Netflix may operate a great service, but as it turns out, it fails rather profusely at the one thing most businesses are designed ot do: make money.
Accounting gimmicks allow them to report a "profit" year after year, while actually racking up massive debt from losing huge sums of cash to operating expenditures.
The simple truth is Netflix, despite reporting a "profit" after all sorts of ridiculous accounting adjustments, has never really made any substantial cash. In recent years, its specialty has actually been losing money, and its rapidly becoming a market leader in this area with growth that would "impress" (depress) any "investor" (long-term bag-holder.)
The total positive cash flow, going back to March 2011, is only +249.7 million. The loss is a staggering -2767.3.
In the last 7 years, Netflix has really accomplished only only one thing that matters to the bottom line - losing over 2.5 billion dollars.
"But Lexiconical," you cry, as you clutch statements from your passively-managed 401K, "everyone is watching Stranger Things now! These are just "capital investments". Plus, I'm sure things look better now - your chart stops in 2016!"
Yes, well, that's a good try. 2017 was a record-breaking year for Netflix...unfortunately, the record they broke was, yet again, how much money they lost.
As for that "capital expenditures" bit? Sure, sometimes that pans out. Most companies, however, fail, and Netflix is simply ramping up their spending more and more to try and compete in the "original content" segment against the likes of practically every company out there today. (Apple. Facebook. Amazon. CBS. Disney. Google. Sony. Time Warner. Hulu. )
Netflix plans to burn $8 billion next year, or almost 7 times what they lost last year (in a record breaking-cash-loss year), on "original content".
It definitely won't be all that "strange" a "thing" if Netflix sets another record-breaking loss in 2018. Do you want to fund these losses as an investor, or take advantage of them as a customer?
Any rational market would heavily discount this stock, but we are well into the "financial twilight" zone.
If you have any additions or errata for this post, please let me know! I will see that they are voted to the top of the comments, and will make the appropriate edits (if possible).
We also have a Radio Station! (click me)
...and a 4800+ user Discord Chat Server! (click me)
Sources: Google, Yahoo, Bloomberg, Zero Hedge, Sovereign Man
Copyright: Zero Hedge, Motley Fool, Fox40, Loonie Tunes
Wall Street operate on a different economic level, "the loss was less than expected", "record number of new subscription", "increasing market share", "analyst rating". "positive sentiment and speculation", etc....interesting enough its not far from our current crypto space, everything is base on sentiment and speculation...I believe the days of PE ratio, cash reserves and debt ratio are long gone, meeting street estimates is all that matters of course showing a little profit every other quarter helps lift the veil, lol
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This, unfortunately, is the way of any late-stage market economy that has been taken over by corruption/excessive debt.
If history is any guide, this will eventually blow up massively and suddenly, fundamentals will mean something again.
That is, at least until we all forget again...
Incidentally, and on a totally unrelated note, would anyone like to buy some
tulips, er,real estate, er, 100-year bonds with negative interest?Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
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I'm a pretty big fan of Netflix as a customer. I know the Australian version does not have anywhere near as many programs as the US version but it still smashes free to air or Foxtel. It would be sad if they went out of business because of these losses. Keep churning away profit isn't for everyone.
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I'm reading this post (and this comment) while watching Netflix.... sigh. Even with a Netflix lobbyist who was once a senior advisor to the chairman of the FCC, it's hard to compete without about 15 more of those. There are only two.
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I almost mentioned lobbying, but Netflix wasn't a standout there. Plus, since they lobbied for net-neutrality mostly, a lot of people wouldn't have issue there.
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"It would be sad if they went out of business because of these losses."
Well, the good news is I don't think that's likely to happen anytime soon.
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Ah! I was actually going to comment on your Tesla post about Tesla being the most shorted stock on the NASDAQ. Peeps been shorting it all the way up from below $200. Lesson: don't fight the trend even if the fundamentals suck.
Then I was going to mention that Netflix isn't looking too flash financially either. But here you are, beating me to it with a post.
That said, NFLX is looking much healthier on the weekly than TSLA, so maybe all the TSLA shorters will get their payday at some point if they haven't been stopped out already.
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I don't think shorting is a viable strategy in the current market. I think there is far too many with incentive to prevent the market dropping at all. I think they are probably still directly supporting the market via things like the "President's Working Group On Capital Markets", who basically used to print up cash to buy stocks to prevent drops.
If it ever becomes profitable enough to short, they'll just ban it again.
Not a fan of many stocks right now, tbh.
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Oh I agree with you. These perma-bears have been learning the hard way. In the meantime, I happy to keep riding that bull market and get some of that free money for myself. More money for crypto (assuming I can sort out all my stupid bank issues!)
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Hehe. You've found a new niche going after the Unicorns hey? :)
I have been having this conversation a bit in real life recently. The business model is all about capturing market share in a new (disruptive) technology innovation. Lose money for years but play the long game even if it takes a decade or more, you monetize your dominant market share AFTER you win. You've only got to look at the big survivors from the dotcom boom-bust. Those guys now top the S&P.
I'm not saying I agree with it, because when it goes bad it is a bloodbath for investors. There are much better risk/reward plays but I do understand how madness like this can make sense in the VC world.
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"Hehe. You've found a new niche going after the Unicorns hey? :)"
I take on the illogical wherever I can find it.
"Lose money for years but play the long game even if it takes a decade or more, you monetize your dominant market share AFTER you win."
Yes, I think the underpants gnomes used such a strategy...
"You've only got to look at the big survivors from the dotcom boom-bust."
...and ignore the huge trail of bodies from the 95% of companies that failed with this strategy.
"madness like this can make sense in the VC world."
Indeed, particularly with totally gamed investment-ratings agencies.
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Those gnomes were onto something!
It's a bit like betting on a horse race. You might make x20 if you back the winner, but if you back any of the other 19 you've done your money. All we are doing in the meantime is trading "In Play". Any investor who thinks they aren't gambling by backing these stocks is deluding themselves.
I am not endorsing this approach. You are a correct - It is a sign of the times. That's why everyone loves Unicorns, because we are living in a fantasy world where P/E ratios don't matter any more.
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I can only agree wholeheartedly. It's really the main reason I write these posts - most people still do not understand everything you just explained above.
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Exactly amazon is playing the long game as well
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I hope so, since they are desperately losing the short one.
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Well its a race to be the biggest media company, amazon started throwing billions at content so in a dick waving match netflix felt to maintain their standing they also had to throw billions at content so that one day they will be the biggest dick in the broadcast / on demand entertainment world and they can gouge everyone like comcast, verizon and time warner. The i guess they can start paying their morgage down...
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This is the classic issue with VC fueled/Silicon Valley mindset of grow, grow grow no matter what the cost.. there will be an exit later. Most of the time, as you say, this just leads to crash and burn.
but... that being said, there is enormous amounts of money made in syndication of movies/tv shows and these things tend to turn a tidy little sum of money in the long run despite costing a bunch up-front. It just depends on how you balance that "investment"
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"there is enormous amounts of money made in syndication of movies/tv shows and these things tend to turn a tidy little sum of money in the long run "
Is it possible that is based mostly on the old idea of selling reruns to TV stations? Seinfeld still makes money that way.
This seems like a rapidly decreasing market, if so...streaming and Youtube are cutting into this market hard.
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well seinfeld is sitill hilarious
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It always will be to me.
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I was wondering how they could afford to pay for bandwidth costs they have to be massive (but may get better as we continue forward with higher bandwidth through put) However their own series while good at a cost of 8 Billion dollars how is that even possible to recoup!
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Bandwidth has been steadily coming down in price year after year.
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Maybe their "business" isn't making money but creating, and offer access to a, lot of content. So a significant percentage of the people are effectively distracted. Bread and circuses.
Or maybe the investors are thinking on the long term.
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bread and circuses
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is that right? fascinating, i've been kind of wonder like how they can make all these shows, series, movies, concert events... and only be charging $9/month... i thought volume of course, see how far the price gets jacked,,, i do enjoy my netflix
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That's not why they're losing money - they're in the red from what they've been pouring into Netflix Original series.
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Indeed, although honestly, they could probably afford to jack their prices up a bit. People are pretty loyal to Netflix.
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So the cheap monthly cost to the consumer results in their detriment. Economies of scale I guess.
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The old "we lost money on each unit, but we'll make it up on volume?"
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Well I am using it for free from my brother and don't really care if it closes or whatever.
My question is, why and how are they still keep running, if possible answer with layman terms :D
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The market continues to hand them money, fist over fist, despite the constant losses. They continue to fund all deficits on debt.
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Edit: Double post, not sure how to delete on Busy.
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Read about this in the korea times last week...
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Nice post
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upvoted
this is really a nice information..
I was pondering how they could remain to pay for transmission limit costs they should be tremendous (yet may enhance as we continue forward with higher information transmission through put) However their own game plan while incredible at a cost of 8 Billion dollars how could that be even possible to recuperate!
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Did you put @bitcoinflood 's comment through a translator, or some sort of thesaurus tool?
Exhibit A: "I was wondering how they could afford to pay for bandwidth costs they have to be massive (but may get better as we continue forward with higher bandwidth through put) However their own series while good at a cost of 8 Billion dollars how is that even possible to recoup!"
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judging from the cash flow quadrant
In accounting, cash flow is the difference in amount of cash available at the beginning of a period (opening balance) and the amount at the end of that period (closing balance). It is called positive if the closing balance is higher than the opening balance, otherwise called negative.
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according to your statement :
In the last 7 years, Netflix has really accomplished only one thing that matters to the bottom line - losing over 2.5 billion dollars.
Netflix are really not in the business of Today
they need a change of plan and business strategy
ne
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no
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Many many thanks for upvote our comments. @lexicomical you are a great man.i salute you boss.go ahead.we are with you all time.best of luck
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I can't very well upvote your comments if you paste the same one on every thread...
At least give me the facade of effort!
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I will not lol..I will not lol...(1M more times.)
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thanks
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losing over 2.5 billion dollars.
Smh…Netflix is merely a front for something else. It’s owned by people you know not…presumably. ;+)
Whichever CEO currently heads this once, seemingly grand idea, is as noted…a ‘representative’.
Netflix isn’t interested in ‘growing’. They have the audience they need; and, it continues to grow.
Netflix, and sites like it are part of the dumbing-down of the peoples. Keep them entertained so they will never get so smart that they begin to question things like a 64-yo white male shooting up a crowd of thousands, injuring hundreds, killing 59, in arguably the most camera-activated city in the U.S.
Ha! SMH! Oh, @lexiconical…Netflix is such a convenience, keeping people from doing things to become enlightened, and more aware of the fact that they have far more debt from student loans, etcetera than they will ever be able to repay.
Yes, hehehehehe…let’s give them this money-losing venture…
Shhhhhh…don’t wake the sleeping audience now…
Btw, Hollywood gets its ‘pennies’ for allowing their content to be used on Netflix. In fact, they’re part of the faceless crowd behind sites such as this.
Imho, Hollywood is dying a slow and painful demise. It seems to be imploding in on itself...One old-perv after another being busted in his twilight years for 'pimping' har-, I mean starlets, who, for the most part, have seen their better years as well.
Thanks for taking the time to do this post @lexiconical.
Peace.
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