Netflix Case Analysis
1) Assessment of Netflix performance:
Investing and analyzing financial statement information of Netflix, allows us to evaluate the financial performance of the company, and signals it is sending to the market. a) Return on Assets (ROA):
In 2004, with a net income of $21.019M and total assets of $251.793M the return on assets for Netflix was 8.35% against 3.70% in 2003. This sharp increase of ROA suggests that the company is very good at converting its investment into profit, reflecting the high efficiency of its management at using its assets to generate profits. Unfortunately, we are unable to compare this ratio to competitors, as we don’t have information about their net income.
b) Market Share:
Benefitting from the position of first mover in the movie rental industry, Netflix has evolved to the industry leader. Achieving the highest sales performance comparing to the industry average, Netflix was leading 78% market share for online rentals at the end of 2004 (see exhibit 3). This determines their competitive strength as compared to the competitors.
2) Corporate strategy
Formulated and realized …show more content…
Such an expansion will allow the firm to enjoy a large increase in sales and to leverage its market share and returns. However, such an expansion will not be easy and will involve the settlement of numerous issues. Netflix will have to make an important investment to acquire distribution centers that will enable them to efficiently serve their new Canadian subscribers. It will also need to make an arrangement with the Canadian Post in order to guarantee the delivery of DVDs in one day to the new subscribers. Moreover, Netflix will have to look over some other issues like the taxation system in Canada and a proper marketing strategy designed specifically to reach the Canadian …show more content…
However, few deficiencies that seem insignificant in the current moment might be the turning point in the company’s market leadership if a bigger player decides to come into the battlefield. My analysis drives me to the conclusion that Netflix should anticipate any strategic move from competition and any switch in technology by shifting toward the VOD and digital downloading technologies. Although the costs of such a strategy may be significant, Netflix will create a more sustainable competitive advantage than by expanding to foreign markets. Netflix should capitalize on its large market share of online customers, its brand recognition and its famous recommendation system to be a first mover in the young market of VOD and digital downloading. For me, this strategy seems best as expanding abroad can involve many unforeseeable risks and won’t protect Netflix from the new technological