93
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $9,694,135,000
Total Current Liabilities $6,487,320,000
Long-Term Debt $10,360,058,000
Total Assets $25,974,400,000
Intangible Assets $0
Total Liabilities $20,735,635,000
Shares Outstanding (Diluted Average) 451,127,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.65
Dec2018 $2.68
Dec2017 $1.25
Dec2016 $0.43
Dec2015 $0.28
Dec2014 $0.62
Dec2013 $0.26
Dec2012 $0.04
Dec2011 $0.59
Dec2010 $0.42
Dec2009 $0.28
Dec2008 $0.19
Dec2007 $0.14
Dec2006 $0.10
Dec2005 $0.09
Dec2004 $0.05
Dec2003 $0.01
Dec2002 -$0.05
Dec2001 -$0.77
Dec2000 -$1.47

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.26
Dec2018 $1.39
Dec2017 $0.69
Dec2016 $0.38
Dec2015 $0.36
Dec2014 $0.39
Dec2013 $0.29
Dec2012 $0.31
Dec2011 $0.40
Dec2010 $0.28
Dec2009 $0.19
Dec2008 $0.14
Dec2007 $0.10
Dec2006 $0.06
Dec2005 -$0.01
Dec2004 -$0.19
Dec2003 -$0.36

Recommended Reading:

Other ModernGraham posts about the company

Netflix Inc Valuation – June 2018 $NFLX
Netflix Inc Valuation – February 2017 $NFLX
5 Speculative and Overvalued Companies to Avoid – November 2015
Netflix Inc Valuation – November 2015 Update $NFLX
5 Speculative and Overvalued Companies to Avoid – November 2014

Other ModernGraham posts about related companies

CBS Corp Valuation – February 2019 $CBS
Discovery Inc Valuation – February 2019 $DISCA
Comcast Corp Valuation – January 2019 $CMCSA
Viacom Inc Valuation – January 2019 $VIAB
Twenty-First Century Fox Inc Valuation – January 2019 $FOX
Walt Disney Co Valuation – November 2018 $DIS
Tegna Inc Valuation – August 2018 $TGNA
E.W. Scripps Co Valuation – August 2018 $SSP
Cinemark Holdings Inc Valuation – August 2018 $CNK
Corus Entertainment Inc Valuation – July 2018 $TSE:CJR.B

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Netflix Inc Valuation – June 2018 $NFLX

Company Profile (excerpt from Reuters): Netflix, Inc., incorporated on August 29, 1997, is a provider an Internet television network. The Company operates through three segments: Domestic streaming, International streaming and Domestic DVD. The Domestic streaming segment includes services that streams content to its members in the United States. The International streaming segment includes services that streams content to its members outside the United States. The Domestic DVD segment includes services, such as digital optical disc (DVD)-by-mail.

NFLX Chart

NFLX data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of NFLX – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $156,458,896,776 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 186.15% Pass
6. Moderate PEmg Ratio PEmg < 20 305.54 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 40.32 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.61 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.18
MG Growth Estimate 15.00%
MG Value $45.35
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $17.08
MG Value based on 0% Growth $10.01
Market Implied Growth Rate 148.52%
Current Price $359.93
% of Intrinsic Value 793.62%

Netflix, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.39 in 2014 to an estimated $1.18 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 148.52% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Netflix, Inc. revealed the company was trading above its Graham Number of $19.48. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 305.54, which was above the industry average of 35.5. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-18.46.

Netflix, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$18.46
Graham Number $19.48
PEmg 305.54
Current Ratio 1.30
PB Ratio 40.32
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $7,817,576,000
Total Current Liabilities $6,005,587,000
Long-Term Debt $6,542,373,000
Total Assets $20,152,797,000
Intangible Assets $0
Total Liabilities $16,132,067,000
Shares Outstanding (Diluted Average) 450,359,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.04
Dec2017 $1.25
Dec2016 $0.43
Dec2015 $0.28
Dec2014 $0.62
Dec2013 $0.26
Dec2012 $0.04
Dec2011 $0.59
Dec2010 $0.42
Dec2009 $0.28
Dec2008 $0.19
Dec2007 $0.14
Dec2006 $0.10
Dec2005 $0.09
Dec2004 $0.05
Dec2003 $0.01
Dec2002 -$0.11
Dec2001 -$1.53
Dec2000 -$2.94

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.18
Dec2017 $0.69
Dec2016 $0.38
Dec2015 $0.36
Dec2014 $0.39
Dec2013 $0.29
Dec2012 $0.31
Dec2011 $0.40
Dec2010 $0.28
Dec2009 $0.19
Dec2008 $0.14
Dec2007 $0.10
Dec2006 $0.06
Dec2005 -$0.07
Dec2004 -$0.40
Dec2003 -$0.72
Dec2002 -$1.03

Recommended Reading:

Other ModernGraham posts about the company

Netflix Inc Valuation – February 2017 $NFLX
5 Speculative and Overvalued Companies to Avoid – November 2015
Netflix Inc Valuation – November 2015 Update $NFLX
5 Speculative and Overvalued Companies to Avoid – November 2014
26 Companies in the Spotlight This Week – 11/22/14

Other ModernGraham posts about related companies

CBS Corporation Valuation – April 2018 $CBS
Discovery Inc Valuation – April 2018 $DISCA
Time Warner Inc Valuation – March 2018 $TWX
Viacom Inc Valuation – March 2018 $VIAB
Twenty-First Century Fox Inc Valuation – March 2018 $FOXA
Walt Disney Co Valuation – February 2018 $DIS
Live Nation Entertainment Inc Valuation – Initial Coverage $LYV
Walt Disney Co Valuation – March 2017 $DIS
Tegna Inc Valuation – February 2017 $TGNA
E.W. Scripps Co Valuation – Initial Coverage $SSP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Netflix Inc Valuation – February 2017 $NFLX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Netflix Inc (NFLX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Netflix, Inc. is a provider an Internet television network. The Company operates through three segments: Domestic streaming, International streaming and Domestic DVD. The Domestic streaming segment includes services that streams content to its members in the United States. The International streaming segment includes services that streams content to its members outside the United States. The Domestic DVD segment includes services, such as digital optical disc (DVD)-by-mail. The Company’s members can watch original series, documentaries, feature films, as well as television shows and movies directly on their Internet-connected screen, televisions, computers and mobile devices. It offers its streaming services both domestically and internationally. In the United States, its members can receive DVDs delivered to their homes. The Company had members streaming in over 190 countries, as of December 31, 2016.

NFLX Chart

NFLX data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of NFLX – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $61,859,419,303 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.25 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 89.94% Pass
6. Moderate PEmg Ratio PEmg < 20 238.49 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 23.45 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.25 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.97 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.60
MG Growth Estimate 15.00%
MG Value $23.13
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $8.71
MG Value based on 0% Growth $5.11
Market Implied Growth Rate 114.99%
Current Price $143.25
% of Intrinsic Value 619.44%

Netflix, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.29 in 2013 to an estimated $0.6 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 114.99% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Netflix, Inc. revealed the company was trading above its Graham Number of $11.79. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 238.49, which was above the industry average of 158.7. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.82.

Netflix, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.82
Graham Number $11.79
PEmg 238.49
Current Ratio 1.25
PB Ratio 23.45
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $5,720,291,000
Total Current Liabilities $4,586,657,000
Long-Term Debt $3,364,311,000
Total Assets $13,586,610,000
Intangible Assets $0
Total Liabilities $10,906,810,000
Shares Outstanding (Diluted Average) 438,652,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.99
Dec2016 $0.43
Dec2015 $0.28
Dec2014 $0.62
Dec2013 $0.26
Dec2012 $0.04
Dec2011 $0.59
Dec2010 $0.42
Dec2009 $0.28
Dec2008 $0.19
Dec2007 $0.14
Dec2006 $0.10
Dec2005 $0.09
Dec2004 $0.05
Dec2003 $0.01
Dec2002 -$0.11
Dec2001 -$1.53
Dec2000 -$2.94

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.60
Dec2016 $0.38
Dec2015 $0.36
Dec2014 $0.39
Dec2013 $0.29
Dec2012 $0.31
Dec2011 $0.40
Dec2010 $0.28
Dec2009 $0.19
Dec2008 $0.14
Dec2007 $0.10
Dec2006 $0.06
Dec2005 -$0.07
Dec2004 -$0.40
Dec2003 -$0.72
Dec2002 -$1.03
Dec2001 -$1.30

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – November 2015
Netflix Inc Valuation – November 2015 Update $NFLX
5 Speculative and Overvalued Companies to Avoid – November 2014
26 Companies in the Spotlight This Week – 11/22/14
Netflix Inc. Annual Valuation – 2014 $NFLX

Other ModernGraham posts about related companies

Synchronoss Technologies Inc Valuation – Initial Coverage $SNCR
eBay Inc Valuation – December 2016 $EBAY
Facebook Inc Valuation – July 2016 $FB
Salesforce.com Valuation – January 2016 Update $CRM
Facebook Inc Valuation – January 2016 Update $FB
Netflix Inc Valuation – November 2015 Update $NFLX
Facebook Inc. Analysis – August 2015 Update $FB
Ebay Inc. Analysis – August 2015 Update $EBAY
Facebook Stock Analysis – Quarterly Update May 2015 $FB
eBay Inc. Quarterly Valuation – May 2015 $EBAY

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Netflix Inc Valuation – November 2015 Update $NFLX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Netflix Inc (NFLX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Netflix, Inc. is a provider of Internet television network. The Company has over 57 million streaming members in over 50 countries. Its members can watch more than two billion hours of television (TV) shows and movies per month, including original series, documentaries and feature films on Internet-connected screen. The Company has three operating segments: Domestic streaming, International streaming and Domestic DVD. The Domestic and International streaming segments derive revenues from monthly membership fees for services consisting of streaming content. The Domestic DVD segment derives revenues from monthly membership fees for services consisting of DVD-by-mail. Its members can play, pause and resume watching, all without commercials or commitments. Additionally, in the United States, its members can receive DVDs to their homes. The Company offers streaming service both domestically and internationally.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of NFLX – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $46,083,566,493 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.67 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 150.58% Pass
6. Moderate PEmg Ratio PEmg < 20 329.69 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 21.77 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.67 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.08 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

NFLX value Chart November 2015

EPSmg $0.33
MG Growth Estimate -2.79%
MG Value $0.95
Opinion Overvalued
MG Value based on 3% Growth $4.74
MG Value based on 0% Growth $2.78
Market Implied Growth Rate 160.59%
Current Price $107.83
% of Intrinsic Value 11305.95%

Netflix Inc. does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of dividends, and high PEmg and PB ratios.  The Enterprising Investor has concerns with the lack of dividends and lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.40 in 2011 to an estimated $0.33 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 160.59% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Netflix Inc. (NFLX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

NFLX Charts November 2015

Net Current Asset Value (NCAV) -$4.98
Graham Number $4.70
PEmg 329.69
Current Ratio 1.67
PB Ratio 21.77
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $5,569,713,000
Total Current Liabilities $3,341,418,000
Long-Term Debt $2,400,000,000
Total Assets $9,916,267,000
Intangible Assets $3,891,790,000
Total Liabilities $7,748,949,000
Shares Outstanding (Diluted Average) 437,606,000

Earnings Per Share History

Next Fiscal Year Estimate $0.19
Dec14 $0.62
Dec13 $0.26
Dec12 $0.04
Dec11 $0.59
Dec10 $0.42
Dec09 $0.28
Dec08 $0.19
Dec07 $0.14
Dec06 $0.10
Dec05 $0.09
Dec04 $0.05
Dec03 $0.01
Dec02 -$0.11
Dec01 -$1.53
Dec00 -$2.94

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.33
Dec14 $0.39
Dec13 $0.29
Dec12 $0.31
Dec11 $0.40
Dec10 $0.28
Dec09 $0.19
Dec08 $0.14
Dec07 $0.10
Dec06 $0.06
Dec05 -$0.07
Dec04 -$0.40
Dec03 -$0.72
Dec02 -$1.03
Dec01 -$1.30
Dec00 -$0.98

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – November 2014
26 Companies in the Spotlight This Week – 11/22/14
Netflix Inc. Annual Valuation – 2014 $NFLX
What is the PEmg Ratio? This Week on the ModernGraham Show
19 Companies to Research This Week – 8/23/14

Other ModernGraham posts about related companies

Facebook Inc. Analysis – August 2015 Update $FB
Ebay Inc. Analysis – August 2015 Update $EBAY
Facebook Stock Analysis – Quarterly Update May 2015 $FB
eBay Inc. Quarterly Valuation – May 2015 $EBAY
Facebook Inc. Quarterly Valuation – February 2015 $FB
Salesforce.com Inc. Annual Valuation – 2014 $CRM
Facebook Inc. Quarterly Valuation – November 2014 $FB
Netflix Inc. Annual Valuation – 2014 $NFLX
Facebook Inc. Quarterly Valuation – August 2014 $FB
Netflix Inc. Quarterly Valuation – August 2014 $NFLX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Netflix Inc. Annual Valuation – 2014 $NFLX

200px-Netflix_logo.svgAfter reviewing the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the lack of dividend payments and high PEmg and PB ratios, while the Enterprising Investor has concerns with the low current ratio and lack of dividend payments. As a result, both investor types would find the company to be too risky to proceed. That said, any investors willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company’s intrinsic value.

When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market’s implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $1.96 in 2010 to only an estimated $2.42 for 2014. This level of demonstrated growth is in stark contrast to the market’s implied estimate of 74.66%. In fact, historical growth has only been 4.79% in recent years. There would have to be an incredible increase in the company’s growth in order to be worth the current market pricing, and such a growth rate would be unsustainable over a 7-10 year period. As a result, the company appears to be significantly overvalued at the present time.

Be sure to check out previous ModernGraham valuations of Netflix Inc. for better perspective!

Read the full valuation on Seeking Alpha!

NFLX Chart

NFLX data by YCharts

Disclaimer:  The author did not hold a position in Danaher Corporation (DHR) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Netflix Inc. Quarterly Valuation – August 2014 $NFLX

200px-Netflix_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Netflix Inc. (NFLX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Netflix, Inc. is an Internet television network with more than 44 million members in over 40 countries. Its members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments. Additionally, in the United States (U.S.), its members can receive digital versatile discs (DVDs) delivered quickly to their homes. The Company has three operating segments: Domestic streaming, International streaming and Domestic DVD. The Domestic and International streaming segments derive revenues from monthly membership fees for services consisting solely of streaming content. The Domestic DVD segment derives revenues from monthly membership fees for services consisting solely of DVD-by-mail. The Company focuses grow its streaming subscription business domestically and internationally.
NFLX Chart

NFLX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $459.09
MG Value $39.06
MG Opinion Overvalued
Value Based on 3% Growth $35.43
Value Based on 0% Growth $20.77
Market Implied Growth Rate 89.70%
Net Current Asset Value (NCAV) -$17.44
PEmg 187.89
Current Ratio 1.57
PB Ratio 17.14

Balance Sheet – 6/30/2014

Current Assets $3,668,400,000
Current Liabilities $2,335,100,000
Total Debt $900,000,000
Total Assets $6,325,800,000
Intangible Assets $2,348,800,000
Total Liabilities $4,716,100,000
Outstanding Shares 60,090,000

Earnings Per Share

2014 (estimate) $3.42
2013 $1.85
2012 $0.29
2011 $4.16
2010 $2.96
2009 $1.98
2008 $1.32
2007 $0.97
2006 $0.71
2005 $0.64
2004 $0.33

Earnings Per Share – ModernGraham

2014 (estimate) $2.44
2013 $2.05
2012 $2.15
2011 $2.81
2010 $1.96
2009 $1.34

Dividend History

Netflix does not pay a dividend.

Conclusion:

Netflix is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns regarding the low current ratio, lack of dividend payments, and the high PEmg and PB ratios.  The Enterprising Investor’s only initial concern is the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $1.96 in 2010 to an estimated $2.44 for 2014.  This level of demonstrated growth does not support the market’s extremely high implied estimate of 89.70% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.

Be sure to check out the previous ModernGraham valuations of Netflix Inc. (NFLX) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Netflix Inc. (NFLX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Netflix Inc. (NFLX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

A Comparison of Four Listed Companies ($AMZN, $INTC, $NFLX, and $WFC) (MG Book Club Chapter 13)

photo (6)

A Comparison of Four Listed Companies

This is the thirteenth discussion of the ModernGraham Book Club’s reading of The Intelligent Investor by Benjamin Graham (affiliate link).  In last week’s discussion, we discussed the twelfth chapter, which looked at factors Intelligent Investors should consider when utilizing earnings per share data  This week we will discuss the thirteenth chapter, which is titled “A Comparison of Four Listed Companies.”  I encourage you to purchase the book (preferably by clicking the link to Amazon, because a purchase through that link will help support the club) and join in with us as we read through a chapter each week; however, even if you don’t have the book I think you will find our discussions to be very useful in your own understanding of value investing, and you can still bring a lot to the discussion from your own experiences as an investor.  Whether this is the first day you’ve ever been interested in investing, or you have decades of experience with the stock market, we’d love to hear your thoughts in the comments below!

Please feel free to leave a comment on this post with your own responses to the questions, along with any other thoughts you have, and return throughout the next couple of days to see what others have said. If you find something that has been said by another commentator interesting, feel free to respond to them with another comment.  We’ve had some great discussions throughout the book club, so keep it up!

ModernGraham’s Comments

In this chapter, Graham does exactly what his title eludes to:  he compares four different companies to discuss the applications of some of the concepts he has raised in earlier chapters.  This is a great read for anyone who wants a brief explanation of some of the practical implications of Graham’s methods, and the comparison serves as a good introduction to the chapters that follow.  Of the four companies Graham reviewed, two of them passed all seven of his Defensive Investor requirements, and it is interesting to find that in Zweig’s notes, one of the ones that did not pass the requirements dropped in price by nearly 73% in only 10 years.

This may be a good time to do a quick comparison of four companies today.  Let’s take a look at some key data for Amazon Inc. (AMZN), Intel Corp (INTC), Netflix Inc. (NFLX), and Wells Fargo Co. (WFC):

Defensive Investor Requirements

AMZN INTC NFLX WFC
Adequate Size of Enterprise – market capitalization of at least $2 billion Pass Pass Pass Pass
Sufficiently Strong Financial Condition – current ratio greater than 2 Fail Pass Fail N/A*
Earnings Stability – positive earnings per share for at least 10 straight years Fail Pass Pass Pass
Dividend Record – has paid a dividend for at least 10 straight years Fail Pass Fail Pass
Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period Fail Pass Pass Pass
Moderate PEmg ratio – PEmg is less than 20 Fail Pass Fail Pass
Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 Fail Pass Fail Pass
Score 1 7 3 6

Enterprising Investor Requirements

AMZN INTC NFLX WFC
Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 Fail Pass Pass N/A*
Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 Fail Pass Pass N/A*
Earnings Stability – positive earnings per share for at least 5 years Fail Pass Pass Pass
Dividend Record – currently pays a dividend Fail Pass Fail Pass
Earnings growth – EPSmg greater than 5 years ago Fail Pass Pass Pass
Score 0 5 4 3

*As a financial company, Wells Fargo is not required to pass the tests regarding current assets and current liabilities.

Valuation Summary

AMZN INTC NFLX WFC
Recent Price $297.70 $25.82 $349.88 $49.08
MG Value $0.00 $48.51 $28.04 $124.32
MG Opinion Overvalued Undervalued Overvalued Undervalued
Value Based on 3% Growth $13.00 $28.46 $32.24 $50.5
Value Based on 0% Growth $7.62 $16.68 $18.90 $29.6
Market Implied Growth Rate 213.23% 2.33% 73.36% 2.79%
Net Current Asset Value (NCAV) -$11.88 -$0.67 -$16.40 14.08
PEmg 434.97 13.16 155.21 1.52
Current Ratio 1.07 2.25 1.58 N/A
PB Ratio 19.66 2.21 13.99 N/A

Earnings per Share – ModernGraham

AMZN INTC NFLX WFC
2014 not yet estimated $1.96 $2.22 $3.48
2013 $0.90 $2.00 $2.05 $3.17
2012 $1.21 $1.91 $2.15 $2.59
2011 $1.81 $1.69 $2.81 $2.13
2010 $1.86 $1.27 $1.96 $1.83
2009 $1.41 $0.95 $1.34 $1.73

Analysis

Comparing the four, it is clear that the gems are Intel and Wells Fargo, while the market may be expressing over-exuberance regarding Amazon and Netflix.  After all, Wells Fargo’s EPSmg (normalized earnings) for 2013 were more than four times the amount Amazon earned that year, and yet Amazon’s price is nearly six times the price for Wells Fargo.  In order for that price difference to be justified, Amazon would have to achieve extremely high growth going forward, but the historical data actually shows the company has seen a drop in its EPSmg every year since 2010.

Discussion Questions

Please leave a comment below and feel free to answer any of these questions, or just give your general thoughts.

  1. What quote from this chapter do you think best summarizes the point Graham is making?
  2. When considering potential investments against one another, what factors do you utilize in analysis?

  3. What do you think of Amazon, Intel, Netflix, and/or Wells Fargo?
  4. What four companies would you compare today?
  5. What did you think of the chapter overall?

Next Week’s Discussion: Chapter Fourteen

Chapter Title – Stock Selection for the Defensive Investor

When reading the next chapter, try to think about how the concepts Graham presents in the chapter could apply to your own investments, whether you consider yourself a Defensive Investor or an Enterprising Investor.

What are some other ways to participate?

If you are a blogger, you can give your thoughts in a post on your own site, link to the discussion here on ModernGraham, and I will be sure to let our readers know that the conversation is going on over at your site as well.

In addition, you can use the hashtag #MGBookClub in social media to talk about the book on Twitter or Facebook!

Netflix Inc. (NFLX) Quarterly Valuation – May 2014

200px-Netflix_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Netflix Inc. (NFLX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Netflix, Inc. is an Internet television network with more than 33 million members in over 40 countries. In the United States, the Company’s subscribers can receive standard definition digital versatile disc (DVDs), and their high definition successor, Blu-ray discs (collectively DVD), delivered quickly to their homes. The Company operates in three segments: Domestic streaming, International streaming and Domestic DVD. Domestic and International streaming segments derive revenues from monthly subscription services consisting solely of streaming content. The Domestic DVD segment derives revenues from monthly subscription services consisting solely of DVD-by-mail.

NFLX Chart

NFLX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $345.09
MG Value $28.04
MG Opinion Overvalued
Value Based on 3% Growth $32.24
Value Based on 0% Growth $18.90
Market Implied Growth Rate 73.36%
Net Current Asset Value (NCAV) -$16.40
PEmg 155.21
Current Ratio 1.58
PB Ratio 13.99

Balance Sheet – 3/31/2014

Current Assets $3,586,800,000
Current Liabilities $2,263,700,000
Total Debt $900,000,000
Total Assets $6,048,100,000
Intangible Assets $2,179,500,000
Total Liabilities $4,569,700,000
Outstanding Shares 59,940,000

Earnings Per Share

2014 (estimate) $2.76
2013 $1.85
2012 $0.29
2011 $4.16
2010 $2.96
2009 $1.98
2008 $1.32
2007 $0.97
2006 $0.71
2005 $0.64
2004 $0.33

Earnings Per Share – ModernGraham

2014 (estimate) $2.22
2013 $2.05
2012 $2.15
2011 $2.81
2010 $1.96
2009 $1.34

Conclusion:

Netflix is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor has significant concerns regarding the low current ratio, the lack of dividend payments, and the exceptionally high PEmg and PB ratios.  The Enterprising Investor is willing to accept more risk, though, and is only concerned with the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors.  From a valuation side of things, the company appears to be very significantly overvalued after growing its EPSmg (normalized earnings) from $1.96 in 2010 to only an estimated $2.22 for 2014.  This low level of demonstrated growth is in stark contrast to the market’s implied estimate of 73.36% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is way below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Netflix Inc. (NFLX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Netflix Inc. (NFLX) or in any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

Twitter Inc Valuation – April 2019 #TWTR

Company Profile (excerpt from Reuters): Twitter, Inc. (Twitter), incorporated on April 19, 2007, offers products and services for users, advertisers, developers and data partners. The Company’s products and services include Twitter, Periscope, Promoted Tweets, Promoted Accounts and Promoted Trends.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TWTR – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $26,509,140,015 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.69 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -183.13% Fail
6. Moderate PEmg Ratio PEmg < 20 76.76 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.94 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 4.69 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.31 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.45
MG Growth Estimate 15.00%
MG Value $17.33
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $6.53
MG Value based on 0% Growth $3.83
Market Implied Growth Rate 34.13%
Current Price $34.54
% of Intrinsic Value 199.37%

Twitter Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-1.4 in 2015 to an estimated $0.45 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 34.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Twitter Inc revealed the company was trading above its Graham Number of $11.08. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 76.76, which was above the industry average of 33.53. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.84.

Twitter Inc scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $4.84
Graham Number $11.08
PEmg 76.76
Current Ratio 4.69
PB Ratio 3.94
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $7,111,036,000
Total Current Liabilities $1,516,311,000
Long-Term Debt $1,730,922,000
Total Assets $10,162,572,000
Intangible Assets $1,272,294,000
Total Liabilities $3,356,978,000
Shares Outstanding (Diluted Average) 776,211,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.61
Dec2018 $1.56
Dec2017 -$0.15
Dec2016 -$0.65
Dec2015 -$0.79
Dec2014 -$0.96
Dec2013 -$3.41
Dec2012 -$0.68
Dec2011 -$1.60
Dec2010 -$0.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.45
Dec2018 $0.18
Dec2017 -$0.74
Dec2016 -$1.12
Dec2015 -$1.40
Dec2014 -$1.59
Dec2013 -$1.66
Dec2012 -$0.68
Dec2011 -$0.57
Dec2010 -$0.05

Recommended Reading:

Other ModernGraham posts about the company

Twitter Inc Valuation – June 2018 $TWTR

Other ModernGraham posts about related companies

eBay Inc Valuation – February 2019 $EBAY
Facebook Inc Valuation – January 2019 $FB
Shutterstock Inc Valuation – August 2018 $SSTK
Twitter Inc Valuation – June 2018 $TWTR
Salesforce.com Inc Valuation – June 2018 $CRM
eBay Inc Valuation – May 2018 $EBAY
Facebook Inc Valuation – March 2018 $FB
Salesforce.com Inc Valuation – April 2017 $CRM
Paypal Holdings Inc Valuation – Initial Coverage $PYPL
Netflix Inc Valuation – February 2017 $NFLX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

eBay Inc Valuation – February 2019 $EBAY

Company Profile (excerpt from Reuters): eBay Inc. (eBay), incorporated on March 13, 1998, is a commerce company, which operates through its Marketplace, StubHub and Classifieds platforms. The Company connects buyers and sellers around the world. Its platforms enable sellers around the world to organize and offer their inventory for sale, and buyers to find and purchase it. The Company’s platforms are accessible through an online experience (desktop and laptop computers), from mobile devices (smartphones and tablets) and by application programming interface (API) (platform access for third-party software developers). The Company’s platform is based on open source technologies that enable software developers and merchants to access its APIs for developing software and solutions for commerce.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EBAY – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $34,298,867,731 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.60 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -29.26% Fail
6. Moderate PEmg Ratio PEmg < 20 16.53 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.66 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.88 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.27
MG Growth Estimate 10.21%
MG Value $65.60
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $32.89
MG Value based on 0% Growth $19.28
Market Implied Growth Rate 4.01%
Current Price $37.49
% of Intrinsic Value 57.15%

eBay Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.35 in 2015 to an estimated $2.27 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.01% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into eBay Inc revealed the company was trading above its Graham Number of $19.19. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.53, which was below the industry average of 108.89, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.92.

eBay Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.92
Graham Number $19.19
PEmg 16.53
Current Ratio 1.60
PB Ratio 5.66
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $7,126,000,000
Total Current Liabilities $4,454,000,000
Long-Term Debt $7,685,000,000
Total Assets $22,819,000,000
Intangible Assets $5,252,000,000
Total Liabilities $16,538,000,000
Shares Outstanding (Diluted Average) 949,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.51
Dec2018 $2.55
Dec2017 -$0.95
Dec2016 $6.35
Dec2015 $1.42
Dec2014 $0.04
Dec2013 $2.18
Dec2012 $1.99
Dec2011 $2.46
Dec2010 $1.36
Dec2009 $1.83
Dec2008 $1.36
Dec2007 $0.25
Dec2006 $0.79
Dec2005 $0.78
Dec2004 $0.29
Dec2003 $0.34
Dec2002 $0.11
Dec2001 $0.08
Dec2000 $0.04
Dec1999 $0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.27
Dec2018 $2.06
Dec2017 $1.81
Dec2016 $2.93
Dec2015 $1.35
Dec2014 $1.41
Dec2013 $2.05
Dec2012 $1.93
Dec2011 $1.75
Dec2010 $1.30
Dec2009 $1.18
Dec2008 $0.80
Dec2007 $0.51
Dec2006 $0.58
Dec2005 $0.42
Dec2004 $0.22
Dec2003 $0.16

Recommended Reading:

Other ModernGraham posts about the company

eBay Inc Valuation – May 2018 $EBAY
eBay Inc Valuation – December 2016 $EBAY
5 Speculative and Overvalued Companies to Avoid – August 2015
Ebay Inc. Analysis – August 2015 Update $EBAY
30 Companies in the Spotlight This Week – 5/23/15

Other ModernGraham posts about related companies

Facebook Inc Valuation – January 2019 $FB
Shutterstock Inc Valuation – August 2018 $SSTK
Twitter Inc Valuation – June 2018 $TWTR
Salesforce.com Inc Valuation – June 2018 $CRM
eBay Inc Valuation – May 2018 $EBAY
Facebook Inc Valuation – March 2018 $FB
Salesforce.com Inc Valuation – April 2017 $CRM
Paypal Holdings Inc Valuation – Initial Coverage $PYPL
Netflix Inc Valuation – February 2017 $NFLX
Shutterstock Inc Valuation – Initial Coverage $SSTK

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Back To Top