Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Netflix Inc. (NASDAQ:NFLX)

Capital Asset Pricing Model (CAPM)

Intermediate level

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Netflix Inc.’s common stock.


Rates of Return

Netflix Inc., monthly rates of return

Microsoft Excel LibreOffice Calc
Netflix Inc. (NFLX) Standard & Poor’s 500 (S&P 500)
t Date PriceNFLX,t1 DividendNFLX,t1 RNFLX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2016 $91.84 1,940.24
1. Feb 29, 2016 $93.41 1.71% 1,932.23 -0.41%
2. Mar 31, 2016 $102.23 9.44% 2,059.74 6.60%
3. Apr 30, 2016 $90.03 -11.93% 2,065.30 0.27%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2020 $490.70 3.14% 3,621.63 10.75%
59. Dec 31, 2020 $540.73 10.20% 3,756.07 3.71%
Average (R): 3.55% 1.22%
Standard deviation: 10.38% 4.36%
Netflix Inc. (NFLX) Standard & Poor’s 500 (S&P 500)
t Date PriceNFLX,t1 DividendNFLX,t1 RNFLX,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2016 $91.84 1,940.24
1. Feb 29, 2016 $93.41 1.71% 1,932.23 -0.41%
2. Mar 31, 2016 $102.23 9.44% 2,059.74 6.60%
3. Apr 30, 2016 $90.03 -11.93% 2,065.30 0.27%
4. May 31, 2016 $102.57 13.93% 2,096.95 1.53%
5. Jun 30, 2016 $91.48 -10.81% 2,098.86 0.09%
6. Jul 31, 2016 $91.25 -0.25% 2,173.60 3.56%
7. Aug 31, 2016 $97.45 6.79% 2,170.95 -0.12%
8. Sep 30, 2016 $98.55 1.13% 2,168.27 -0.12%
9. Oct 31, 2016 $124.87 26.71% 2,126.15 -1.94%
10. Nov 30, 2016 $117.00 -6.30% 2,198.81 3.42%
11. Dec 31, 2016 $123.80 5.81% 2,238.83 1.82%
12. Jan 31, 2017 $140.71 13.66% 2,278.87 1.79%
13. Feb 28, 2017 $142.13 1.01% 2,363.64 3.72%
14. Mar 31, 2017 $147.81 4.00% 2,362.72 -0.04%
15. Apr 30, 2017 $152.20 2.97% 2,384.20 0.91%
16. May 31, 2017 $163.07 7.14% 2,411.80 1.16%
17. Jun 30, 2017 $149.41 -8.38% 2,423.41 0.48%
18. Jul 31, 2017 $181.66 21.58% 2,470.30 1.93%
19. Aug 31, 2017 $174.71 -3.83% 2,471.65 0.05%
20. Sep 30, 2017 $181.35 3.80% 2,519.36 1.93%
21. Oct 31, 2017 $196.43 8.32% 2,575.26 2.22%
22. Nov 30, 2017 $187.58 -4.51% 2,647.58 2.81%
23. Dec 31, 2017 $191.96 2.34% 2,673.61 0.98%
24. Jan 31, 2018 $270.30 40.81% 2,823.81 5.62%
25. Feb 28, 2018 $291.38 7.80% 2,713.83 -3.89%
26. Mar 31, 2018 $295.35 1.36% 2,640.87 -2.69%
27. Apr 30, 2018 $312.46 5.79% 2,648.05 0.27%
28. May 31, 2018 $351.60 12.53% 2,705.27 2.16%
29. Jun 30, 2018 $391.43 11.33% 2,718.37 0.48%
30. Jul 31, 2018 $337.45 -13.79% 2,816.29 3.60%
31. Aug 31, 2018 $367.68 8.96% 2,901.52 3.03%
32. Sep 30, 2018 $374.13 1.75% 2,913.98 0.43%
33. Oct 31, 2018 $301.78 -19.34% 2,711.74 -6.94%
34. Nov 30, 2018 $286.13 -5.19% 2,760.17 1.79%
35. Dec 31, 2018 $267.66 -6.46% 2,506.85 -9.18%
36. Jan 31, 2019 $339.50 26.84% 2,704.10 7.87%
37. Feb 28, 2019 $358.10 5.48% 2,784.49 2.97%
38. Mar 31, 2019 $356.56 -0.43% 2,834.40 1.79%
39. Apr 30, 2019 $370.54 3.92% 2,945.83 3.93%
40. May 31, 2019 $343.28 -7.36% 2,752.06 -6.58%
41. Jun 30, 2019 $367.32 7.00% 2,941.76 6.89%
42. Jul 31, 2019 $322.99 -12.07% 2,980.38 1.31%
43. Aug 31, 2019 $293.75 -9.05% 2,926.46 -1.81%
44. Sep 30, 2019 $267.62 -8.90% 2,976.74 1.72%
45. Oct 31, 2019 $287.41 7.39% 3,037.56 2.04%
46. Nov 30, 2019 $314.66 9.48% 3,140.98 3.40%
47. Dec 31, 2019 $323.57 2.83% 3,230.78 2.86%
48. Jan 31, 2020 $345.09 6.65% 3,225.52 -0.16%
49. Feb 29, 2020 $369.03 6.94% 2,954.22 -8.41%
50. Mar 31, 2020 $375.50 1.75% 2,584.59 -12.51%
51. Apr 30, 2020 $419.85 11.81% 2,912.43 12.68%
52. May 31, 2020 $419.73 -0.03% 3,044.31 4.53%
53. Jun 30, 2020 $455.04 8.41% 3,100.29 1.84%
54. Jul 31, 2020 $488.88 7.44% 3,271.12 5.51%
55. Aug 31, 2020 $529.56 8.32% 3,500.31 7.01%
56. Sep 30, 2020 $500.03 -5.58% 3,363.00 -3.92%
57. Oct 31, 2020 $475.74 -4.86% 3,269.96 -2.77%
58. Nov 30, 2020 $490.70 3.14% 3,621.63 10.75%
59. Dec 31, 2020 $540.73 10.20% 3,756.07 3.71%
Average (R): 3.55% 1.22%
Standard deviation: 10.38% 4.36%

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1 Data in US$ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of NFLX during period t

3 Rate of return on S&P 500 (the market portfolio proxy) during period t


Variance and Covariance

Netflix Inc., calculation of variance and covariance of returns

Microsoft Excel LibreOffice Calc
t Date RNFLX,t RS&P 500,t (RNFLX,tRNFLX)2 (RS&P 500,tRS&P 500)2 (RNFLX,tRNFLX)×(RS&P 500,tRS&P 500)
1. Feb 29, 2016 1.71% -0.41% 3.37 2.67 3.00
2. Mar 31, 2016 9.44% 6.60% 34.76 28.93 31.71
3. Apr 30, 2016 -11.93% 0.27% 239.64 0.90 14.71
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2020 3.14% 10.75% 0.16 90.91 -3.83
59. Dec 31, 2020 10.20% 3.71% 44.21 6.21 16.57
Total (Σ): 6,251.34 1,103.45 912.01
t Date RNFLX,t RS&P 500,t (RNFLX,tRNFLX)2 (RS&P 500,tRS&P 500)2 (RNFLX,tRNFLX)×(RS&P 500,tRS&P 500)
1. Feb 29, 2016 1.71% -0.41% 3.37 2.67 3.00
2. Mar 31, 2016 9.44% 6.60% 34.76 28.93 31.71
3. Apr 30, 2016 -11.93% 0.27% 239.64 0.90 14.71
4. May 31, 2016 13.93% 1.53% 107.79 0.10 3.24
5. Jun 30, 2016 -10.81% 0.09% 206.17 1.27 16.21
6. Jul 31, 2016 -0.25% 3.56% 14.42 5.48 -8.89
7. Aug 31, 2016 6.79% -0.12% 10.55 1.80 -4.36
8. Sep 30, 2016 1.13% -0.12% 5.84 1.81 3.25
9. Oct 31, 2016 26.71% -1.94% 536.43 10.00 -73.25
10. Nov 30, 2016 -6.30% 3.42% 97.00 4.83 -21.64
11. Dec 31, 2016 5.81% 1.82% 5.13 0.36 1.36
12. Jan 31, 2017 13.66% 1.79% 102.27 0.32 5.75
13. Feb 28, 2017 1.01% 3.72% 6.44 6.25 -6.34
14. Mar 31, 2017 4.00% -0.04% 0.20 1.59 -0.57
15. Apr 30, 2017 2.97% 0.91% 0.33 0.10 0.18
16. May 31, 2017 7.14% 1.16% 12.93 0.00 -0.22
17. Jun 30, 2017 -8.38% 0.48% 142.16 0.55 8.81
18. Jul 31, 2017 21.58% 1.93% 325.39 0.51 12.89
19. Aug 31, 2017 -3.83% 0.05% 54.35 1.36 8.59
20. Sep 30, 2017 3.80% 1.93% 0.06 0.50 0.18
21. Oct 31, 2017 8.32% 2.22% 22.74 1.00 4.76
22. Nov 30, 2017 -4.51% 2.81% 64.83 2.52 -12.79
23. Dec 31, 2017 2.34% 0.98% 1.47 0.06 0.29
24. Jan 31, 2018 40.81% 5.62% 1,388.62 19.34 163.88
25. Feb 28, 2018 7.80% -3.89% 18.08 26.16 -21.75
26. Mar 31, 2018 1.36% -2.69% 4.77 15.28 8.54
27. Apr 30, 2018 5.79% 0.27% 5.05 0.90 -2.13
28. May 31, 2018 12.53% 2.16% 80.64 0.89 8.45
29. Jun 30, 2018 11.33% 0.48% 60.56 0.54 -5.73
30. Jul 31, 2018 -13.79% 3.60% 300.57 5.67 -41.30
31. Aug 31, 2018 8.96% 3.03% 29.29 3.26 9.78
32. Sep 30, 2018 1.75% 0.43% 3.21 0.63 1.42
33. Oct 31, 2018 -19.34% -6.94% 523.70 66.59 186.75
34. Nov 30, 2018 -5.19% 1.79% 76.25 0.32 -4.94
35. Dec 31, 2018 -6.46% -9.18% 100.03 108.11 103.99
36. Jan 31, 2019 26.84% 7.87% 542.59 44.20 154.86
37. Feb 28, 2019 5.48% 2.97% 3.73 3.07 3.39
38. Mar 31, 2019 -0.43% 1.79% 15.81 0.33 -2.28
39. Apr 30, 2019 3.92% 3.93% 0.14 7.35 1.02
40. May 31, 2019 -7.36% -6.58% 118.88 60.81 85.02
41. Jun 30, 2019 7.00% 6.89% 11.95 32.18 19.61
42. Jul 31, 2019 -12.07% 1.31% 243.82 0.01 -1.45
43. Aug 31, 2019 -9.05% -1.81% 158.74 9.18 38.17
44. Sep 30, 2019 -8.90% 1.72% 154.80 0.25 -6.20
45. Oct 31, 2019 7.39% 2.04% 14.81 0.68 3.17
46. Nov 30, 2019 9.48% 3.40% 35.22 4.77 12.97
47. Dec 31, 2019 2.83% 2.86% 0.51 2.69 -1.17
48. Jan 31, 2020 6.65% -0.16% 9.64 1.91 -4.29
49. Feb 29, 2020 6.94% -8.41% 11.50 92.76 -32.66
50. Mar 31, 2020 1.75% -12.51% 3.22 188.57 24.62
51. Apr 30, 2020 11.81% 12.68% 68.30 131.43 94.75
52. May 31, 2020 -0.03% 4.53% 12.78 10.94 -11.83
53. Jun 30, 2020 8.41% 1.84% 23.68 0.38 3.01
54. Jul 31, 2020 7.44% 5.51% 15.13 18.40 16.69
55. Aug 31, 2020 8.32% 7.01% 22.80 33.48 27.63
56. Sep 30, 2020 -5.58% -3.92% 83.22 26.45 46.92
57. Oct 31, 2020 -4.86% -2.77% 70.63 15.89 33.50
58. Nov 30, 2020 3.14% 10.75% 0.16 90.91 -3.83
59. Dec 31, 2020 10.20% 3.71% 44.21 6.21 16.57
Total (Σ): 6,251.34 1,103.45 912.01

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VarianceNFLX = Σ(RNFLX,tRNFLX)2 ÷ (59 – 1)
= 6,251.34 ÷ (59 – 1)
= 107.78

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= 1,103.45 ÷ (59 – 1)
= 19.02

CovarianceNFLX, S&P 500 = Σ(RNFLX,tRNFLX)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= 912.01 ÷ (59 – 1)
= 15.72


Systematic Risk (β) Estimation

Microsoft Excel LibreOffice Calc
VarianceNFLX 107.78
VarianceS&P 500 19.02
CovarianceNFLX, S&P 500 15.72
Correlation coefficientNFLX, S&P 5001 0.35
βNFLX2 0.83
αNFLX3 2.54%

Calculations

1 Correlation coefficientNFLX, S&P 500
= CovarianceNFLX, S&P 500 ÷ (Standard deviationNFLX × Standard deviationS&P 500)
= 15.72 ÷ (10.38% × 4.36%)
= 0.35

2 βNFLX
= CovarianceNFLX, S&P 500 ÷ VarianceS&P 500
= 15.72 ÷ 19.02
= 0.83

3 αNFLX
= AverageNFLX – βNFLX × AverageS&P 500
= 3.55%0.83 × 1.22%
= 2.54%


Expected Rate of Return

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF 2.22%
Expected rate of return on market portfolio2 E(RM) 11.72%
Systematic risk (β) of Netflix Inc.’s common stock βNFLX 0.83
 
Expected rate of return on Netflix Inc.’s common stock3 E(RNFLX) 10.07%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 E(RNFLX) = RF + βNFLX [E(RM) – RF]
= 2.22% + 0.83 [11.72%2.22%]
= 10.07%