Negative Free Cash Flow Will Be an Indicator of Enormous Success For Netflix, Says CEO (barrons.com)

During Netflix's quarterly earnings call, in which it noted it had added more than five million subscribers in the last three months, CEO Red Hastings was also asked about the millions of dollars it burns every quarter. Hastings said that burning cash is a sign of success, in a way. Here's the money quote: Look, when we produce an amazing show like Stranger Things, that's a lot of capital up front, and then you get a payout over many years. And seeing the positive returns on that for the business as a whole is what makes us comfortable that we should continue to invest and integrate to basically self-develop many more properties as Ted (the content head) can find the appropriate ones. And then there's comfort with being able to finance it, and of course, our debt-to-market cap is incredibly low and conservative, so we've got lots of room there. And I think that combination that it's spent well and we can raise it is what makes us very excited. And the irony is the faster that we grow and the faster we grow the owned originals, the more drawn on free cash flow that we'll be. So in some senses, negative free cash flow will be an indicator of enormous success. On Monday, Netflix updated its estimate for negative free cash flow for 2017. While previously the company had said it would be $2 billion, Netflix now says it will be $2 to $2.5 billion (versus $1.7 billion in 2016).

Comments

Re:Sell! Sell! Sell!

[Captain Splendid]

Sales is!

That'll be the 5 million new subscribers referenced in the summary then.

Re:Sell! Sell! Sell!

[TrekkieGod]

I think the point is that while that can make sense for 'starting up', at *some* point you have to point and say 'here's where revenue will exceed investment'.

Agreed.

The problem is the statement on its face doesn't imply that the investment will stop.

Not agreed. It just means you need a critical mass of subscribers to support the continued investment.

If their investment outstrips subscription revenue by 2.5 billion annually, well you need to be able to find 2.5 billion worth of new subscribers.

Netflix costs more than $1 / year per subscriber. At the minimum of $8/month, it means they would need an additional ~26 million subscribers, and they got 5 million in the past 3 months. That's without considering the people paying $10 for hd streaming and $12 for 4k streaming, or excluding future price increases once they think they have enough content to keep subscribers with said increase.