On April 20, 2022, a sign was posted in front of the Netflix headquarters in Los Gatos, California.
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the next day Netflix The second quarter slides for subscribers Much smaller than investors were afraid ofAnother point could sink from the revenue report of the world’s largest streaming service: Netflix It seems that spending too much on content is over..
Importantly, Netflix launched a new series of Stranger Things franchises, which is a positive figure for quarterly operating cash flow, despite spending $ 1.3 billion more on content than in the first three months of the year. Is issued. And it concludes the $ 200 million “Gray Man” action thriller. Netflix said it generated $ 1 billion in cash flow in the first half of this year. Many analysts say it could double or triple by 2023.
“Netflix revenue will increase from 10% to 15% next year, but content spending will be zero,” said Nashville’s Compound Kings Exchange Traded Fund, which holds 3.9% of Netflix stock as of July. Said Robert Cantwell, Manager of. 19. “Next year’s free cash flow will be between $ 3 billion and $ 3.5 billion.”
Critics are long on the fact that Netflix’s spending on new movies and TV shows outweighs the reported profits due to accounting rules that allow investment in content to be reported as an expense over the years. I’ve been focusing on it. However, it ended in the first quarter of this year and remained in the second quarter despite additional spending.
In its quarterly revenue presentation, Netflix said it will maintain content spending levels at around $ 17 billion annually over the next few years. Two executives said spending would stay “in its zip code.” This is an increase from $ 11.8 billion in 2020, little change from last year’s $ 17.7 billion.
The company makes most of its revenue calls Will add a hierarchy to support ads To provide that service, Netflix can force households who don’t want to pay $ 10 to $ 20 per month for their subscription to pay cash. Many of those households bypass Netflix rules and use passwords that belong to friends and family.
According to Mark Mahaney, an ISI analyst at Cantwell and Evercore, the combination of leveling content spending and additional advertising revenue is the source of increased cash flow.
Netflix will reach $ 2.5 billion in cash flow in 2023 and could reach $ 4 billion by 2024, according to Mahney.
“If you were to generate $ 4 billion in cash flow, that would be [more than] “It’s a 4% yield,” said Mahney, a long-time bullish Netflix who now values stocks as a market performer. By 2023, it will be trading at 45x free cash flow. It’s not that interesting. ”
Neither analyst doubts that Netflix’s advertising strategy will work. Competitors like Hulu currently earn about 15% to 20% of advertising revenue, according to Cantwell, and Mahaney says Netflix should have made this move a few years ago.
At Netflix, for a company that currently has a market capitalization of about $ 91 billion, 20% of its sales are $ 6 billion annually. According to Kantwell, the revenue will be higher than the 40% profit that the company’s content business is currently generating, with less capital investment.
Kantwell said he expects to contribute between $ 250 million and $ 300 million in cash flow next year as it takes time to build an advertising business.
The problem is that additional cash flow doesn’t change the fact that Netflix is migrating from one of the fastest growing stocks of the century. The 2002 IPO price adjusted for the stock split will be $ 1.07 per share. It fell to 65 cents later that year. This has become a play for investors who are looking for greater returns and are worth lowering their price-earnings ratio in order to lower their price-earnings ratio.
At its peak, Netflix bulls said the company is attracting 800 million global subscribers from its current 221 million. He said the ship probably sailed, as many international markets have proven to be harder to crack than expected. Netflix already has 73 million subscribers in the United States and Canada, bringing together more than half of households in both countries.
Cash flow isn’t big enough to invigorate value investors until after 2024, Mahany said.
“It’s a transition,” he said. “Growth is much slower and cash flow is much more interesting.”
But growth has been a Netflix calling card for years and a reliable magnet to attract content creators, customers and investors alike. With slowing growth, flattening the pace of new content additions, and losing competitive advantage over technology rivals, risks are newly discovered to stay ahead of rivals such as: It means that spending discipline needs to be relaxed. Warner Bros. DiscoveryWith HBO Max Disney In addition, Kantwell said.
“The challenge is to assume that Netflix can create content that has the value of a long-term library. This is one of the most difficult bets on Netflix at the moment,” he said. “You are betting on them to create better content than they have.”