Sometimes, you’ve got to give credit where credit’s due, and Netflix must certainly take some following its Q4 earnings.
Jan. 20, 2021
Woah woah woah, hold up! You’ve not got deja vu, and this isn’t Groundhog Day. Yes, we are discussing Netflix (NASDAQ: NFLX) two days in a row. No, it’s not because we’re lazy.
Though we didn’t plan on covering Netflix’s earnings after previewing them yesterday, there was simply too much to ignore. We are big fans of the company that brought us ‘Tiger King’ and ‘Stranger Things’, but even we weren’t expecting such good subscriber growth, nor the implications on the company’s future that this call would have.
So, without further ado…
Is Netflix still king?
Absolutely.
Now, to get the numbers out of the way, here’s a snapshot of Netflix’s Q4:
- Earnings per share (EPS): $1.19 vs $1.39 expected.
- Revenue: $6.64 billion vs $6.62 billion expected.
- Global paid net subscriber additions: 8.5 million vs 6.5 million expected.
- Total subscribers: 200 million+.
Not content with simply giving us good numbers and moving on, Netflix dropped a bombshell that investors weren’t expecting: Netflix expects to be cash-flow positive after 2021 and will no longer need outside financing to help with content development.
If you’re not sure what this means, it’s a pretty big deal, as Netflix bears have maintained for years now that the company is simply burning too much cash on original content — borrowing $15 billion since 2011.
Now, it seems like COVID quarantines have jump-started Netflix’s journey to becoming cash flow positive. By being forced to stall production and because people around the world were stuck on their sofas, Netflix managed to add 36.57 million subscribers in 2020 while spending less money on content than usual. Positive that it will not see massive churn post-virus, this (un)fortunate circumstance has set a great base for Netflix to now become a fully cash-flow positive business in a time where it is beset on all sides by pretenders to its streaming crown — we’re looking at you, Disney+!
This will not only award Netflix the confidence of investors but allows the company to spend more of its own money on original content without accumulating debt, while also entertaining the possibility of buying back its own shares. Just like that, one of the company’s biggest bear cases could be wiped out, leaving Netflix eventually standing debt-free and completely self-sufficient.
So, for existing or potential Netflix investors, the bull has been prodded and all of this news could be the catalyst that jumpstarts its second era of growth, though in a steadier sense. In this new period for Netflix, it is no longer the upstart, but rather the industry stalwart that all its rivals strive to beat; the — dare I say it? — ‘Apple of OTT services.’
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.