Stock Analysis on Net
Stock Analysis on Net
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Netflix Inc. (NASDAQ:NFLX)

Analysis of Income Taxes

Advanced level

Accounting Policy on Income Taxes

Netflix records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.

Netflix did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. Netflix may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Netflix recognizes interest and penalties related to uncertain tax positions in income tax expense.

Source: 10-K (filing date: 2020-01-29).

Income Tax Expense (Benefit)

Netflix Inc., income tax expense (benefit), continuing operations

US$ in thousands

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Federal 21,498  (22,176) 54,245  54,315  52,557 
State 45,228  (10,234) (7,601) 5,790  (1,576)
Foreign 223,328  133,146  88,436  60,571  26,918 
Current tax provision 290,054  100,736  135,080  120,676  77,899 
Federal (28,003) (37,396) (153,963) (24,383) (37,669)
State (54,507) (52,391) (52,695) (14,080) (17,635)
Foreign (12,229) 4,267  (2,030) (8,384) (3,351)
Deferred tax provision (94,739) (85,520) (208,688) (46,847) (58,655)
Provision for (benefit from) income taxes 195,315  15,216  (73,608) 73,829  19,244 

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

Item Description The company
Current tax provision Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Netflix Inc.’s current tax provision decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.
Deferred tax provision Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Netflix Inc.’s deferred tax provision increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.
Provision for (benefit from) income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Netflix Inc.’s provision for (benefit from) income taxes increased from 2017 to 2018 and from 2018 to 2019.

Effective Income Tax Rate (EITR)

Netflix Inc., effective income tax rate (EITR) reconciliation

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
U.S. federal statutory tax rate 21.00% 21.00% 35.00% 35.00% 35.00%
Effective income tax rate 9.00% 1.00% -15.00% 28.00% 14.00%

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

Item Description The company
Effective income tax rate Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Netflix Inc.’s effective income tax rate increased from 2017 to 2018 and from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

Netflix Inc., components of deferred tax assets and liabilities

US$ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Stock-based compensation 258,376  190,451  149,367  188,458  131,339 
Federal and California tax R&D credits 408,715  369,023  260,686  107,283  74,091 
Foreign tax credits 137,818  218,026  102,242  —  — 
Accruals and reserves 42,450  36,396  34,170  29,231  14,367 
Operating leases 349,208  —  —  —  — 
Other 6,510  27,203  51,614  (2,363) 3,980 
Gross deferred tax assets 1,203,077  841,099  598,079  322,609  223,777 
Valuation allowance (134,782) (124,996) (49,431) (1,601) — 
Deferred tax assets 1,068,295  716,103  548,648  321,008  223,777 
Depreciation and amortization (80,921) (151,678) (70,382) (93,760) (43,204)
Operating leases (329,168) —  —  —  — 
Deferred tax liabilities (410,089) (151,678) (70,382) (93,760) (43,204)
Net deferred tax assets (liabilities) 658,206  564,425  478,266  227,248  180,573 

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

Item Description The company
Gross deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Netflix Inc.’s gross deferred tax assets increased from 2017 to 2018 and from 2018 to 2019.
Deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Netflix Inc.’s deferred tax assets increased from 2017 to 2018 and from 2018 to 2019.
Net deferred tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. Netflix Inc.’s net deferred tax assets (liabilities) increased from 2017 to 2018 and from 2018 to 2019.

Deferred Tax Assets and Liabilities, Classification

Netflix Inc., deferred tax assets and liabilities, classification

US$ in thousands

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Deferred tax assets (classified as Other non-current assets) 658,206  564,425  478,266  227,248  180,573 

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

Item Description The company
Deferred tax assets (classified as Other non-current assets) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. Netflix Inc.’s deferred tax assets (classified as Other non-current assets) increased from 2017 to 2018 and from 2018 to 2019.

Adjustments to Financial Statements: Removal of Deferred Taxes

Netflix Inc., adjustments to financial statements

US$ in thousands

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Adjustment to Total Assets
Total assets (as reported) 33,975,712  25,974,400  19,012,742  13,586,610  10,202,871 
Less: Noncurrent deferred tax assets, net 658,206  564,425  478,266  227,248  180,573 
Total assets (adjusted) 33,317,506  25,409,975  18,534,476  13,359,362  10,022,298 
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported) 7,582,157  5,238,765  3,581,956  2,679,800  2,223,426 
Less: Net deferred tax assets (liabilities) 658,206  564,425  478,266  227,248  180,573 
Stockholders’ equity (adjusted) 6,923,951  4,674,340  3,103,690  2,452,552  2,042,853 
Adjustment to Net Income
Net income (as reported) 1,866,916  1,211,242  558,929  186,678  122,641 
Add: Deferred income tax expense (benefit) (94,739) (85,520) (208,688) (46,847) (58,655)
Net income (adjusted) 1,772,177  1,125,722  350,241  139,831  63,986 

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

Netflix Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Netflix Inc., adjusted financial ratios

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net Profit Margin
Reported net profit margin 9.26% 7.67% 4.78% 2.11% 1.81%
Adjusted net profit margin 8.79% 7.13% 3.00% 1.58% 0.94%
Total Asset Turnover
Reported total asset turnover 0.59 0.61 0.61 0.65 0.66
Adjusted total asset turnover 0.60 0.62 0.63 0.66 0.68
Financial Leverage
Reported financial leverage 4.48 4.96 5.31 5.07 4.59
Adjusted financial leverage 4.81 5.44 5.97 5.45 4.91
Return on Equity (ROE)
Reported ROE 24.62% 23.12% 15.60% 6.97% 5.52%
Adjusted ROE 25.59% 24.08% 11.28% 5.70% 3.13%
Return on Assets (ROA)
Reported ROA 5.49% 4.66% 2.94% 1.37% 1.20%
Adjusted ROA 5.32% 4.43% 1.89% 1.05% 0.64%

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

Financial ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Netflix Inc.’s adjusted net profit margin ratio improved from 2017 to 2018 and from 2018 to 2019.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Netflix Inc.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 and from 2018 to 2019.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.		 Netflix Inc.’s adjusted financial leverage ratio decreased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Netflix Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Netflix Inc.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019.

Netflix Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in thousands)
Net income 1,866,916  1,211,242  558,929  186,678  122,641 
Revenues 20,156,447  15,794,341  11,692,713  8,830,669  6,779,511 
Profitability Ratio
Net profit margin1 9.26% 7.67% 4.78% 2.11% 1.81%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income 1,772,177  1,125,722  350,241  139,831  63,986 
Revenues 20,156,447  15,794,341  11,692,713  8,830,669  6,779,511 
Profitability Ratio
Adjusted net profit margin2 8.79% 7.13% 3.00% 1.58% 0.94%

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

2019 Calculations

1 Net profit margin = 100 × Net income ÷ Revenues
= 100 × 1,866,916 ÷ 20,156,447 = 9.26%

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenues
= 100 × 1,772,177 ÷ 20,156,447 = 8.79%

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Netflix Inc.’s adjusted net profit margin ratio improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in thousands)
Revenues 20,156,447  15,794,341  11,692,713  8,830,669  6,779,511 
Total assets 33,975,712  25,974,400  19,012,742  13,586,610  10,202,871 
Activity Ratio
Total asset turnover1 0.59 0.61 0.61 0.65 0.66
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Revenues 20,156,447  15,794,341  11,692,713  8,830,669  6,779,511 
Adjusted total assets 33,317,506  25,409,975  18,534,476  13,359,362  10,022,298 
Activity Ratio
Adjusted total asset turnover2 0.60 0.62 0.63 0.66 0.68

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

2019 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= 20,156,447 ÷ 33,975,712 = 0.59

2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 20,156,447 ÷ 33,317,506 = 0.60

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Netflix Inc.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 and from 2018 to 2019.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in thousands)
Total assets 33,975,712  25,974,400  19,012,742  13,586,610  10,202,871 
Stockholders’ equity 7,582,157  5,238,765  3,581,956  2,679,800  2,223,426 
Solvency Ratio
Financial leverage1 4.48 4.96 5.31 5.07 4.59
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted total assets 33,317,506  25,409,975  18,534,476  13,359,362  10,022,298 
Adjusted stockholders’ equity 6,923,951  4,674,340  3,103,690  2,452,552  2,042,853 
Solvency Ratio
Adjusted financial leverage2 4.81 5.44 5.97 5.45 4.91

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

2019 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity
= 33,975,712 ÷ 7,582,157 = 4.48

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= 33,317,506 ÷ 6,923,951 = 4.81

Solvency ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.		 Netflix Inc.’s adjusted financial leverage ratio decreased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in thousands)
Net income 1,866,916  1,211,242  558,929  186,678  122,641 
Stockholders’ equity 7,582,157  5,238,765  3,581,956  2,679,800  2,223,426 
Profitability Ratio
ROE1 24.62% 23.12% 15.60% 6.97% 5.52%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income 1,772,177  1,125,722  350,241  139,831  63,986 
Adjusted stockholders’ equity 6,923,951  4,674,340  3,103,690  2,452,552  2,042,853 
Profitability Ratio
Adjusted ROE2 25.59% 24.08% 11.28% 5.70% 3.13%

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

2019 Calculations

1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × 1,866,916 ÷ 7,582,157 = 24.62%

2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity
= 100 × 1,772,177 ÷ 6,923,951 = 25.59%

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Netflix Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in thousands)
Net income 1,866,916  1,211,242  558,929  186,678  122,641 
Total assets 33,975,712  25,974,400  19,012,742  13,586,610  10,202,871 
Profitability Ratio
ROA1 5.49% 4.66% 2.94% 1.37% 1.20%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income 1,772,177  1,125,722  350,241  139,831  63,986 
Adjusted total assets 33,317,506  25,409,975  18,534,476  13,359,362  10,022,298 
Profitability Ratio
Adjusted ROA2 5.32% 4.43% 1.89% 1.05% 0.64%

Based on: 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28).

2019 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × 1,866,916 ÷ 33,975,712 = 5.49%

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × 1,772,177 ÷ 33,317,506 = 5.32%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Netflix Inc.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019.