Netflix 1Q - Beats expectations

17-APR-18

Last night, after the market closed, one of the high flying stocks of the previous 3-years reported their 1Q numbers. The Netflix share price is up 520% since the start of 2015! High flyers have some big expectations attached to the company, Netflix did not disappoint. This WSJ articles headline sums things up pretty well - Netflix Hasn't Found an Expectation It Can't Beat.

The first, and almost only, figure the market looks at when giving Netflix a value, is new subscriber numbers. For the 1Q Netflix added 7.4 million more people to their subscriber list, totalling 125 million subscribers. The more subscribers Netflix has, the quicker the company gets to being cash flow positive, and from there it will just rake in billions in annuity income. It is an amazing business model, assuming that they can retain the bulk of their subscribers over many years.

To get new customers and retain their existing ones, Netflix spends a huge amount on content creation. For 2018 they plan to spend between $7.5 and $8billion on content creation. Splashing out sums like that means that they will be cash flow negative for the year. Which isn't expected to change soon:

    "We continue to forecast free cash flow of -$3 to -$4 billion in 2018, and to be free cash flow negative for several more years as our original content spend rapidly grows."


The company expects to add 6.2 million customers in the 2Q, which is higher than the 5.2 million analysts had expected. Thanks to the strong beat on new subscribers, the stock is currently up 5% in after-hour trade. Then lastly, a random figure from their results. Netflix still made $100 million in the last quarter from DVD rentals. Yes, you read that correctly, DVD rentals! Who still owns a DVD player?