Corporate Finance Report: Dividend Analysis of Netflix (2017)

This report provides a comprehensive dividend analysis of Netflix, examining its dividend policy from 2014 to 2016. It explores the relationship between dividends, earnings, and cash flows, highlighting the fluctuating trends in net profit and cash flow at year-end. The report investigates how Netflix conveys information to the financial market and analyzes market reactions to dividend announcements. It delves into Netflix's dividend policy, interpreting its strategic decisions and identifying marginal stakeholders. Furthermore, the analysis includes a comparison of Netflix's dividend policy with its primary competitor, Amazon, and references relevant financial data and sources like Morningstar and MarketWatch. The report concludes that Netflix has not provided dividends, focusing on capital benefits and investment in growth projects and comparing its strategy with a competitor.

Corporate finance

TABLE OF CONTENTS
Dividend analysis of Netflix......................................................................................................3
Link of dividend with earnings and cash flows.........................................................................3
Information to financial market.................................................................................................4
Market reaction for dividend announcement and dividend payment.........................................4
Dividend policy of Netflix and its interpretation.......................................................................4
Marginal stakeholders................................................................................................................5
Comparison of dividend policy of Netflix with its competitors................................................5
References..................................................................................................................................6

LIST OF FIGURES
Figure 1: Share price of Netflix over five years.........................................................................4
Figure 2: Marginal stockholders of Netflix................................................................................6

DIVIDEND ANALYSIS OF NETFLIX
2016 2015 2014
Dividends 0 0 0
Payout ratio 0% 0% 0%
Dividend yield 0% 0% 0%
By considering financial figures it can be noticed that company had not provided dividend
from past few years as company believe in providing capital benefits to shareholders instead
of providing revenue earning in form of dividends.
Figure 1: Share price of Netflix over five years
(Source: Netflix Inc. 2017)
LINK OF DIVIDEND WITH EARNINGS AND CASH FLOWS
2016 2015 2014
Dividends 0 0 0
Net profit $186,678,000 $122,641,000 $266,799,000
Cash flow at year
end
$1,467,576,000 $1,809,330,000 $1,113,608,000

Cash flow from
operating activities
(1,473,984,000) (749,439,000) 16,483,000
Net profit and cash flow at year end of company is showing fluctuating trend which shows
increasing risk volatility in investment. Further; Cash flow from operating activities is
significantly reducing due to which company is able to provide dividend as they are already
facing liquidity crisis. This shows direct correlation of dividends with net profit and cash
flow. As with the increasing cash flow company will be able to provide dividends to
shareholders.
INFORMATION TO FINANCIAL MARKET
Firm can convey information to financial market through providing brief of their financial
performance in annual reports and through description of their future project of growth and
expansion (Michaely and Qian, 2016). Dividend policy is not core signal for financial
performance but it is essential signal as it shows business is earning good profits and can
provide valuable returns to shareholders. In terms of Netflix dividend is null but company is
having good profits and in present year i.e. in 2017 is of 362,087,000 which is twice in
comparison to previous financial year (Netflix Inc NFLX Morningstar Rating, 2017).
MARKET REACTION FOR DIVIDEND ANNOUNCEMENT AND
DIVIDEND PAYMENT
In accordance with the approach of dividend signalling theory, in situation where a corporate
entity decides to make announcement of its dividend payout policy then it is signal to the
market that company is processing future prospects, and consequently it will result in
alteration of its stock prices. As stock price move upward significantly with the
announcement of dividend.
DIVIDEND POLICY OF NETFLIX AND ITS INTERPRETATION
By considering financial figures it can be noticed that company had not provided dividend
from past few years as company believe in providing capital benefits to shareholders instead
of providing revenue earning in form of dividends (Michaely and Qian, 2016). Further;
company is having rapid growth due to which they are required to make capital investment in
other business projects in order to fuel more growth.

MARGINAL STAKEHOLDERS
Figure 2: Marginal stockholders of Netflix
(Source: Netflix, Inc. Ownership Summary. 2017)
Marginal stockholders of Netflix are companies so they prefer capital growth instead of
dividends as they believe in long term sustainability.
COMPARISON OF DIVIDEND POLICY OF NETFLIX WITH ITS
COMPETITORS
Primary competitor of Netflix is Amazon and they had also adopted similar policy to retain
cash and not providing dividend to shareholders. Henceforth; dividend policy of company is
viable as already their operating cash is negative.

REFERENCES
Michaely, R. and Qian, M., 2016. Stock Liquidity and Dividend Policy: Evidence from a
Natural Experiment.
Netflix Inc NFLX Morningstar Rating. 2017. [Online]. Availed through <
http://financials.morningstar.com/income-statement/is.html?
t=NFLX&region=usa&culture=en-US >. [Accessed on 22nd September 2017].
Netflix Inc. 2017. [Online]. Availed through <
http://www.marketwatch.com/investing/stock/nflx [Accessed on 22nd September 2017].
Netflix, Inc. Ownership Summary. 2017. [Online]. Availed through <
http://www.nasdaq.com/symbol/nflx/ownership-summary>. [Accessed on 22nd September
2017].