It was only a few day ago that Netflix was riding high.
The streaming company had been nominated for a whopping 112 Emmy awards, more than any other network.
And they’d further managed to unseat HBO’s 17-year reign as the undisputed king of Emmy nominations.
That’s all fine and good. Netflix certainly has some great shows.
But reality started to set in yesterday afternoon when the company reported its quarterly financial results… and the numbers were definitely two thumbs down.
For some painfully idiotic reason, analysts seem to judge Netflix by a single benchmark: the number of subscribers.
If subscriber growth is strong, Netflix stock soars.
I say this is ‘painfully idiotic’ because Netflix loses money year after year. The more subscribers they bring in, the more money they lose.
At the end of 2015, for example, Netflix had 75 million subscribers. But its Free Cash Flow was NEGATIVE $920 million.
The following year, Netflix had grown its subscriber base to 93 million. Yet its Free Cash Flow had sunk even further to negative $1.65 billion.
By the end of 2017, Netflix subscribers totaled 117 million. But the company burned through $2.02 billion.
So when you do the math, you see that each Emmy nomination this year cost Netflix $17.8 million.
That’s a lot worst than last year, when Netflix’s 92 nominations at the 2017 awards cost them $16.0 million.
Clearly the more ‘successful’ Netflix becomes, whether in the quality of its content, or in attracting subscribers, the more money they lose.
Yet the stock surges ever higher. It’s truly bizarre.
Well, it all came crashing down yesterday when Netflix announced growth figures that no longer defied gravity.
Total subscribers came in at below the level that analysts had forecast… and the selling began almost immediately.
In after-hours trading, the stock plummeted by more than $50, around 12%.
Now, maybe the stock rebounds today. Or maybe it falls even more. Day to day fluctuations are impossible to predict.
[ZH: It rebounded miraculously]
What we do know for certain is that businesses exist to make money for their shareholders. That’s sort of the point.
And, sure, some business models do require losing money for a few years and burning through cash before achieving positive Free Cash Flow.
But Netflix doesn’t appear to have any plans to make money in the foreseeable future.
Instead, they’re going deeper into debt to spend more money on content.
By Netflix’s own estimates, the company expects to burn $4 billion of cash this year.
Bear in mind the company also has to compete with the likes of Disney, CBS, AT&T, Apple, Amazon, etc., all of which...