REWORDING THE INFORMATION BELOW A forecast of Netflix, Inc., and Amazon.com, Inc.s revenue, costs, and estimated cash

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REWORDING THE INFORMATION BELOW

A forecast of Netflix, Inc., and Amazon.com, Inc.’s revenue, costs, and estimated cash flows into the next five years.

Over the next five years, the analysts that follow this company are expecting it to grow earnings at an average annual rate of 23.75%. Analysts are forecasting earnings increase of 143.64% over last year for the next five years. Earnings are expected to grow next year of 85.79% over this year's forecasted earnings and this is expected to continue looking at the increase in the yearly earnings of Netflix since 2013 (Netflix, Inc. Analyst Forecasts Earnings Growth – nasdaq.com, 2017). Amazon on the other hand over the next five years is expected to grow earnings at an average annual rate of 27.52%. Other analysts are forecasting earnings increase of 33.55% over last year. Earnings growth is expected to grow next year by 76.55% over this year's forecasted earnings (Amazon.com, Inc. Analyst Forecasts Earnings Growth – Nasdaq.com, 2017).

The appropriate discount rate for Netflix, Inc., and Amazon.com, Inc.’s forecasted cash flows.

Netflix’s future cash flow growth is estimated to increase over the next five years. The estimate was obtained by looking at the company’s cash flows for the past four years which was equal to the operating cash flow of the company minus the capital expenditure of Netflix. Amazon’s cash flow over the next five years would also increase.

An appropriate risk-adjusted rate of return for use in evaluating an investment in Netflix, Inc., and Amazon.com, Inc.

Given the investment horizon of 30 days, Netflix Inc. has beta of -2.0479 indicating as returns on its benchmark rise, returns on holding Netflix Inc. are expected to decrease by similarly larger amounts. On the other hand, during market turmoil’s, Netflix is expected to outperform its benchmark. Additionally, Netflix Inc. has a negative alpha implying that the risk taken by holding this equity is not justified. The company is significantly underperforming DOW (Netflix Risk Analysis – macroaxis.com, 2017).