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Last update on 2024-06-06

Netflix (NFLX) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Netflix (NFLX) achieves a strong financial position with an impressive Piotroski F-Score of 8/9 in 2023, highlighting robust profitability and liquidity.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 8

We're running Netflix (NFLX) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
1
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
1
Current Ratio is growing?
0
Number of shares not diluted?
1
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
1

Netflix has a high Piotroski F-Score of 8, indicating strong financial health. Key points include: positive net income and cash flow, improved return on assets, and efficient cash conversion. While leverage has slightly increased and liquidity is somewhat reduced, Netflix performs well in profitability with increasing gross margin and asset turnover. Additionally, share buybacks reflect management's confidence in the company.

Insights for Value Investors Seeking Stable Income

Given the high Piotroski F-Score of 8, Netflix appears to be a strong candidate for investment. The company shows clear signs of profitability, operational efficiency, and solid cash flow. However, keep an eye on the leverage and liquidity trends. Overall, it is worth considering for potential investors due to its strong financial health and growth potential.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Netflix (NFLX)

Company has a positive net income?

Net income indicates the overall profitability of a company after all expenses have been deducted from total revenue. A positive net income is a strong indicator of financial health.

Historical Net Income of Netflix (NFLX)

For the fiscal year 2023, Netflix reported a net income of $5,407,990,000, a compelling figure that showcases strong profitability. This positive net income earns Netflix 1 point in the Piotroski Score. Historically, Netflix's net income trend shows a significant upward trajectory from just $6.51 million in 2003 to over $5.4 billion in 2023. Such a pattern appears to demonstrate consistent growth and proficient management, notwithstanding a slow year in 2012 when the net income was merely $17.15 million. Overall, this trend is highly favorable.

Company has a positive cash flow?

The criterion checks if the company has positive cash flow from operations, indicating healthy cash generation from core business activities.

Historical Operating Cash Flow of Netflix (NFLX)

For the year 2023, Netflix reported a cash flow from operations (CFO) of $7,274,301,000, which is indeed positive. This results in adding 1 point according to the Piotroski Analyses. Examining Netflix's historical CFO data, there has been a significant upward trend, particularly from 2019 onwards, showcasing substantial improvement in operational efficiency and profitability. This positive trend is a favorable indicator for investors.

Return on Assets (ROA) are growing?

The criterion examines the change in Return on Assets (ROA) year-over-year. It evaluates the efficiency in asset utilization for generating profit, essential for assessing a company's performance.

Historical change in Return on Assets (ROA) of Netflix (NFLX)

The ROA for Netflix (NFLX) increased from 0.0964 in 2022 to 0.1111 in 2023, indicating an improvement in how effectively the company is utilizing its assets to generate earnings. This upwards trend is notably favorable given that the company's operating cash flow has rebounded significantly in recent years, growing from -$2.88 billion in 2019 to $7.27 billion in 2023. However, it's crucial to note that despite the increase, Netflix's ROA still lags behind the industry median of 0.4033 for 2023, underscoring areas for further improvement. As a result of the increased ROA, Netflix scores 1 point for this criterion.

Operating Cashflow are higher than Netincome?

Operating cash flow should be higher than net income, indicating the company generates sufficient cash from operations, ensuring financial stability and continuous operational efficiency.

Historical accruals of Netflix (NFLX)

Netflix's 2023 data reveals an operating cash flow of $7.27 billion, surpassing the net income of $5.41 billion. This positive trend, evidenced by the 1-point allocation based on the Piotroski Score criteria, is notable. A consistent increase in operating cash flow, as observed over the past 20 years, reinforces Netflix's robust capability to convert its earnings into actual cash. While occasional fluctuations were evident in the historical data, the significant surge in recent years demonstrates improved operational efficiency and cash generation, ensuring long-term financial health.

Liquidity of Netflix (NFLX)

Leverage is declining?

This criterion assesses the change in financial leverage, measured by the leverage ratio from one year to the next. Leverage indicates a firm's reliance on debt financing - a higher ratio suggests greater reliance.

Historical leverage of Netflix (NFLX)

Analyzing Netflix's leverage, it increased slightly from 0.2902 in 2022 to 0.2954 in 2023, reflecting a marginal increase. Historically, Netflix's leverage has fluctuated significantly; from almost negligible levels in the early 2000s to peaking around 0.4344 in 2019. This current increase, though minor, does not bode well as it indicates growing dependence on debt financing. Therefore, in the Piotroski Analyses, we would not add a point for this criterion as leverage has edged up.

Current Ratio is growing?

Current Ratio measures a company's ability to pay short-term obligations with its short-term assets. It is crucial for evaluating liquidity and financial health.

Historical Current Ratio of Netflix (NFLX)

The Current Ratio for Netflix (NFLX) decreased from 1.1684 in 2022 to 1.1193 in 2023, indicating a slight reduction in liquidity. In terms of liquidity, Netflix seems to maintain a stronger position compared to the industry median which stands at 1.0522. This decline, however, does reflect a slight deterioration in the company's ability to meet its short-term liabilities. Despite this year's decrease, Netflix continually outperforms the industry median which is indicative of relatively stronger financial health in terms of liquidity. Therefore, Netflix earns 0 on the Piotroski score for this criterion.

Number of shares not diluted?

Change in shares outstanding reflects a company's share dilution or buyback activities and impacts shareholder value

Historical outstanding shares of Netflix (NFLX)

Netflix's outstanding shares decreased from 444,698,000 in 2022 to 441,571,000 in 2023, adding 1 point. This decrease suggests share buyback activity, a positive sign for investors as it indicates management's confidence in the company's value and a direct return to shareholders. Over the last 20 years, there's notable volatility in Netflix’s share count with major buybacks around 2009 and recently, indicating strategic financial decisions aligning with business growth phases.

Operating of Netflix (NFLX)

Cross Margin is growing?

Gross Margin evaluates the proportion of revenue that exceeds the cost of goods sold, indicating the profitability and efficiency of Netflix.

Historical gross margin of Netflix (NFLX)

The Gross Margin for Netflix (NFLX) increased from 0.3937 in 2022 to 0.4154 in 2023, adding 1 point to the Piotroski Score. This trend is favorable as it signifies improved profitability and cost management. Over the last 20 years, Netflix's Gross Margin has fluctuated but shows a general upward trend, reflecting its stable profitability despite market fluctuations. Comparing to the industry median, Netflix's Gross Margin in 2023 remains below the industry median of 0.4033, highlighting potential areas for improvement in cost efficiency and pricing strategies.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company's use of its assets to generate sales. It is crucial for identifying operational performance and efficiency.

Historical asset turnover ratio of Netflix (NFLX)

The Asset Turnover ratio for Netflix (NFLX) in 2023 is 0.693, an increase from the 0.6786 recorded in 2022. This increment results in adding 1 point according to Piotroski's criteria. While Netflix's current Asset Turnover is still below 1, indicating room for operational efficiency improvement, the uptick is a positive trend. Historically, Netflix's Asset Turnover has deteriorated over the years, from a high of 2.6027 in 2010 to a low of around 0.6786 in recent years. This reversal of trend could signal an improving efficiency in asset utilization.


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