Getaflix is a relatively new DVD delivery service. Despite being young they have amassed a considerably large customer base. Because they have emerged as a major player in the entertainment industry and a good investment opportunity, you have been tasked by your firm to determine Getaflixâs share price at the end of 2017. To accomplish this task you employ multiple methods. One method applies a customer value model. This model uses some data readily available from Getaflixâs Annual Report
The data are provided in Table 1.
Table 1 gives information about Getaflixâs two main types of current subscribers. It also provides information on the firmâs discount rate, margin, monthly revenue, cash on hand, shares outstanding and other variables that you could employ in your analysis. Using information that is readily available in Table 1 determine (for each segment) the âAverage Lifeâ in months. Then, once you have completed Table 1, populate the blank cells in Table 2A by calculating the CLV, customer equity, firm and share value.
(Hint: 1. Firm Value = Customer Equity + Cash on Hand; 2. Project the customer value for each segment over the time period specified by the variable âAverage Lifeâ to get the net present customer value; 3. The labels in Tables 2A are hints in themselves)
Table 1: Data and Assumptions about Getaflix in 2017
Annual Discount Rate
8.30%
Total Number of Subscribers
10,200,000
Cash on Hand
$397,000,000
Shares Outstanding (approx.)
45,000,000
Short-term (ST) Subscribers
Percentage of ST subscribers
35%
Monthly Churn of ST subscribers
5%
Average Monthly Rev ST subscribers
$13
Average Life (months)
?????? Operating Margin
20.50%
Long-term (LT) Subscribers
Percentage of LT subscribers
65%
Monthly Churn of LT subscribers
1.75%
Average Monthly Rev LT subscribers
$14.25
Average Life (months)
?????? Operating Margin
23.50%
Table 2A: Heterogeneity Based Approach: In this approach you use information on each segment (ST and LT) in Table 1 to determine the CLV for a customer from each segment. Using this information, the segment proportions and other variables in Table 1 determine the Customer Equity, and the firm and share value. (6 Points)
TOTAL Short Term Customer CLV
TOTAL Long Term Customer CLV
Average CLV (LT and ST)
Net Customer Equity Contribution to Firm Value
Firm Value for Getaflix from Heterogeneity Based Approach
Share Price
Table 2B: Aggregate Approach: What if you did not incorporate heterogeneity explicitly into your CLV calculations? Using the information from Table 1, assuming you had no idea about heterogeneity, determine the values you would expect in the rows in Table 2B for an âaverage customerâ. Additionally, also calculate the CLV, firm value and share value for Getaflix in this case.
Average Monthly Revenue
Operating Margin
Monthly Churn
Life (months)
CLV
Net Customer Equity Contribution to Firm Value
Firm Value for Getaflix from Aggregate Approach
Share Price
Getaflix is a relatively new DVD delivery service. Despite being young they have amassed a considerably large customer base. Because they have emerged as a major player in the entertainment industry and a good investment opportunity, you have been tasked by your firm to determine Getaflixâs share price at the end of 2017. To accomplish this task you employ multiple methods. One method applies a customer value model. This model uses some data readily available from Getaflixâs Annual Report
The data are provided in Table 1.
Table 1 gives information about Getaflixâs two main types of current subscribers. It also provides information on the firmâs discount rate, margin, monthly revenue, cash on hand, shares outstanding and other variables that you could employ in your analysis. Using information that is readily available in Table 1 determine (for each segment) the âAverage Lifeâ in months. Then, once you have completed Table 1, populate the blank cells in Table 2A by calculating the CLV, customer equity, firm and share value.
(Hint: 1. Firm Value = Customer Equity + Cash on Hand; 2. Project the customer value for each segment over the time period specified by the variable âAverage Lifeâ to get the net present customer value; 3. The labels in Tables 2A are hints in themselves)
| Table 1: Data and Assumptions about Getaflix in 2017 | |
| Annual Discount Rate | 8.30% |
| Total Number of Subscribers | 10,200,000 |
| Cash on Hand | $397,000,000 |
| Shares Outstanding (approx.) | 45,000,000 |
| Short-term (ST) Subscribers | |
| Percentage of ST subscribers | 35% |
| Monthly Churn of ST subscribers | 5% |
| Average Monthly Rev ST subscribers | $13 |
| Average Life (months) | ?????? |
| Operating Margin | 20.50% |
| Long-term (LT) Subscribers | |
| Percentage of LT subscribers | 65% |
| Monthly Churn of LT subscribers | 1.75% |
| Average Monthly Rev LT subscribers | $14.25 |
| Average Life (months) | ?????? |
| Operating Margin | 23.50% |
Table 2A: Heterogeneity Based Approach: In this approach you use information on each segment (ST and LT) in Table 1 to determine the CLV for a customer from each segment. Using this information, the segment proportions and other variables in Table 1 determine the Customer Equity, and the firm and share value. (6 Points)
| TOTAL Short Term Customer CLV | |
| TOTAL Long Term Customer CLV | |
| Average CLV (LT and ST) | |
| Net Customer Equity Contribution to Firm Value | |
| Firm Value for Getaflix from Heterogeneity Based Approach | |
| Share Price |
Table 2B: Aggregate Approach: What if you did not incorporate heterogeneity explicitly into your CLV calculations? Using the information from Table 1, assuming you had no idea about heterogeneity, determine the values you would expect in the rows in Table 2B for an âaverage customerâ. Additionally, also calculate the CLV, firm value and share value for Getaflix in this case.
| Average Monthly Revenue | |
| Operating Margin | |
| Monthly Churn | |
| Life (months) | |
| CLV | |
| Net Customer Equity Contribution to Firm Value | |
| Firm Value for Getaflix from Aggregate Approach | |
| Share Price |
