Customer Lifetime Value Analysis on Netflix - Essay Example

Customer Lifetime Value Analysis on Netflix As the Market capitalization of Netflix nears a 2 billion dollar mark, majority of financial analysts find it logic to carry out a study on the theories understood in the market capitalization. The present survey of more than 1000 dollars for each subscriber means that a ridiculously long flow of income from every client has been received by the company. Nevertheless, an imaginative license should not be used to analyze the customer’s duration value analysis on Netflix.

A futuristic outlook should be used for an increasingly growing and counterintuitive, making an analysis with fewer errors (Shuen, 2008, p. 179). Currently, the net lifetime worth of every Netflix client stands at 70$, and the stir rate stands at a constant 5%. This $70 presumption is openhanded because it does not consider the dilutive impacts of stock-based payment. This reimbursement does not have an impact on the value for every consumer. However, it has a direct impact on the share of every shareholder on every customer’s value.

Netflix’s stir rate can keep on reducing, causing other competences to rise. At the same time, Netflix’s may perhaps raise its prices, an approach that has previously been done numerous times. This strategy creates a favorable environment for the organization to stick with the $70 value for its customers (Shuen, 2008, p. 179). On a monthly basis, the compounded increase in new subscribers of Netflix is arranged in the order of 10%, 9%, 8.5%, 8%, 7.5%, 7%, 6.5% and 6% from 2004 to 2009 correspondingly.

This matches the disposable increase of the client base of those years rating at 78%, 59%, 50%, 42%, 34%, and 26% correspondingly. The market capitalization of Netflix will rise by 8% annually through January 2012. Following this year’s increase in returns, earnings will constantly be rising at a rate of 8%. This will lead to a future appreciation of value of an approximately similar rate. This analysis implies that the existing valuation of Netflix is only logical if the company anticipates a constant return in the future (Shuen, 2008, p. 180). In this case, such a rate stands at 8%, and if the assumptions of the sample are collective, Netflix will expect pure profits in the future.

By the year 2010, Netflix will have a sum value calculated as the collective lifetime value of every subscribers and will be equivalent to its present value on top of a standard return of 8%. As the time in the valuation pushes on, the preconceived notion of excluding the dilutive impacts of stock alternatives appears even bigger. From the perception of Netflix’s shareholders, doubling the shares of the shareholder is similar to reducing the lifetime customer value, making the attributed stock become reduced to half its current value.

The bias of excluding the impacts of taxes appears much bigger as time in the analysis period increases. Currently, Netflix has accumulated losses that can do without its tax liability, making the tax liability of the organization substantially increase with time. The efficiency of its marketing prices and cost management could in principle, offset some effects that could lead to an increase in price (Shuen, 2008, p. 182). Importance of marketing costs used in Customer Lifetime Value Analysis on Netflix calculations Marketing costs are highly significant in analyzing an organization’s Customer Lifetime Value since they are used to compare other figures that assess the effect of proposed strategies (Shuen, 2008, p. 181). Even though marketing cost figures have no significance in determining the value of customers’ loyalty, Netflix is an organization that can be apply such figures and determine the price, share and revenue trend to come.

References Shuen, A. (2008). Web 2.0: a strategy guide. New York: O'Reilly Media, Inc.