Investing in Netflix: Accounting for Content Assets*

Abstract

This case describes an equity investment scenario in the context of the COVID-19 pandemic. A fictional decision-maker, Amandeep Singh, is considering whether or not to invest in Netflix, Inc. (Netflix). Netflix has benefited from changing habits during the pandemic, but Singh questions whether those benefits will persist post-pandemic. To make his decision, Singh needs to perform a qualitative analysis of the video streaming industry and Netflix itself before moving to a quantitative analysis of Netflix's performance. To properly assess performance, Singh needs to fully understand Netflix's accounting methods and estimates for content assets—especially original content. The case is ideally suited to an MBA or Executive MBA audience. Students can easily engage with the case since they will be familiar with the company and industry. This familiarity allows for a general discussion about the industry's future and key success factors. The case provides an opportunity to cover core financial statement analysis concepts and drives home the importance of understanding accounting judgments when assessing firm performance.