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

Netflix Inc. 2012 2013 Revenues Cost of revenues* Marketing* Technology and development General and administrative Operating income (loss) Other income (expense): Interest expense Interest and other income (expense) Loss on extinguishment of debt Income (loss) before income taxes Provision (benefit) for income taxes Net income (loss) $ 3,609,282 $ 2,652,058 439,208 329,008 139,016 49,992 Earnings per share: Basic Diluted Weighted-average common shares outstanding: Basic Diluted $ 17,152 $ 112,403 $ $ .31 $ .29 $ 1.93 1.85 (19,986) 474 30,480 13,328 55,521 58,904 4,374,562 3,117,203 469,942 378,769 180,301 228,347 (29,142) (3,002) (25,129) 171,074 58,671 58,198 60,761 2014 $ 5,504,656 3,752,760 607,186 472,321 269,741 402,648 (50,219) (3,060) 349,369 82,570 $ 266,799 $ $ 4.44 4.32 60,078 61,699 Netflix Inc. 2012 Assets Current assets: Cash and cash equivalents Short-term investments Current content library, net Other current assets Total current assets Non-current content library, net Property and equipment, net Other non-current assets Total assets Liabilities and Stockholders' Equity Current liabilities: Current content liabilities Accounts payable Accrued expenses Deferred revenue Total current liabilities Non-current content liabilities Long-term debt Long-term debt due to related party Other non-current liabilities Total liabilities Stockholders' equity: 2013 $ 290,291 $ 457,787 1,368,162 124,551 2,240,791 1,506,008 131,681 89,410 604,965 595,440 1,706,421 151,937 3,058,763 2,091,071 133,605 129,124 $ 3,967,890 $ 5,412,563 $ 1,366,847 $ 86,468 53,139 169,472 1,675,926 1,076,622 200,000 200,000 70,669 3,223,217 1,775,983 108,435 54,018 215,767 2,154,203 1,345,590 500,000 79,209 4,079,002 56 301,616 2,919 440,082 744,673 60 777,441 3,575 552,485 1,333,561 3,967,890 $ 5,412,563 Total stockholders' equity Total liabilities and stockholde $ 2014 $ 1,113,608 494,888 2,125,702 206,271 3,940,469 2,773,326 149,875 192,981 $ 7,056,651 $ 2,117,241 201,581 69,746 274,586 2,663,154 1,575,832 900,000 59,957 5,198,943 60 1,042,810 (4,446) 819,284 1,857,708 $ 7,056,651 Netflix Inc. Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Additions to streaming content library Change in streaming content liabilities Amortization of streaming content library Amortization of DVD content library Depreciation and amortization of property, equipment and intangibles Stock-based compensation expense Excess tax benefits from stock-based compensation Other non-cash items Loss on extinguishment of debt Deferred taxes Changes in operating assets and liabilities: Other current assets Accounts payable Accrued expenses Deferred revenue Other non-current assets and liabilities Cash flows from investing activities: Acquisition of DVD content library Purchases of property and equipment Other assets Purchases of short-term investments Proceeds from sale of short-term investments Proceeds from maturities of short-term investments Cash flows from financing activities: Proceeds from issuance of common stock Proceeds from issuance of debt Issuance costs Redemption of debt Excess tax benefits from stock-based compensation Principal payments of lease financing obligations Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Non-GAAP free cash flow reconciliation: Net cash provided by (used in) operating activities Acquisition of DVD content library Purchases of property and equipment Other assets Non-GAAP free cash flow 2012 $ content library ntent liabilities ng content library ntent library tization of property, equipment and intangibles 17,152 $ 2013 112,403 (2,515,506) 762,089 1,591,218 65,396 45,469 73,948 (4,543) (8,392) (30,071) (3,049,758) 673,785 2,121,981 71,325 48,374 73,100 (81,663) 5,332 25,129 (22,044) current assets and liabilities Net cash provided by (used in) operating activities (5,432) (4,943) 9,806 20,676 4,719 21,586 62,234 18,374 1,941 46,295 (8,977) 97,831 Net cash provided by (used in) investing activities (48,275) (40,278) 8,816 (477,321) 282,953 29,365 (244,740) (65,927) (54,143) 5,939 (550,264) 347,502 60,925 (255,968) Net cash provided by (used in) financing activities 4,124 (759) 4,543 (2,319) 5,589 124,557 500,000 (9,414) (219,362) 81,663 (1,180) 476,264 (197) (217,762) 508,053 (3,453) 314,674 290,291 m stock-based compensation sets and liabilities: $ 290,291 $ 604,965 $ 21,586 $ (48,275) (40,278) 97,831 (65,927) (54,143) 8,816 $ (58,151) $ 5,939 (16,300) 2014 $ 266,799 (3,773,459) 593,125 2,656,279 71,491 54,028 115,239 (89,341) 15,282 (30,063) (8,758) 83,812 55,636 58,819 (52,406) 16,483 (74,790) (69,726) 1,334 (426,934) 385,300 141,950 (42,866) 60,544 400,000 (7,080) 89,341 (1,093) 541,712 (6,686) 508,643 604,965 $ 1,113,608 $ 16,483 (74,790) (69,726) 1,334 $ (126,699) Amazon.com Inc. Sales/Revenues Cost of Goods Sold (COGS) incl. D&A COGS excluding D&A Depreciation & Amortization Expense Depreciation Amortization of Intangibles Gross Income SG&A Expense Research & Development Other SG&A Other Operating Expense Unusual Expense EBIT after Unusual Expense Non Operating Income/Expense Non-Operating Interest Income Equity in Affiliates (Pretax) Interest Expense Gross Interest Expense Interest Capitalized Pretax Income Income Tax Income Tax - Current Domestic Income Tax - Current Foreign Income Tax - Deferred Domestic Income Tax - Deferred Foreign Income Tax Credits Equity in Affiliates Other After Tax Income (Expense) Consolidated Net Income Minority Interest Expense Net Income Extraordinaries & Discontinued Operations Extra Items & Gain/Loss Sale Of Assets Cumulative Effect Accounting Chg Discontinued Operations Net Income After Extraordinaries Preferred Dividends Net Income Available to Common EPS (Basic) Basic Shares Outstanding EPS (Diluted) Diluted Shares Outstanding EBITDA 2012 2013 2014 $61.09B 46.8B 44.65B 2.16B $74.45B 54.63B 51.38B 3.25B $88.99B 63.88B 59.14B 4.75B 1.65B 506M 2.46B 793M 3.62B 1.13B 14.29B 19.82B 25.11B 13.96B 4.24B 9.72B (506M) (239M) 40M 92M 92M 544M 428M 562M 18.96B 6.11B 12.85B 0 0 0 (250M) 38M 141M 141M 506M 161M 144M 25.37B 8.72B 16.65B 0 0 0 320M 39M 210M 210M (111M) 167M 279M 131M (156M) 173M (133M) 204M (136M) (109M) (23M) (180M) (155M) 0 (39M) 0 (39M) 0 (71M) 0 274M 0 274M 0 37M 0 (241M) 0 (241M) 0 0 0 0 0 0 0 0 0 0 (39M) 274M (241M) 0 (39M) 0 274M 0 (241M) -0.09 453M -0.09 453M 2.99B 0.6 457M 0.59 465M 4.11B -0.52 462M -0.52 462M 4.49B Amazon.com Inc. Assets Cash & Short Term Investments 2012 2013 $11.45B $12.45B Cash Only 8.08B 8.66B Short-Term Investments 3.36B 3.79B 3.36B 4.77B 2.6B 3B 2.72B 3.15B (116M) (153M) 764M 1.77B Total Accounts Receivable Accounts Receivables, Net Accounts Receivables, Gross Bad Debt/Doubtful Accounts Other Receivables Inventories 6.03B 7.41B Finished Goods 0 0 Work in Progress 0 0 Raw Materials 0 0 6.03B 7.41B 453M - 453M - 21.3B 24.63B Progress Payments & Other Other Current Assets Miscellaneous Current Assets Total Current Assets 2012 Net Property, Plant & Equipment 7.06B 10.95B 9.58B 14.81B 2.97B 4.58B - - Computer Software and Equipment 866M 1.1B Other Property, Plant & Equipment 174M 231M 2.52B 3.86B 151M 520M 99M 482M 0 0 3.28B 3.3B 2.55B 2.66B 725M 645M 648M 538M 648M 538M Property, Plant & Equipment - Gross Buildings Land & Improvements Accumulated Depreciation Total Investments and Advances Other Long-Term Investments Long-Term Note Receivable Intangible Assets Net Goodwill Net Other Intangibles Other Assets Tangible Other Assets 2013 Total Assets 32.56B 41.4B Liabilities & Shareholders' Equity 2012 ST Debt & Current Portion LT Debt 2013 1.14B 1.74B 0 0 1.14B 1.74B 13.32B 15.13B - - 4.55B 6.11B Dividends Payable - - Accrued Payroll - - 4.55B 6.11B 19B 22.98B 3.83B 5.18B 3.08B 3.19B 3.08B 3.19B 0 0 746M 1.99B - 457M (123M) 344M - 1.81B 123M 1.47B 1.53B 1.22B Other Liabilities (excl. Deferred Income) 1.42B 1.22B Deferred Income 108M - Short Term Debt Current Portion of Long Term Debt Accounts Payable Income Tax Payable Other Current Liabilities Miscellaneous Current Liabilities Total Current Liabilities Long-Term Debt Long-Term Debt excl. Capitalized Leases Non-Convertible Debt Convertible Debt Capitalized Lease Obligations Provision for Risks & Charges Deferred Taxes Deferred Taxes Credit Deferred Taxes - Debit Other Liabilities Total Liabilities 24.36B 31.65B Non-Equity Reserves 0 0 Preferred Stock (Carrying Value) 0 0 Redeemable Preferred Stock 0 0 Non-Redeemable Preferred Stock 0 0 8.19B 9.75B 5M 5M 1.92B 2.19B 0 0 Common Equity (Total) Common Stock Par/Carry Value Retained Earnings ESOP Debt Guarantee Cumulative Translation Adjustment/Unrealize d For. Exch. Gain Unrealized Gain/Loss Marketable Securities Revaluation Reserves Treasury Stock Total Shareholders' Equity Accumulated Minority Interest Total Equity Liabilities & Shareholders' Equity (250M) (187M) 11M 2M 0 0 (1.84B) (1.84B) 8.19B 9.75B 0 0 8.19B 9.75B 32.56B 41.4B 2014 $17.42B 14.56B 2.86B 5.61B 3.3B 3.49B (190M) 2.31B 8.3B 0 0 0 8.3B 0 31.33B 2014 16.97B 22.73B 7.15B 1.3B 304M 5.76B 886M 811M 0 4.08B 3.32B 764M 971M 971M 56.34B 2014 3.6B 0 3.6B 16.46B 8.03B 8.03B 28.09B 12.49B 8.27B 8.27B 0 4.22B 510M 750M 2.86B 2.11B 1.66B 1.66B 45.6B 0 0 0 0 10.74B 5M 1.95B 0 (512M) 1M 0 (1.84B) 10.74B 0 10.74B 56.34B Amazon.com Inc. Cash flows from operating activities: Net Income before Extraordinaries Depreciation, Depletion & Amortization Depreciation and Depletion Amortization of Intangible Assets Deferred Taxes & Investment Tax Credit Deferred Taxes Investment Tax Credit Other Funds Funds from Operations Extraordinaries Changes in Working Capital Receivables Accounts Payable Other Assets/Liabilities Net Operating Cash Flow Investing Activities Capital Expenditures Capital Expenditures (Fixed Assets) Capital Expenditures (Other Assets) Net Assets from Acquisitions Sale of Fixed Assets & Businesses Purchase/Sale of Investments Purchase of Investments Sale/Maturity of Investments Other Uses Other Sources Net Investing Cash Flow Financing Activities Cash Dividends Paid - Total Common Dividends Preferred Dividends Change in Capital Stock Repurchase of Common & Preferred Stk. Sale of Common & Preferred Stock Proceeds from Stock Options Other Proceeds from Sale of Stock Issuance/Reduction of Debt, Net Change in Current Debt Change in Long-Term Debt Issuance of Long-Term Debt Reduction in Long-Term Debt Other Funds Other Uses Other Sources Net Financing Cash Flow Exchange Rate Effect Miscellaneous Funds Net Change in Cash Free Cash Flow 2012 (39M) 2.16B 2013 274M 3.25B 2014 (241M) 4.75B 1.65B 506M (265M) 2.46B 793M (156M) 3.62B 1.13B (316M) (265M) 802M 2.66B 1.52B (861M) 2.07B 275M 4.18B (156M) 1.34B 4.71B 767M (846M) 1.89B 399M 5.48B (316M) 1.68B 5.87B 974M (1.04B) 1.76B 741M 6.84B 2012 2013 2014 (3.79B) (3.79B) (3.44B) (3.44B) (4.89B) (4.89B) 0 0 0 (745M) 935M (3.3B) 4.24B 0 0 (3.6B) (312M) (520M) (2.83B) 2.31B 0 0 (4.28B) (979M) 807M (2.54B) 3.35B 0 0 (5.07B) 2012 2013 2014 0 0 0 (960M) (960M) 0 0 0 0 0 0 0 0 0 0 0 0 0 2.79B 0 2.79B 3.38B (588M) 429M 0 429M 2.26B (29M) 0 2.82B 0 0 0 (617M) 0 (617M) 394M (1.01B) 78M 0 78M (539M) (86M) 0 574M 0 0 0 4.43B 0 4.43B 6.36B (1.93B) 6M 0 6M 4.43B (310M) 0 5.9B 395M 2.03B 1.95B