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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).
I think he's saying that spending money developing new shows is better than resting on their laurels and collecting cash.
Basically taking the long view.. it's no different than investing in a factory that increases output over the next 30 years, despite the current quarter's balance sheet taking a hit. (exactly the opposite what the fucking MBA culture seems to suggest.)
Works for Amazon.
This is the world's new business model, for better or worse. If you don't run a business this way, you can't compete (with the likes of Amazon & Netflix) and they will crush you. And if you do run a business this way, you might [spectacularly] fail, but if you are able to survive, then you'll be the only player. It's like running a monopoly before it's officially a monopoly (the way Standard Oil used to undercut competitors until they went out of business). You can use debt, equity and VC funding to do this today instead of a monopolist's war chest.
As a major plus to those who make these decisions--the board, the CEO, and the rest of the executive team--they don't care. They get paid handsomely win or lose, and if everything goes bust, they can just spin up the next one while coasting on their ludicrous money from the last job.
> Most successful enterprises start out with debt
So do almost all unsuccessful ones.