Netflix will focus on content acquisition and international growth — instead of profits. And investors are cheering wildly over its Amazon-like plan to invest in getting huge.
After gaining a second-quarter record 5.2 million subscription overall, 63% higher than Wall Street had forecast, Netflix crossed the 100 million subscriber mark during the 3 months ended June 30 to stand at 104 million worldwide.
The strong subscriber growth pushed Netflix shares to all-time highs. The stock opened Tuesday up 9%, at $176.12, and by midday had crested $183 per share — up more than 13% on the day.
Netflix came in roughly in line with forecasts, posting $2.79 billion in revenue (versus $2.76 billion consensus estimates) and actually missed earnings by a penny per share, reporting EPS of 15 cents versus analyst consensus 16 cents.
And investors are enthusiastic about Netflix continuing to spend like crazy. The company expects to have negative free cash flow “for many years,” Netflix said in the quarterly letter to investors. It forecast negative free cash flow of $2.0 billion to $2.5 billion for the full year 2017.
In 2015, Netflix had negative cash flow of $920 million, which grew to $1.7 billion in 2016. The prospect of Netflix’s cash burn accelerating this year “is problematic,” Wedbush Securities’ analyst Michael Pachter wrote in a research note. “We remain unconvinced that Netflix’s content library is sufficiently robust to justify the over $13 billion value reflected on its balance sheet.” Pachter, a well-known Netflix bear, maintains an “underperform” rating.
Unlike Amazon, which pursued the cash-burn path for many years to expand into multiple ecommerce segments, Nathanson wrote: “We just don’t believe that Netflix is building an impenetrable foundation.
