Question

0n 4/21/2020, Netflix reported 16 million new subscribers during the first quarter of 2020. Streaming services are a bright spot during this economic shutdown due to the Coronavirus outbreak, but the company faces negative factors as well. Increased operating costs may explain the results, discussed late in the article, that profit of $709.1, or $1.57 a share, was achieved while “the company was expected to earn $1.64 a share.” Nonetheless, shares rose in after-hours following Netflix’s release of its video to discuss financial results in the first quarter of 2020.

So, how does the breakdown of Netflix's new subscribers by geographic area help to assess the company’s operating results? Do you think that assessing financial information in addition to subscriber numbers by geographic area would help to further understand Netflix's performance during this period? Explain your reasoning. Is there a specific requirement to provide information about the geographic areas discussed by Netflix and reported in this article? Explain your answer and provide supporting citations to professional literature.

Answer 1

Netflix operates almost across the world The company generates revenue from each geography. It is important for the company to understand how well the company is operating in each area. We will understand why it is important to analyze the subscribers numbers from each geography area.

The company invest in each geography area and does a lot of capital expenditure. In order to gauge how each area is performing the company has to check the financial performance and operating profit from every area. This will help them to undertand whether the money invested in those areas are producing positive net present values and internal rate of return greater than the cost of capital. Netflix will bifurcate its results by showing how much revenue from subscribers the company is earning in every quarter and annually. What is the operating profit geographically, return on assets invested there and are those assets generating enough money to cover up the respective geographic liabilities. If certain geography is not doing this can only be interpretated by analyzing the resilts geographically which would help management to take appropriate decisions like to continue investing and hope for break even in next few days or discontinue the project and exit from there.

In order to incur more capital expenditures in future results from each geographic areas plays out an important role. From an analyst point of view if the company has not exited an area where the subscribers additions are declining the analyst can question the management regarding this, listen to the management views, take an unbiased decisions whether the analyst agrees with the management or not and finally could rate the company.

I hope i have answer your query.For your every question i have explained in paragraph. For the question in addition to subscriber numbers what else one can look at are assets invested in each gepgraphy, liabilities in the form of debt taken by the local country bank denominating in local currency etc.